Recession Marketing For Small Businesses and Independent Professionals
Are You Prepared?
Chances are you'll experience several periods of economic contraction during your lifetime. Financial planners recommend having enough cash-on-hand to cover at least a couple months' living expenses in case of emergency. Beyond that, they recommend paying off credit cards, having insured savings, a retirement plan, healthcare coverage, lots of equity in your home, and maybe a stash of silver or gold coins. If you've got all that, congratulations! You're probably as well prepared as anybody can be, and maybe you should be advising Wall Street or running for Congress!
It helps to take a long view. Transcendental meditators tell us that if we meditate panic will subside and the stock market will recover. Warren Buffett is buying stocks now because he thinks they're cheap. He's betting on the future, and he's 78 years old!
Recessions & Depressions
The federal government defines "recession" narrowly as a period of two consecutive quarters of declining gross national product, or GNP. "Depression" is a 10% decline. However, by the time the government gets around to crunching the numbers, most of us have already felt the pain for many months. Although the Bush administration hadn't uttered the "R" word until December 2008, everyone knew that unemployment was up, home foreclosures were skyrocketing, credit was tight, and paychecks were being stretched past their limits. Undeniably, the middle and lower classes were already scared and struggling.
Recessions typically last 18 to 24 months, although they can extend much longer. The worst economic contraction in U.S. history, the Great Depression of 1929, lasted over 10 years. One in four workers was unemployed, public sector jobs were almost nonexistent, there was no Social Security safety net, and bread lines stretched for blocks. The economy never fully recovered until the early 1940's, when the country mobilized for entry into World War II. Of course, war is one hell of a way to achieve full employment. Consider all the positive alternatives: housing, education, healthcare, green technologies, the arts and sciences, space exploration...!
Will we have another Great Depression? While nobody can accurately predict the length or severity of an economic contraction, several mitigating factors are at play. Public sector jobs now account for up to a third of all employment, and Social Security provides at least a minimum safety net for the retired and disabled. Unemployment is projected to rise perhaps as high as 9%, but far less than during the Depression. Finally, the federal government is pumping vast amounts of money into the economy to mitigate the effects of the downturn. While this recession could be worse than most, it won't be the end of the world.
Pockets Of Stability
During tough economic times look for pockets of stability and counter-cyclical trends. Some industries are continuing to expand, in spite of-or even because of-the current business cycle. People may put off major purchases such as appliances and automobiles, so they spend more on repairs. Auto repair businesses often grow during tough times. Enviros are cheering because bicycle sales are booming! Tax lawyers may handle fewer mergers but more bankruptcy cases. And plumbers always seem to have enough work. Heck, Joe the Plumber is working on a book deal!
University enrollments often grow during recessions. Students who can't find work stay in school, and displaced workers go back to school to retrain for new jobs. As reported in Morningstar online (10/15/08), "In bad times, when individuals are losing their jobs, many people will look to education as a means to open up new opportunities. If there are fewer jobs to go around, potential students are more likely to return to school and learn a skill that provides increased, more lucrative opportunities." If you are an education provider, this may be the perfect opportunity to grow your business!
The entertainment and travel industries often benefit because people are looking for escape and rejuvenation. Expensive restaurants may lose patrons, but fast food places and grocery stores are much less affected. People still have to eat. Similarly, people may scale down vacation travel plans. That European vacation may become a family outing closer to home, a "staycation," actually keeping more money circulating in the local economy. Local spas may enjoy increased traffic even as the cost of travel climbs and the U.S. dollar weakens.
Healthcare spending is likely to remain constant or continue to rise owing to the aging of the Baby Boomer population. Seniors with discretionary income and good medical insurance are unlikely to postpone necessary procedures. Cosmetic and elective surgery will probably continue to grow, albeit more slowly. Fitness and prevention are growing trends that actually lower overall healthcare costs and should continue right through any economic downturn.
Where you ride out an economic storm is important, too. Northern California, with diverse economic strengths, great weather, and continuing draw as tourist destination, should experience a milder downturn than most other regions in the world. In the San Francisco Bay Area, singles and other lifestyle events and services, upscale retreats, and the youth markets should continue to show strength, even as other discretionary purchases such as new cars and home sales decline.
Negotiate With Cash
Commodity prices often drop during recessions, although this is not always the case. The term "stagflation," first coined during the Carter presidency, refers to stagnant growth accompanied by high inflation. With prices for groceries, gasoline, and many staples at or near all-time highs, stagflation is here again. Still, "cash is king," especially in tight credit markets, and with it you can often negotiate deep discounts, especially for major purchases such as autos, houses, and business supplies and services.
An important key to surviving a downturn is not to succumb to recession psychology. Recessions are scary and people feel uncertain about the future. Some people become literally depressed. They postpone spending, which further slows the economy. Entrepreneurs facing tough times may question their own self-worth. Try not to make important business decisions based on rumor or panic. Make measured responses instead.
Be consistent. Keep your clients happy and give them reasons to return, even at the expense of your profit margin. Avoid raising prices during a recession, even if your own costs are rising. Offer price breaks and concessions where you can-customers are looking for bargains. This creates goodwill and protects your client base. Offer clients alternative payment options. Extend credit terms. Accept smaller monthly payments, but insist on a regular payment schedule. If you are having trouble paying your own bills, re-negotiate with creditors. Make regular payments, even if you have to reduce the amount.
And be cheery! A kind word, a smile, and a good joke work wonders with friends and clients alike!
Could you stay in business if your income went down 10%? 25%? 35%? What is your "Plan B"? Most entrepreneurs find it natural to grow but difficult to deal with downsizing. Small businesses and independent professionals, especially those whose homes and savings are personally on the line, should avoid excessive borrowing, especially in times of tight credit and variable interest rates. Borrow as a last resort. Look first for ways to trim expenses:
- Eliminate expense accounts
- Cut salaries and wages
- Postpone employee training
- Defer equipment maintenance
- Reduce staff
- Replace salaried staff with contractors
- Delay the introduction of new product lines
- Extend credit from suppliers
- Moving to less expensive offices
- Postpone equipment upgrades
- Renegotiate loans
- Work harder or longer hours
Marketing In Tough Times
If you market consistently, you're likely to survive a recession stronger than you went into it. When your competitors are slashing advertising budgets keep yours constant. At least don't cut yours as much. You may even want to increase your outreach! Don't abandon your market simply to save a few dollars in the short run. Instead, position your business for future growth! Businesses that continue to promote through a recession often come out with a larger market share than they started with. We've seen this work time and again through several boom and bust cycles!
A Test Of Character
Tough times can be a test of resourcefulness and character, separating those who really love their work and care about their community from those who are only in it for the money. In the end, those who stay committed to their mission often pick up market share from competitors who quit and emerge from recession stronger than ever.
Bart and Janet founded OPEN EXCHANGE in 1974 and have steered their corporation through at least four recessions since that time. They are the authors of two books on marketing professional services and events. Their mission is to help independent professionals achieve success on their own terms.
By Bart Brodsky & Janet Geis