With the clouds of the next recession on the horizon, many business leaders are preparing for the storm by cutting personnel and proactively reducing marketing expenses, but history suggests that companies that sail into the storm will emerge stronger after the recession. Paraphrasing a Warren Buffett quote, “[Be bold] when others are fearful.”
Here are 3 revenue growth strategies that can help you and your company not only survive, but thrive during a recession:
1. Double Down on Marketing Investment. During a recession, your competitors may reflexively cut back on marketing and other investments as they seek to maintain profitability. This creates an opportunity to go on the offensive and grow total revenues by stealing market share. A 2010 analysis published in the Harvard Business Review analyzed 4700 public companies and found that those that continued to invest in the 2007-09 recession outperformed their competitors in the long-run. Similarly, the American Marketing Association’s study showed that companies that continued to invest in marketing during that same recession experience a 2.75x higher growth rate vs. those that reduced marketing budgets.
I learned this lesson first-hand while running the Laundry Division of a midcap CPG company during the 2008-09 recession. After studying the behaviors of key competitors during past recessions, we concluded that they would pull back on marketing budgets. We did the opposite, significantly increasing advertising in both detergents and the super-premium stain-fighter segment. As a result, we grew share of voice in both segments, leading to significant market share gains. Our revenues that year grew by double digits.
2. Pivot to Value. Consumers are looking for increased value as they try to offset lower wages and other economic challenges associated with a recession. And some will trade down to lower-priced brands. But this does not mean you need to lower prices across the board to remain competitive.
Many brands have success with tiering pricing or implementing dynamic pricing. For example, Tide introduced a new, lower priced version of its flagship detergent, Tide Simply Clean & Fresh, to appeal to value users in the laundry category. This not only helped slow losses to lower-priced brands, but also created a new entry point to the Tide franchise. P&G’s CEO at the time famously said that one of the goals of this strategy was to “trade them in [to the brand], then trade them up” to higher-priced versions of Tide. Disney Plus employed a similar strategy, creating a new ad-supported tier of its popular streaming service at a lower price to appeal to more price-sensitive consumers, thereby growing total revenues. Lower pricing can also be deployed selectively to reach more price-sensitive consumers via targeted deals or special promotions, enabling you to hold onto these revenues, while preserving profitability amongst your broader customer base.
Beyond pricing, there are several other strategies you can employ to bolster your brand’s value perceptions during a recession. The first is to reframe the value of your brand or service, demonstrating how a higher-priced offering is “worth it.” For example, Dawn Dish Liquid created a TV commercial and new side-by-side demo showing that “one small bottle of Ultra Dawn had more grease-fighting power than three bottles of this so-called value brand.” Sales increased significantly after this ad was aired. Apple has employed a similar strategy over the years, advertising how the Mac’s combination of power and simplicity make it worth it to buy one despite its higher price.
Brands can also increase value by enhancing existing benefits or adding new ones. This could be as simple as a consumer goods manufacturer giving more product performance for the price or an internet provider offering customers higher download speeds. The marginal costs of these investments are typically small, but the impacts on your brand’s value perception can be significant. And much less costly than cutting prices.
3. Focus on Your Most Profitable Customers and give them more of what they want. For example, Delta Airlines recently announced that they were going to add 15,000 more premium seats per day to its network vs. the pre-pandemic period. The revenue per square foot of a business class seat is typically 2-3x higher vs. an economy seat, so a small shift to premium travel can meaningfully impact revenues.
This strategy is easy to implement. First, analyze your customer base to identify your most profitable customers. Then focus your marketing efforts on these customers to increase sales and grow your share of wallet. Some leaders assume that recessions impact their customer base equally. This is often a mistake. More affluent customers, for example, typically have stronger financial reserves and therefore can continue spending (and buying premium airline seats) during an economic downturn. In other categories, a different segment or demographic might be your most profitable customer.
Now is the time to start planning how you will weather the coming storm. I’m hopeful these three revenue growth strategies and the examples I have shared will put you on the right path.
Gain a competitive edge with our Recession or No Recession series.
In our next Insight Tuesday, my partner, Tom Sullivan, will share more about Customer-Focused Strategies that should be considered to increase the tailwinds going into a recession. Subscribe to Read.
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