If one is in business long enough, there will come a time when economic growth slows and the business endeavor becomes correspondingly difficult. Many younger managers whose careers developed and flourished in the last boon were, by popular accounts, left "flat footed" by the last market implosion and recession and the continuing period of economic instability that followed. It is in such times that the skills of marketing professionals are most tested. While non-trivial from any viewpoint, a variety of fundamentals may be addressed in such a way as to mitigate the downside potential of recessionary factors so as to allow companies to emerge ever stronger once recovery begins.
Recessions are typically defined as an overall slowing of economic activity. Since there are many measures of economic activity as to what constitutes "slowing," there can be many definitions of when recessions begin and end. The National Bureau of Economic Research (NBER), a non-profit organization that assigns dates to the beginning and end of downturns, defines a recession as "a period of declining output and employment." One common and often cited definition of the beginning of a recession is two consecutive quarters of decline in Gross Domestic Product (GDP). Such downturns are usually associated with periods of declining employment as well as output.
Recessions can be of various durations; since 1945, the average recession has lasted 11 months. While, at the time of this writing, the U.S. economy is not technically in a recessionary period (although the media and upcoming presidential elections have created an interesting Psychological lassitude in the industry); nevertheless, the warning signs are present.
Fortunately, as we learned with the last downturn, new hyper-competitive industries emerge - especially within computer related technology and pharmaceutical sectors. As it turned out, heavy U.S. industries also reinvented themselves, with better cars and new ultra-efficient minimills in the steel business. So what's the problem then? Unfortunately, the fundamentals never change so it is rather easy to trace current problems back to the same roots that caused the 1980's recession: energy prices. Of course today, as always, there are mitigating factors. Yes, we had a greed-driven real estate bubble that rightly burst....causing a crisis for 401K plans, the market, jobs, et al.. As stock options became worthless, gasoline became expensive, paper worth declined, global turmoil occurred, and massive tech-sector layoffs became daily events. We have again slipped into the precursor psychological state - largely driven by the media - required to fully precipitate a double-dip recession. This is not to say that it will happen, only that the conditions are, in fact, present.
Downturns are usually rated by three parameters: their depth, duration, and diffusion. Depth describes how deep is the slowdown; duration addresses the length of time of slow growth; and diffusion quantifies how widely it spreads relative to geography, industrial segments, etc. It is the task of senior marketing professionals to make judgments about these factors before informed decisions can be made as to what strategic and tactical correction are in order. For instance, a light, short, and tightly confined downturn, especially if it affects other industries, might call for no changes whatsoever.
If and when it is decided that action must be taken, then what should be done? The challenge facing both marketing professionals and top management, is to properly consider a whole set of possible adjustments in the customer and marketing mix. The following 5 best practices are designed to help facilitate exploration of the issues involved:
1. Don't panic. So many companies, especially those where the "bean counters" run the show, make the mistake of instituting draconian cuts that cross all departments. The mantra usually is something about how "everyone must do their fair share" during these tough times. And it may be true that cutbacks have to be made; however, the way it's done must be with an eye on the future recovery and how the landscape will look once the recession is over. Recessions represent a real and substantial opportunity for the bold to change the "lay of the land." When talking to the analysts don't be ashamed of stating you are making cuts or having lay-offs. That said, you must follow-up with how you will continue to grow and remain competitive during and after the down turn.
2. Increase market share. Wall Street Journal statistics indicate that, during recessions, the average surviving business picks up almost 0.7% in market share, and that significant market share gainers increased their advertising by 28% or more for a 1.5% market share increase. In times of downturn, companies must reexamine their markets and consider those having the best potential for expansion. Withdraw from losing markets and redirect that investment where it counts. To offset slackened buying from existing customers, search for value in hidden segments and new geographical areas. The quickest way to show industry influencers that you can execute on this plan is to back-up all of your communications with both referenceable customers and regional - sales driven - partnerships.
3. Reevaluate the product mix and design. During the good times, companies tend to proliferate new products, or customized versions of core products, until every market segment has coverage. An economic slowdown is the signal to analyze product-line profitability and subsequently cull the weakest of the herd. The resources, thus freed, should be redirecting to the winners. Thought should be given to introducing high-value (economy) versions of products facing significant competition in the marketplace; however, do not mistake cheapness for value - the analysts and more importantly your customers will know the difference. This is a great opportunity to build stronger relationships with your key analysts by inviting them to participate in your product roadmap. Many analysts, especially at Gartner & Forrester, have unique insight into what your customers are buying and what technologies they are investing in.
4. Reexamine your Influencer strategy. All departments are usually expected to "do their share" when the inevitable "belt tightening" command comes down from the top. However, be well aware that historical data conclusively demonstrates that companies that cut spending on access key industry influencers and market intelligence generally lost sales, market share, and took longer to recover than did similar companies that increased their analyst spending levels. Obviously, this is not to say that one should not be sensitive to AR and marketing costs. Usually, during times of recession, sales promotion techniques are often increased, at the expense of traditional marketing, advertising, and Analyst Relation, because many customers become highly "deal prone, and more importantly, effective AR drives revenue - say it loud, say it proud!
5. Look for acquisition partnership opportunities. So the recession is in the thick of things and the competition is in trouble. Perhaps, under the right terms, it's time to consider a strategic expansion. While the complexities and issues involving either of the aforementioned strategies are well beyond the scope of this discussion, it should be said that an acquisition is an investment that should be done only if it directly enhances shareholder value. Partnerships can be an easy way to synergize various marketing and sales operations, to effectively leverage other companies to enhance market share or as an alternative sales channel. One caveat to consider is that a good deal is only a good deal if it's good for everyone; that is, real partnerships must have some underlying equality and ability to drive revenue. Industry analysts, especially market research firms like IDC or Datamonitor, are great resources for identifying acquisition and partnership opportunities.
Recessionary economic environments pose major challenges for most companies. Often they are tempted to cut out critical investments during downturns to preserve some arbitrary profit margin requirement. The danger in that approach is the price to be paid once recovery starts... namely that compromised customer goodwill, together with lack of up-to-date offerings, will effect a permanently weakened condition. Some companies that go through hard times manage to keep their eyes on the future and continue to invest in their long-term position. The key lesson here is that companies must make long-term commitments to certain markets and strategies and should NOT abandon them at the first sign of trouble.
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