How Best to Survive a Recession

How Best to Survive a Recession

By Michele Fellows

 

When faced with challenging times, such as the economic difficulties being experienced on a global level at present, every business needs to ensure that it has the most appropriate proposition and strategy to guarantee that it not only survives a recession but emerges as a market leader.

 

When money is short almost every purchase decision takes on new meaning for both consumers and businesses alike. Is it truly necessary?  Is it value for money?  Can it be delayed?  For some, it’s all about price with loyalty to a particular brand / company going out the window as the hunt for the cheapest price gets underway.  For these customers, businesses will do well from ensuring they have the cheapest price point on the market.  For others, Jessica Routier (Head of Social Media and Community Relations at IAC-EZ, USA) feels “good service is more discerning because when money is tight people want to make sure they are getting the greatest value out of what they are spending on. They are less likely when money is tight to buy something just because the price is low.”  For these customers the route firms should take is one of differentiation and offering a quality service for which they should be able to charge a premium.  

 

Understanding how elastic the demand for ones product or service is plays a significant role in determining the most appropriate course of action for a company to take.  Where items are considered to be essential purchases (for some this may be items such as electricity, medication or key components in a prototype being built; for others cigarettes or alcohol are, from their perspective, essential), then a change in the price of the product or their own budgetary constraints is unlikely to influence their spending behavior.   In these instances lowering ones price will only result in lower profits as lower margins will not be offset by increased turnover, thus a more appropriate strategy to utilise would be differentiation.  On the flip side, Charles Brad Reynolds (Entrepreneur, Hong Kong) believes “if you are dealing in goods/services that are less critical buys, you may very well find the low price position to be most advantageous, especially if it is difficult to differentiate or demonstrate quality differences in the marketplace”.

 

So does a firm offer the lowest price for its products or charge a premium for a providing a quality service?   Both options have their merits and pitfalls.

 

Following the quality or premium service route can be more profitable as the margins are higher from each sale made.  However revenues will be harder to convert and easy to lose as customers will be less tolerant of a drop in quality or service than in boom times and will want demonstrable evidence of the additional quality or service they are paying for.  A dedicated campaign that reinforces the message of a premium product across a number of channels is not always necessary (as an understated communication can speak volumes).  But whichever marketing strategy is chosen, it is a must that it is backed up by a well supported infrastructure of processes and staff ensuring customer satisfaction.

 

When opting for the price route, the most obvious manner in which to achieve this would be to simply reduce the price of ones products / services.  From an administrative point of view this may be seen as the easier option but companies need to tread carefully.  If the price of a product suddenly drops customers may feel that they were being overcharged in the past and thus view the brand / product in a poor light – making them less inclined to purchase at the lower price not more.  Also, when the economy improves the price will need to be increased slowly back to its original price point (or beyond) so that customers do not notice the change and jump ship – potentially losing the company many of the newly won or hard retained customers and placing the company in a worse position than before the recession.

 

Another approach to achieving the lowest price point, and perhaps the more sensible, is to discount: offering a percentage off the top line; multi buys offers (two for one, buy one get one free); volume; introductory offers; customer loyalty; etc.  Discounting allows organisations to offer the cheapest price for a “limited” period of time and then return to a higher price point once the economy allows.  It can also give the customer the impression of purchasing a premium quality product (as implied by the price) for less and few dislike a bargain.  New customers gained during the short term price loss leader period may well also become brand loyal as a result of being enticed to try the product when it was priced low.

 

But these aren’t the only considerations. Stephane Carbonneau, Sales Manager at TASK Micro-Electronics Inc, Montreal, feels that “quality and service against price is not a zero sum equation”.  In fact, a recession is the perfect opportunity for businesses to review their operations with a view to optimising efficiencies, thereby reducing costs and thus allowing for better pricing as well as potentially providing better quality and service.  All of which will put a company in a stronger position to ride out an economic downturn as well as be best placed to take advantage of the market once the tide turns.

 

“Another trick often missed by organisations”, according to Paul Green, Member of UK Business Advisors Ltd, UK, “is the ability to up sell and cross sell services to existing clients”.  This is when investing in employee training will pay off the most and yet is often one of the first costs to be cut by a company.  For those that don’t succumb to external pressures, training staff on effective up selling and cross selling techniques as well as arming them with appropriate product knowledge will see a direct benefit to the top line.  Add to this then, the “softer” benefits of greater employee engagement, which not only brings a direct advantage of a workforce willing to go above and beyond for the company but also translates into superior customer service via a happier workforce, and a company will be in a far stronger position than its competition. 

 

Continued marketing to existing customers is imperative. When looking at the lifetime revenues generated from a customer and the investment required to obtain and retain them it has been confirmed time and again that the most profitable marketing strategy is one that follows the Pareto principle and focuses predominantly on its existing customers (up selling to them as well as using them to obtain new customers via word of mouth) rather than one that utilises its budget on obtaining new customers.

Of course, companies can’t simply rely on getting more from existing customers.  Green elaborates that it is those companies that “have invested more in marketing activity to reach a wider audience of prospects” that will better survive a downturn.  On the basis that customers will be thinner on the ground, organisations need to reach more of them in order to achieve the same revenue retention and customer conversion previously enjoyed.  At times like these having detailed advertising campaign analysis will serve a company well – to know what, when and how a customer likes to be touched in order to generate the most profitable revenue streams from them.  Without this firms will be unable to effectively target profitable markets and continue to invest (and waste) funds on marketing campaigns that generate very little revenue for them.

 

What is clear is that there is no one thing organisations can / must do to guarantee their survival.  Instead, those companies that have a solid understanding of all aspects of their offering, processes and target market will endure economic hardships and those that are quickest to react will come out on top. 

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