HellerResults
Navigating the Downturn: Making It Work
Nelson B. Heller, President, EdNET, MDR — Friday, May 06, 2011
Now What?
The K-12 market is sending mixed signals about whether we’ve managed to dodge the bullets ravaging school budgets across the land. Less than a year ago, I explored the recession’s impact with Navigating the Downturn: Is Pricing Pressure Driving Supplemental Sales? (April 16, 2010), Countering Pricing Pressure (May 14, 2010), and Does Proof of Efficacy Matter Anymore? (June 11, 2010). Triggered by a recent inquiry from an industry acquaintance, I decided it was time to have another look, and on April 8, 2011, after reaching out to over a dozen industry contacts to get their readings, I wrote Navigating the Downturn: Are We There Yet? I found both optimism and pessimism in exploring why we might be at a significant turning point now and where we go from here. In this article, I share what I heard about whether the changes are temporary or whether we’re entering “a new normal,” what kinds of products are getting a boost from the downturn, and how companies are changing the way they do business. Remember, this isn’t based on a statistically significant sample but does give you a glimpse of what others in the industry are thinking. Read on to gauge what this might mean for you.
A “New Normal” or Temporary?
Temporary Blip
An important positive factor, according to John H. Weiss, Founder and President of Weiss & Associates, “is the increase in hiring we’ve been seeing in the education industry. The recruiting industry is a good barometer for the economy generally and in niche markets like education. We’ve been seeing a nice increase in our number of searches since Q2 of 2010 and expect that to increase throughout 2011 and 2012. What it says to us is that education companies see a lot in the pipeline and feel confident about adding to permanent staff.” A reason for some of the pessimism going around, Weiss said, is that, “there’s much misunderstanding about the relationship between the state of the economy and the unemployment numbers. Most people believe the unemployment numbers tell you where the economy is at any given time, but as I’ve outlined in an article I’m happy to send to readers, that’s not the case.” On the other hand, Farimah Schuerman, a managing partner at Academic Business Advisors, told me, “Another way to look at Weiss’s view of hiring is that with increased pressure to deliver sales, it’s the area in which companies are willing to invest.”
Weiss also pointed out that even in this economy, very big sales are being made. For example, in February, the Los Angeles Unified School District Board of Education unanimously adopted California Treasures by Macmillian-McGraw Hill for the district’s K-5/6 Reading Language Arts and English Language Development series, a multi-million dollar win which Weiss described as “ the largest core reading adoption on record .” According to an LAUSD press release, Treasures will replace both Open Court Reading and Into English, resulting in cost savings for the district of approximately $5.7 million per year . “ Who would have thought that a company could take that kind of win from a city in a state everyone considers broke? ” said Weiss.
A couple of my other respondents told me that economic downturns have come and gone before and, along with them, transient changes in school buying. Jim Connelly, President, Creative Teaching Press, thinks we’re experiencing another temporary behavior shift, “but maybe this’ll be a longer ‘temporary’ than before.” He’s confident that “supplemental publications still offer good value not available from basal packages,” and schools understand this.
These tea leave readings were echoed by another leading supplemental materials publisher, who said, “I think that instructional money is always around. It’s a small percentage of the total budget. It’s a bit stressed now, but I think it’ll rebound. I think there’ll be cuts in education but am not too worried about the instructional budgets.”
A somewhat more nuanced view came from a marketing consultant, “This is pure conjecture, but I’d say that schools might originally have thought the downturn would be shorter-lived, as similar events have been in the past. Now as the housing and job markets remain so stagnant, districts seem to be pulling in their horns and preparing for a longer-term drought—at least until the next fiscal year. I’d guess they’re holding off on spending because they’re fearful of what the next year will bring. If the news is better than it seems, we might get a surge from pent-up demand. That would be the optimistic outlook.”
A “New Normal”
Others see today’s buying patterns as signs of a permanent change. Education marketing consultant Michael Baum, Principal, Sophia Consulting, told me he sees a new normal in two senses. “One, It’ll be a long time before we get back to the budgets we got used to in the past ten years. The memory of the financial pain and the huge amount of ground we’ve to make up in unemployment, housing sales, and so on will keep much new money from going to schools. Two, the cuts today are forcing districts to look hard at how they’ve been spending their money, making them look for cheaper or more efficient ways to do things. Many of those changes will survive even when the money starts flowing again. For instance, print materials replaced by online resources won’t suddenly start to be purchased again; courses taught by online learning won’t necessarily go back into the classroom. There’ll be a new mix.”
