What Industrial Marketers Can Learn From Past Economic Uncertainty

One of the realities of economic forecasting is that if you predict an upcoming recession, eventually you will be right. Since the Great Depression, there has been a recession or economic disruption about every six years. In fact, the U.S. is coming off its longest stretch of economic growth. History repeats itself, we just don’t know exactly how or when.

We also can learn from history in terms of economic recovery. While it is impossible to predict the future, companies that follow a particular path are far more likely to sustain or even grow during economic uncertainty and reap more rewards as the economy improves. This approach has been confirmed by:

• A 1985 McGraw-Hill study of 600 companies following the 1981-82 recession.
• A 2008 Harvard Business School study of 400 companies that reviewed three previous recessions, including the dot-com recession and post-9/11 uncertainty from 2001.
• A 2019 Bain & Company report based on research of 3,900 companies worldwide following the Great Recession.

Before we outline that approach, it’s worth discussing a wider context. History also repeats itself in that “winning” companies usually take the same page from the recession playbook, and you can often predict which companies will lose out by which playbook they follow.

Preventive Playbook: Pessimism Doesn’t Sell

Confronted by a recession or “black swan” event such as 9/11 or the COVID-19 pandemic, many CEOs quickly implement policies to lower operating costs, cut discretionary expenditures, reduce headcount and preserve cash. Business leaders who follow this playbook also often put new business initiatives on hold, halt M&A activity and reduce investments in R&D.

Their response is characterized by defensive moves, with little attention being paid to initiatives that could lead to growth on the other side of the disruption. This is problematic for many reasons, including:

• A focus on cost cutting stifles innovation when what is needed most is a culture of continuous improvement to build resiliency.
• Organizations try to maintain operations with fewer resources, often resulting in lower quality and a drop in customer satisfaction.
• A mood of pessimism and disempowerment permeates the organization; survival becomes the goal — for individuals and for the organization.

Promoting Playbook: May Miss Warning Signs

The promoting playbook might emerge from an optimistic, sales-driven leadership culture that often serves companies well in good times. Yes, there often is opportunity in the face of adversity, and there are benefits to:

• Getting closer to your customers.
• Getting the attention of potential customers who are being ignored by competitors.
• Making strategic investments that promise long-term payoffs.
• Acquiring talent, assets and businesses that suddenly become available.

But if a culture of “positive groupthink” marginalizes the “voice of reason” and gravity of the changing conditions, the results can be devastating. Such as:

• A company might miss early warning signs, such as customers’ budget cuts, and continue pushing their products and services at regular prices when their customers are demanding lower prices. They may lose key accounts.
• They don’t notice that the pie is shrinking, and that they must capture an even larger share from their competitors to keep growing.
• They may waste scarce time and resources chasing after the latest hot technology or shiny object.

Progressive Playbook: Find The Right Balance

The Harvard Business School study previously mentioned showed that the companies that fared the best through three different recessions were the ones who were able to master the delicate balance between cutting costs to survive today and investing to grow tomorrow.

The difference between being pragmatic and progressive is nuanced. A pragmatic approach will include playing offense in some areas and defense in others. A progressive approach may employ both to the same area. For example, after the 2001 recession, many big-box retailers closed underperforming stores. Staples, however, not only closed underperforming stores but also increased staffing at high-performing stores.

With that in mind, a Progressive Playbook might look like:

• Cutting costs not by slashing the number of employees relative to their competitors, but by improving operational efficiency. In the HBS study, only 23% of progressive enterprises cut staff vs. 56% of prevention-focused companies.
• Developing new business opportunities by making significantly greater investments than their rivals in R&D and marketing.
• Investing in plants, machinery and other assets with a focus on high-value processes, core products, key clients and growth markets.

Companies that followed the Progressive Playbook experienced the greatest increase in sales and earnings among the groups in the HBS study. They also are most likely to boost morale.

Source: Harvard Business School

Lessons Learned: There Is No Waiting For The Future

So what do these “winning” companies share in common and in contrast to “losing” companies? According to Bain & Company, companies that fared best through the Great Recession and the recovery were prepared to gain market share and accelerate as the economy recovered. They were more likely to:

• Exercise balance-sheet discipline by strictly managing cash, working capital and capital expenditures while investing for the next cycle.
• Maintain or increase marketing spend while their competitors ratchet back.
• Scale down spending on lower-value processes.
• Look aggressively for M&A opportunities.
• Invest in strategic account management.

Companies that lost market share in the Great Recession and were slower to rebound:

• Tried to cut their way to sustainability, often significantly reducing headcount, sales initiatives and marketing campaigns.
• Tried to wait out the clock, unwilling to take any preemptive action until they saw improvements in the economy.
• Lost momentum and were overtaken by competitors in sales and innovation.

From 2007 forward, the average enterprise value of “”winning” companies grew at a rate three times higher than “losing” companies.

Take These Strategic Steps To Prepare For The Rebound

What is certain is that companies can take strategic and tactical steps during economic uncertainty that put them in the best possible position to succeed when the economy rebounds.

Here’s how to strengthen your marketing prowess:

• INVEST IN KEY ACCOUNTS: Focus on the challenges facing strategic accounts and develop innovative solutions that reduce their costs while increasing their value.
• APPEAL TO THE NERVOUS BUYER: Tactically, this means including customer references, reviews, expert opinions, awards, and other validation as part of your appeal. Show you are a safe solution.
• ADJUST YOUR MARKETING MIX: When trade shows are cancelled, digital solutions are paramount. Capitalize on the power of video to show off your products and email to reach your prospects and accounts.
• MAINTAIN OR INCREASE YOUR MARKETING BUDGET: The marketplace becomes less noisy amid uncertainty as competing firms scale back their advertising. Position your firm as stable and dependable. Keep your brand top-of-mind for when the economy rebounds.
• IMPROVE MARKETING EMPLOYEE PRODUCTIVITY: This might be better tools, staff development or upgrading your talent.
• ADAPT SALES AND MARKETING TO MATCH NEW BUYING BEHAVIOR: Social distancing has turned B2B sales on its ear. Don’t be quick to dismiss video conferencing, especially if you have the right video assets for product demonstrations.
• TURN YOUR WEBSITE INTO A MARKETING ENGINE: Among the top priorities are defining your value proposition, implementing inbound technology, and making sure your customer solutions are searchable.

Learn from the past. History tells us how to prepare for the upcoming economic rebound.