by Dick Barnes, Principal, The Freeland Group

Thriving in the Downturn

Beating the downside of a recession!

A downturn…a recession…a weakening of consumer confidence…however one chooses to label it most every business person is, or soon will be, feeling the current change in the economy.

The good news is that the current recession may not be anywhere near as catastrophic as the media might lead us to believe. Exaggeration is important in the news…it sells papers. This doesn’t mean you needn’t prepare or make changes in how you do business. It does mean you might not want to do anything dramatic without first making a plan to survive, even thrive, while in the throes of a slowing economy.

For many younger management personnel this issue has never before come up. In the last two decades economic growth has been relatively slow but steady. Despite the media hoopla of the nineties, the economy wasn’t really “red hot” unless you happened to be in high tech, software, or dot-coms. Growth was steady and seemed permanent; at least to those of us not old enough to remember that what goes up eventually takes a nosedive.

Some firms will obviously feel the coming change less than others; perhaps due to the good fortune of being in the right place at the right time and having the right products. Other firms will do well because managers will take the time  to prepare and make a plan to thrive during the downturn. In the world of the wholesaler or distributor, where you must compete with others who carry the same or similar products and can go after your customers, making a plan is of great importance.

Of course a plan to thrive may only result in mere survival, but if you can survive when your competitors are failing your firm will grow in the long run. Changes you make in order to prepare for the coming storm will make you stronger when the economic climate turns sunny once again.

So what is the best way to begin planning to make it through a recession? There is a definite divergence of opinion on this issue and it is worth comparing the two opposing strategies, the first being business contraction and the second being business expansion.

Business contraction is often times the first solution to come to mind as a reaction to an external problem such as a recession. It encompasses the “belt tightening” tactics that are often embraced by finance officers or turnaround consultants. These tactics may well strengthen the firm’s ability to survive and do well in the future. They might also weaken the firm overall and could even weaken the firm’s ability to perform and compete in the marketplace. Therefore contraction tactics have to be looked at very carefully or the firm might end up shrinking to something less than greatness.

Business expansion takes the other tack; by working hard to increase revenue and profit the firm can try to counter the affects of the recession and capture market share from failing firms. Like the contraction tactics, an expansion plan may also put companies into financial disarray or allow them to stretch out their necks only to have them chopped off. You cannot simply start pouring money into marketing projects and pray for commensurate results.

The smart management team will take a close look at their firm and come up with a plan using features of both strategies. They will tighten up financial functions and find fat to trim, but at the same time they will be looking for opportunities to expand their market. And the opportunities will be there as you can always find competitors willing to give up market share in an attempt to weather the economic downturn.

In our dynamic marketplace, the firms that concentrate on aggressively finding market and building market share are likely to be the long-term winners. There are strong arguments, as well as actual results from past recessions, that tell us companies will be more likely to get through a recession by making expansion their strategic direction.

To make expansion of market share a viable strategy, you must look to the marketing functions of your firm and begin to rethink the activities and tactics of the past. Marketing is that area in which you concentrate on your products, your pricing strategy, your distribution strategy, and your promotional and sales programs. It is also that area in which you invest resources in things like market research and customer service programs.

Now don’t get me wrong; the functions of finance and production are of vital import to your survival plan. But if the firm is going to actually increase business and profit during a recession, it is not going to do so by drawing in its claws. It is during tough times that the marketing department can really push the company to the next level.

So let’s look at the entire marketing cycle, from product and price all the way through distribution, promotion, and finally customer feedback, and see if we can discover a few ways to improve the market picture.

Product: The mix of products you offer might be wide and shallow, or narrow and deep, all to varying degrees. This is the time to stretch the boundaries a bit, and maybe to drop some products that are not carrying their weight and add some that will.

Be careful before dropping products from your lineup however. Retailers often carry loss leaders, such as grocery stores that waste a full aisle of space on toilet paper even though they might lose money on the product. They do it because customers would eventually stop shopping there if they had to make a second stop for that item. Management elects to carry the product as a convenience to their customers and to retain customer loyalty.

As you study your own product mix you might find similar loss leaders. Which of these could be dropped without risking customer loyalty? If you identify such items and can’t come up with a reason to justify them…make them disappear. Replace them with products that will make money.

There are a number of ways to identify new product candidates. Obvious choices would be items that are peripheral to your current products or services. Say you specialize in carrying products from brand A and B and you carry the complete lines for both. Perhaps it’s time to consider a brand C. This might be a line of products that compliment your other brands but is in a different price range. Another product line, brand D might have products that do different work than those you carry now, but are used by the same customers.