A top executive in both basal and supplemental publishing responded this way, “Lower amounts of school money will have to be more carefully spent and facilitate an aggregated solution across multiple needs as opposed to traditional point product sales.” For that reason, the “overall market is changing in terms of types of products, delivery models, and partnerships with districts. No one knows where it’s going to go, but I anticipate considerable change in the next five years. A lot is related to funding circumstances for schools.”
Farimah Schuerman told me she sees today’s buying as “probably more ‘new normal’ than temporary.” But “spending is so much a function of the political environment” and that can change. “Early Obama grace for education funding may give way to political pressure on budget spending.” Regarding political dynamics, she asked, “Who are today’s champions for restoring and growing education’s priority? Who’ll take up Kennedy’s cause in Congress?”
Tim McHugh, VP of Sales and Marketing, Saddleback Educational Publishing, also sees politics as critical. “Everything is up in the air until the Stimulus runs out in the fall. Unfortunately, politics will have quite a bit to do with the future of school spending, and with an upcoming Presidential election in 2012, it should be interesting.”
Ellen Bialo, President of Interactive Educational Systems Design (IESD), a consulting and services firm in New York City, sees buying changes as a long-term new normal, “analogous to airlines charging for luggage due to high fuel prices.” That is, things may never go back to where they were. When “some districts are asking school administrators to take pay cuts and New York’s Governor wants those with salaries over $200,000 to take voluntary cuts,” materials purchasing will feel the pain too.
Getting a Boost From the Downturn
Dallas-based School Office Pro is one of a number of firms trying to turn the downturn to advantage by selling on cost saving. Their recent press release entitled “ School Districts Cutting Jobs Instead of Costs,” which got a fair amount web visibility, says, “Most school districts don’t realize they’re wasting millions of dollars each year on registration and enrollment,” and then highlights the firm’s “highly efficient, cost-saving tool that has an average savings of around 80% to 90% versus paper-based registration systems.”
Michael Baum said, “Some companies sell more focused solutions offering less scope to take sales from more comprehensive but more expensive programs that possibly offer more than the district needs at the moment.” Another ploy, according to Baum, is “some companies have had success with a ‘buy it now while you have money’ approach, for example, offering 2 years for the price of 18 months, so districts can use ARRA funds. That’s obviously a one-time ploy that will come back to bite in next year’s sales figures but may be necessary today.”
Tim McHugh agrees, “We’re still seeing large orders that are being funded through the Stimulus package.”
Farimah Schuerman has seen “a few companies winning by offering solutions to pain points, especially products driven by legal mandates. For example, schools’ RtI responsibilities are helping related product firms. Other winners are professional development providers that allow schools to move toward improvement at reasonable cost.” Keep in mind, she added, “Schools are still highly risk-averse, so you’ve got to balance between offering change to do things better but avoid making schools feel they’re taking big adoption risks—you’ve got to get schools to go out on a limb but not feel they’re taking a significant risk.”
Jim Connelly said “bilingual, migrant products are doing well” because federal funds for them aren’t seriously impacted.
The top executive in both basal and supplemental publishing responded, “Administrators are still under pressure to perform. Winning strategies seem to involve more digital integrated solutions and digitized products with lower price-point subscriptions.” Digital is finally getting traction because the IT infrastructure is getting better at many districts. “This lets you change the value proposition to ‘pay less money/year, spread your investment, and be free to switch after a few years’ instead of being stuck with print.”
How Companies Are Responding
My respondents offered some useful and creative suggestions about how they’re changing their business models to respond to schools’ financial stress.
“The fundamental things still apply…good sales staff and close attention to the needs of the customer are even more important than ever,” said Michael Baum. He added, “The most important thing right now is to keep your powder dry and survive. I’m seeing a lot of alliance activity to the extent that districts expect everything to work with everything else in a given space—that’s fine, but you risk being a face in the crowd when it comes to schools actually using your product. Look for opportunities to chunk so schools can buy just what they need and then add on.”
In times of tight budgets, it’s easy to think about cutting back on product development, but for Tim McHugh, “Product development is key, now more than ever. As long as we’re focusing on materials that are engaging and relevant to our students, the business will work itself out.”
Product development also figures high in the thinking of marketing consultant Rosalind Iiams, President, Flow Marketing Services. “The smart thing seems to be to continue increasing new product as much as possible and ruthlessly culling marginal product when it’s to be reordered, so a company’s products are still attracting as much of the current market share as they can get, as well as new market share for new products. Whatever demand there is, we’ve to get more of it. Showcasing material differently or offering new bundles may get people to take a second look, even if they’ve seen the product in the past and this doesn’t cost much. During past downturns, I’ve seen companies cut way back, both in new proprietary products and in catalog mailings. This is a hard position to climb back from, even when the economy improves, as customers stop thinking about the company.”
