It is no secret the coronavirus pandemic has made a huge impact on our economy. Most businesses are left with uncertain futures, wondering what they should be doing to navigate through these tough times. While the first instinct might be to cut costs and advertising spend to conserve as much capital as possible and just ride out the storm, history has proven that is not in your business’s best interest. In fact, history has proven you should do the opposite.
Professor Andrew J. Razeghi from the Kellogg School of Management at Northwestern University published an in depth article of titled: Innovating Through Recession When the Going Gets Tough, the Tough Innovate. In this article he discusses how difficult economic times give businesses unique chances to innovate and thrive along with the research to back up his claims. We have put together a highlight reel of this article, in the hopes that it will give businesses the framework to navigate these difficult waters.
Economic downturns make innovation crucial.
In uncertain times, it has been proven that those who come out ahead adapt. Thankfully the process for innovation is also easier during economic downturns. Noise from the millions of “great ideas” that flood the market on a daily basis suddenly quiets down. This not only makes unmet needs easier to identify, but also easier for you to get your next great idea noticed.
Razeghi uses Fortune magazine in his article as a great example to illustrate his point here. The magazine launched four months after the 1930 stock market crash. In a time when businesses were going bankrupt, banks were failing, Fortune magazine was introduced at the high price of $1 per issue. However, by the end of the decade the magazine was the required reading of Wall Street. It’s success could be attributed to the Great Depression. The stock market crash actually increased interest in business culture. People wanted to know what went on behind the closed doors of corporate America, and Fortune magazine filled that need.
Moral of the story: innovation is important, but only if it is relevant to the needs of the market.
Double down on your current customers.
In hard times consumer sentiment is at an all time low. They scrutinize and question every purchasing decision. Yet business owners often make cuts to things like quality and customer service in order to cut costs. Do not think your current customers ignore or accept these type of cuts. In fact, they tend to hold a grudge. Take a page out of La-Z-Boy’s book. Rather than cutting service, increase it. La-Z-Boy did just about everything imaginable to keep customers choosing their products including extending terms, servicing account faster, and even accepting livestock, wheat and coal, as payment. La-Z-Boy proved it was worth investing in your customers. Show that you are there for them no matter what, and in return you will receive fiercely loyal customers.
As everyone pulls back from their advertising, stay the course or invest more in yours to increase your market share. Just think, in times of economic expansion everyone is investing in advertising, meaning it costs that more more just to maintain your market share. However, during a recession as competition decreases, investing more in your advertising you will get far more market share, and at a cheaper cost.
In fact, pulling back and “going dark” on your marketing is the worst thing you could do for your business. It not only makes it easy for consumers to forget about your brand, think of the gossip it could bring.
Razeghi recalls in his article a company that attended an industry trade show every year. However, during a bad year, they decided not to attend in order to save costs. This seemed pragmatic in theory, but in reality gossip spread that business must be in trouble since they always attended the show. This put doubt in their customers, who decided to entertain new vendor proposals out of fear that the business was in trouble.
To back up this anecdote, a study by McGraw-Hill Research discovered that businesses who maintained or increased their advertising expenditures during the 1981-1982 recession, averaged higher sales growth during the recession and in the three years following. By 1985, sales of aggressive recession advertisers had risen 256% over those that cut-back on advertising.
If investing more or staying the course with your advertising is not in the cards do not fret. With today’s communication technologies, you don’t necessarily need to spend a lot to get a lot of attention. Consider sending product to an industry influencer. Leverage social media to stay in contact with customers. Hop on an industry podcast. Host a webinar. Consider crowd-sourcing content. Get creative with your limited marketing budget. The key is to be visible and present.
Offer more value, not lower prices.
Slashing prices and holding huge sales may get sales in the door in the short term, but can be devastating to your brand in the long run. Why? Price reductions compromise earnings & your products perceived value. If your product or service has a long-standing perceived value, and then you slash your prices without changing anything the perception is the value was never really there to begin with. This situation is almost impossible to come back from. Don’t compromise the integrity of your product or service with lower prices.
Eliminating features, reducing services, or switching to cheaper materials and ingredients is not the way to go either. Instead you should look for ways to improve quality, enhance features, and invest in new opportunities.
Invest in the right costs.
Not all costs are created equal. Make sure you are investing in the right costs and trimming back on costs that don’t yield any improvements. History has shown that investing in costs like working capital, manufacturing, and general and administrative expenses can have an adverse impact on your business during a recession. To see a positive return on investment, it is best to invest in innovations such as marketing or customer service instead.
Don’t let fear hold you back.
We all feel the uncertainty of this difficult time. However, it is those that push pass the fear and dare to innovate that will come out ahead. And remember, you are not alone. You have an entire history of entrepreneurs who have paved the road for you.