5 Ways Brands Can Stay Competitive In A Recession

David StewartMay 26, 202229834 min

Economic volatility and uncertainty have become the order of the day. Some forecasters are using the “R” word (recession). Business is always difficult. In good times firms scramble to add capacity and meet demand while fending off the competition that is inevitably attracted to a robust and growing market. In bad times firms struggle to control costs and to encourage often reluctant customers to buy, while retaining enough personnel and resources to respond quickly when the market turns.

Nevertheless, whether the times are good or bad there are always opportunities for a well-prepared business and there is ample evidence that economic downturns can actually be opportunities for future growth and competitive advantage. There are things that businesses should do on an on-going basis to realize new opportunities, but they are particularly important in times of economic hardship.

First, a business should examine its cash flow to assure that it has adequate funding for its operations. This examination should include a careful analysis of the sources of cash and identification of the potential vulnerability of these sources, e.g., a very big customer on whom the firm depends for a substantial portion of its business or customers whose business is highly dependent on the state of the economy. If there is vulnerability in the future, even if the business is currently doing well, it might be a good time to secure a line of credit that could be used if there is a disruption of cash flow. Diversifying the customer base to reduce dependency on one customer or a small number of customers is wise. Developing a customer base in which customers differ in their responses to good and bad economic times can also reduce vulnerability.

Second, a firm should look carefully at its expenditures and eliminate those that are not clearly linked to the generation of cash flow. This is certainly the first place to look when seeking cost reductions, but it is good practice even in the best of times. Expenditures that are not related to the production of cash flow are better spent developing current and future business. A key question to ask for every activity is how it contributes to cash flow in the short or longer term.

Third, a business should examine its customer base with the goals of identifying its most profitable customers and additional products or services the business might sell to these existing customers. Such an analysis might also reveal customers who are so costly to serve that the firm might wish to shed them. Selling more things to existing customers, capturing more “share-of-wallet,” is also a very efficient way to grow market share, increase revenue, and improve cash flow.

Fourth, a business should continue to market and, if possible, even increase its marketing efforts. Advertising and marketing are important signals to customers that a business is viable and will be around in the future. There is also an opportunity to capture greater market share from competitors who have reduced their marketing activities, which is common in a difficult economic environment. There is ample research that demonstrates that firms that continue to market through an economic downturn tend to emerge from the downturn with a sustainable advantage relative to firms that hunker down.

Finally, when other firms in an industry go out of business and disappear there is an opportunity to add to the customer base of the business. Customers who were doing business with a now failed business are likely to be looking for a new supplier. The development of strategies specifically focused on attracting such customers can be a powerful and efficient way to increase sales and market share.

The well–prepared business recognizes and prepares for opportunities that arise regardless of whether the economic climate is good or bad. An important part of such preparation is recognition that continued marketing spending and activities are important in economic downturns. This is the opposite of what most firms do. Most firms reduce spending in economic downturns and return to “normal” expenditures in good times. The firm that takes the road less traveled is likely to emerge a winner.

Contributed to Branding Strategy Insider by: Dr. David Stewart, President’s Professor of Marketing and Business Law, Loyola Marymount University, past editor of the Journal of Marketing and Author, Financial Dimensions Of Marketing Decisions.

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