Jim Connelly is responding by expanding Creative Teaching Press’s markets and channels. “We’ve been working to expand the number of markets we reach, adding products to be sold to parents and internationally, as well as ramping up our Internet distribution while simultaneously supporting our dealers.” He attributes the firm’s strength to strategic thinking based on good market research and using the services of an experienced consultant as moderator for strategic planning. “Over the past two years, we’ve segmented our business into five compatible areas. We’re very sensitive to dealers’ needs so they don’t feel we’re trying to go around them—for example, with our Internet channel—but we expect all their other suppliers are using multiple channels, especially growing the online ones.”
Farimah Schuerman has seen some firms shifting to cloud computing as a cost-saving measure for their clients and/or themselves. From her perspective, “The most important thing firms need to do is maintain flexibility in how schools purchase their products (for example, remove minimums, allow less than school-wide purchases, and provide extra discounts for school-wide purchases).” In this type of market, “Bigger firms have a competitive advantage with more widely known brands and deeper pockets,” she said, “so it’s relatively harder for smaller firms to thrive with innovative products and services. I continue to hope the good stuff will float to the top.”
Several respondents mentioned a greater emphasis on digital product. A well-known supplemental publisher told me, “I’m investing more money this year in electronic product as customers are asking a bit more for it this year. I’m still selling 90% print though.”
Wendy Zachrisen, Educational Marketing Manager, Learning Resources, sees technology as one of the market’s bright spots. “Spending for essentials—basic technology tools, as well as products for students with special needs—is strong. Although funds specifically for technology have taken a recent hit, all signs indicate that versatile tech tools intended for everyday classroom use across the curriculum are doing well. Also, customers are gravitating toward lower price-point items in general. We’re having success with our new Simple Technology line at affordable price points and by focusing more on ‘moving’ our online clearance items.”
Companies are upping their use of digital strategies for marketing and incentives too. “It’s more important than ever to be visible with newsletters, social media, and any other way of connecting with customers,” said Rosalind Iiams.
When school budgets are stressed, it’s even more important to demonstrate value. Michael Baum puts it this way, “Look at ways you can add value to teachers faced with larger class sizes due to layoffs, and target your product development to bring out new stuff in a couple of years that’ll respond to some of the new demands of the Common Core Standards.”
“It’s also helpful to offer added value in terms of downloadable materials or other types of previews, so cautious customers can have confidence that they’re spending their precious money wisely,” said Rosalind Iiams. “I’m not sure that for larger purchases of unique items, districts are shopping on price as much as value. We haven’t seen as much clamor for discounting as we might expect during tough times. Customers care more that they’re getting the best value—the best, most useful product for their dollar. Those are the things I’m working on more now, compared to a year ago, especially with large products or programs.”
“Building and demonstrating value,” my respondent from the basal and supplemental publishing house said, “isn’t easy, but it’s game-changing.” He explained, “We’ve seen other large companies give away one product to get another sold (for example, giving math free to sell a reading package). We’re using data to argue for interventions that’ll improve results, such as with our math product. We frame this as an ongoing partnership with the school to achieve stipulated results—not the traditional model of competing every six years—and we deal with all the key stakeholders, including teachers, students, parents, and administrators. Our package is based on a comprehensive three-year implementation plan for major urban districts that includes professional development at all levels and ongoing monitoring of student performance with stipulated responses to weak results. There’s accountability on the district’s side too—to build capacity within districts where administrators are under pressure to perform and to pay a fair price for the package. These outcome-based solutions require heavy lifting, especially in delivering services as opposed to the old delivery model of materials in boxes.”
Some schools are getting more creative about funding sources too, observed Ellen Bialo, putting more energy into seeking private grants, foundation money, and alternative local government sources and writing a lot more grant applications.
Summing It Up
Yes, it’s a more challenging market, but according to these thoughtful business leaders, the sky isn’t falling just yet. They’re mixed on whether we’re moving to a “new normal” but not expecting a dramatic turnaround any time soon. That means remixing product to emphasize those that are getting a boost from the downturn, getting clever about expanding markets and channels, looking creatively at sales terms, adding real value for teachers and administrators under increasing financial stress, and rethinking sales as win-win partnerships with schools. The more things change, the more they stay the same.
