The Hindu Business Line : How to stay recession-proof

A recession is a slowdown in economic activity leading to a loss in confidence. Economists, politicians, media, consumers and companies behave differently in a recession. Economists try and explain things while trying to stimulate growth; politicians try and downplay the bad news and clutch at straws of good news; media headlines are about how bad things are, thus creating insecurity; consumers seek to maximise value in a recession and companies try to get lean and remain competitive.

A recession unleashes the creative energy in a firm and generates a new generation of different-thinking leaders. Understanding consumer behaviour in a recession is even more important. In a recession, what’s important is how consumers view their income and not necessarily the amount they earn. Consumers balance the postponement of expensive discretionary purchases versus the innovation and desire that a brand creates. Consumer behaviour in a recession compares the value of a brand relative to competition; hence, improving the value of a brand leads to profit and growth. In a recession, consumers tend to read labels more, and speak with counter salespeople to gather more information. Providing more information that helps consumers choose your brand is a smart move.

In the 1970 recession, Rowntree (a historic brand currently owned by Nestle) reduced the thickness of the chocolate layer around Kit Kat while competitor Mars increased the price, and maintained quality. It took Kit Kat years to recover from that move.

Lipstick sales have gone up in recessions as it is a small way for women to feel better about themselves. Durable companies feel the effect of a recession immediately through signals such as slowdown in replacement sales, easy financing not working like before and the trade defaults on payment while demanding more credit.

FMCG firms take a little longer to pick up signals as their stock pipelines are longer, and the signals of consumers using smaller portions coupled with adjusting frequency of category use takes time to understand.

Companies tend to cut marketing investments during a recession even though the evidence is very much against this tactic. The answer is to focus on the strategic agenda and do a few things, but do them well. Investing in innovation helps.

Gillette Sensor was launched during recessionary times and went on to become a great seller. The one thing leaders should not do is cut price indiscriminately. There is a natural request from everyone in the organisation as the media is talking about hard times. Bad news sells. Price cuts do not reverse a recession or the consumer mood. Altering value can certainly help consumers think differently about the brand, about themselves and the times!!

Senior managers could do well to look at five things in a recession:

Scenario planning: Plan for the worst scenario; what comes up in real life will only be a version of the worst and you will have a reasonable answer

Re-evaluate consumer needs

Strengthen core positioning through marketing

Cut irrelevant innovation and non value-adding activities

Take a fresh look at supplier relationships

I believe the ultimate challenge for a brand is to make consumers feel good about themselves in a recession!!

(The writer is Managing Director and Vice-President, Nokia India.)

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