How to Survive a Recession

There is much talk recently that we are entering an economic downturn and doom and gloom is predicted for both individuals and businesses. However, for those businesses that keep a cool head and have the confidence to follow the right strategy, an economic downturn could actually be good for their business in the long term. There are two broad strategies applied by businesses to survive a recession:

1. Reduce costs and offer discount prices
2. Invest in building and promoting your brand

For obvious and understandable reasons, most companies follow the first strategy. Customers have less money to spend and competition is tougher, so reducing costs and delivering the goods at even better prices seems like a very logical strategy. However, the problem with this is that not only does lowering prices mean squeezing margins, but the very act of discounting erodes the consumer’s perceived value of the brand. Competing on price is a difficult strategy to get right even in good times and in a recession it is even tougher.

Although it may seem more risky to many, the best strategy to survive and thrive in a recession is to invest in building up the perceived value of your brands, rather than reducing the price of your products. In the last major recession in the 1990s, the companies that came out on top were those that maintained confidence in their brands and avoided the temptation of pure price competition. Companies such as Apple, IKEA, Starbucks, The Body Shop and Nike actually turned up investment in their brands during the recession, against the trend, and exited the recession more profitable than when they went in.

It all makes sense when you look at the big picture. It's widely accepted that brands are more profitable than commodities in a stable economy but in a downturn the brands gain an even bigger advantage. This is because most companies lose their confidence in a recession and start cutting back and discounting, so price competition becomes more fierce and inevitably therefore, even less profitable. On the other hand, as most companies are spending less on building and promoting their brands, those that are well branded and heavily promoted gain greater attention from consumers, and so brand development and promotion becomes much better value for money.

In addition to this, when the recession ends, those who invested in their brands are not only better off after remaining profitable during the downturn, but have maintained the value of their brands and so come out as the leading brands in the consumer's minds. Those who favoured discounting come out cash-strapped and struggling to rebuild the value of their brands.

It is easy and tempting to follow the crowd, but as with most forms of investment, those who come out on top are the ones with the confidence to base their decisions on logic, rather than what everyone else is doing.

This blog is supported by Scamper Brand Strategy - building sustainable brands.