Monday, December 8, 2008

Recession Strategies

I started with a search of companies and industries that have been proven recession indifferent in the past. While I looked around, did some googling, read some articles and business histories, it was soon very clear that NO industry or company is actually recession indifferent. It touches every business but sometimes you can change the way it touches.

Business entities are made of people and sometimes striking similarities can be found in psychology of human beings and organizations. In this case it is the instinct to give their best during crisis. Viewing problem as opportunity has been a line of motivation for professionals but what I am finding is that it’s equally true in case of organizations. It is fascinating how throughout the history there have been various companies that performed exceedingly well during turbulent times. In fact many advent of ultra successful products like Fortune magazine, Revlon and Nescafe can be attributed to recession.

So what makes them click? What do they do differently? As per my modest research, we can summarize them in few basic strategies,

1. Recession is mother is of invention: Slowdown is the best time for entrepreneurs and disruptive ideas. This is the time when customers’ needs change, customers speak explicitly and their needs are clearly visible as compare to boom times. Read this story, In February 1930, four short months after the stock market crash, Time Magazine founder Luce launched an Audacious, bold, and vibrantly-colored arsenal of human interest stories in the form of new media product called Fortune Magazine. Not only did he have the gall to launch a new product in the shadow of the Great Depression, he launched an expensive new product. At the outrageously-lofty price of $1 per issue, Fortune launched with only 30,000 subscribers. By 1937, the magazine netted a half-million dollars on its circulation of 460,000. By the end of the decade, Fortune had become required reading on Wall Street. Innovation always matters. It must, however, be relevant to the needs of the market.

2. Creative and uninterrupted marketing: This is really a time when customers want to be informed and aware more than any other time. Cutting drastically on marketing is not an option. Note that the companies who have done strong marketing during bad times have reaped much higher benefits during and after recession. During the 1989-91 recession, Pizza Hut sales increased by 71% with Pizza Hut Pete and a $3.14 million advertising budget.. Pizza Hut increased marketing budget during those times. During 1990-1992, PepsiCo's corporate sponsorship of Pizza Hut included funding the Book It! National Reading Incentive Program, which encouraged higher literacy rates among young people. The reward for better reading ability was free pizza at any Pizza Hut. In 1992, the Book It! program involved more than 17 million students in North America alone, and Pizza Hut received letters of endorsement that year from President George Bush. Shrinking visibility in slowdown may give an impression that you’re in trouble and customer may want to look for other options.

3. Acquisitions: Companies can spend their way out. While many companies remain conservative by savings and cost cutting at every opportunity; the successful ones are those that take advantage of cheap deals of great value during recession. Ever wonder why Warren Buffet has invested $5 Billion in Goldman Sachs and $3 Billion in GE in last quarter itself. His investment of Coca Cola and Ridgley’s during 1989-1991 slow down are already classics in investment books.

In a research of 1989-1991 recession, McKinsey studied 1000 prime US companies from 1982-1999. They write, “Successful challengers, we found, maintained a greater appetite for acquisitions during the recession than did their less successful former peers. In periods of growth, these challengers were M&A laggards—they made 63 percent fewer deals
3 than their former peers did. But during the recession, while competitors brought their deal-making activity nearly to a halt, successful challengers dropped relatively few of their transaction plans, erasing the gap with the rest of their industries.”

4. Collaboration: This is the time when businesses need to share the strength of partners. Synergies are most needed now for 2 major reasons, a) To cut operations cost and b) to increase value to the customer. Just look around and we can already find great examples, Toyota focusing on being affordable by involving suppliers in the design process to save an estimated $10 billion. Secondly, it's focusing on being cooperative by giving free efficiency consulting to its own suppliers. The suppliers cut costs, pass the savings onto Toyota, who can, in turn, give its customers a break. We just heard today ITunes coming to Wal-Mart at $99. Ends meeting, literally!

Learning is ongoing and I'll keep this post updated.

1 comment:

Vibhash Prakash Awasthi said...

Boom is the problem, slowdown is the solution. You should be hungry enough to succeed during the boom period where are slowdown automatically makes sure u remain hungry.