For instance, I once consulted for a small firm that cut and formed cardboard into ready to fold boxes. They had grown to a prominent position in their marketplace, but wanted to grow some more. The solution…they became distributors of packing supplies such as fillers and tapes. It was a natural partnering of products and created value for their customers by giving them one-stop shopping. This is a pretty common means of expanding business. It's sometimes referred to as expanding your "share of customer" because you are selling to the same number of customers, only you're selling them more stuff.

During recessions a good way to identify new candidate products is to carefully monitor what your competitors are doing. They may be unable to continue product lines that are not profitable enough. You might be able to pick those lines up simply as a convenience to the customers…and steal the customers away in the process. Your overall gain in sales might offset the trouble of carrying the break-even products. 

Another key is to use customer satisfaction surveys. Even though times are tough, customers still want to be treated fairly. If your competitors are slow on delivery or service, due to cutbacks in staff or other cost-cutting measures, you should find out about it and step in to take their place. This may involve adding products those competitors had been dominating the market in. You might be able to take away their number one position in the new product line.

Price: After reviewing your products you should take a look at pricing strategy. What has been your strategy in the past? It may need changing if you are to move ahead in a price-sensitive economic downturn. It’s not that price is always the most important criteria of the purchase decision, but it is important and may be even more so as a recession deepens.

There is a lot more to the issue of price, of course, than simply the number on the sales invoice. Credit is an important issue during a slow economy. The automobile manufacturers are playing the zero interest card with great zeal, and it’s working for them. Rather than extend additional time on credit, which just slows down your cash flow, give them incentives in the form of zero interest on timely payments for the next twelve months.

Give them deals to increase the size of orders, even though it may mean reduced sales in the future if they stock up now. After all, your competition may not be around in the future and you can suck up their customer base at that time. So give your current customers a fourth gizmo for free when they buy three and see if you can pull a few new customers in at the same time. Make it a big promotional deal with a message like “times are tough and we’re all in this together.” Then tell them they can save money now by “buying three and get one free.” You don’t have to say it, but in return you expect their goodwill and some word of mouth advertising and you’ll probably get both.

Distribution: Your distribution channels should be scrutinized next. How well do they really perform? Are there weak links that slow down deliveries or add unnecessary expense or ordering turmoil for the customer? Are there unnecessary links in the channels or links that you should consider replacing? Perhaps it’s time to add distribution channels and expand the network of suppliers beneath you. If you are going to expand your market, will your present distribution channels be adequate?

No matter where you are located on that chain that stretches from the original manufacturer to the end user, you have some influence in how well the links work. Your position helps determine how much influence, as does your willingness to be proactive in shaping that chain. A recession is no time to allow the chain to operate without your attention and scrutiny. Creative use of the channels of distribution can make or break a firm.

Promotion and Sales: Finally we arrive at a review of your promotions, advertising, sales, public relations, and customer service programs. The first thing to consider is your overall message. It should, naturally, be consistent whether it is being used in a public relations campaign, an ad campaign, or a sales presentation. But is your message the right one under the present circumstances?

 There are a lot of things you can convey to a customer, sometimes intentionally and sometimes unintentionally. For example, a message about lowering prices may tell prospects you are in trouble…not good if you are selling capital equipment that they will need to have serviced over the coming years.

A better message would be that you are lowering prices temporarily in order to help your customers through the downturn, and that you can do so because you are secure in your own future and want to be there for them when the recession is over. The difference between the two ways of telling the story can be pretty subtle, but make a great deal of difference in the prospects mind.

This is also a good time to look at promotions within your distribution channels. Is everyone involved in moving your product toward the end user aware of its virtues? This is a good time to make sure and to educate them if not. You should be making a strong pitch for ways in which your product can save customers money or make them more capable of getting through the economic slowdown. Everyone in the channel should know this pitch and use it and your own sales force should set the standard.

Advertising at this time might be designed to help prospects and current customers find ways to benefit from your product, and to use it in new ways to increase their production or reduce costs. Emphasize features like reliability and minimal down time. Brainstorm with your people and come up with new ways to use your products. Afterwards educate your customer base through advertising, news releases, and sales force contact. Get them to see your product line not as a necessary evil but as a selection of tools they can use to get ahead and help their bottom line.

What do most managers worry about during a recession? We already know that they are concentrating first on reducing the costs of doing business. Use that knowledge and design promotional messages that assure them your product can help.

And remember to be mindful of your own costs in the process. More advertising doesn’t necessarily mean more sales! Better advertising means more sales. Focus your message and try to convey what you believe your customers really need to know in order to make a buying decision...then to make sure they make the right one!