How to thrive in a downturn - the foolproof guide

How to thrive in a downturn - the foolproof guide

Find out which companies thrived in the Great Recession and COVID-19 pandemic and how they did it.

Don’t cut your marketing budget in a recession

I was recently reading some articles by HBR and Forbes on the subject of why you shouldn’t cut your marketing budget when a recession comes. HBR states that the Companies that bounced back most strongly from previous recessions usually did not cut their marketing spending, and in many cases actually increased it. But they did change what they were spending their marketing budget on and when to reflect the new context in which they operated. They also revealed some insightful pointers, namely:

• Products launched during a recession have both higher long-term survival chances and higher sales revenues.
• Companies that raised prices soon turn to price promotions to reverse the effect, but this see-sawing on price backfires and causes reduced market share.
• During recessions, when most companies are cutting back on their brand advertising, a Company’s share of voice increases if it can maintain or increase its advertising budget.
• The cost of advertising also drops during recessions, and lower rates create a “buyer’s market” for brands.
• Brands can also project to consumers the image of stability and solidarity during challenging times.

I thought it would be interesting to go back and compare the Great Recession with the COVID-19 pandemic to discover which companies thrived and how they did it.

The Great Recession - what happened?

The Great Recession of 2007-09 was the longest and deepest economic downturn in many countries and was precipitated in the US by the financial crisis of 2007-08. The financial crisis was caused by a severe contraction of liquidity in global financial markets, which began in early 2007 when the US housing market bubble burst. As the subprime mortgage market collapsed, many banks found themselves in serious trouble, in part because the underlying subprime loans were difficult to track and banks began to doubt each other’s solvency, leading to an interbank credit freeze. This then impaired the ability of banks to extend credit to even financially healthy customers and businesses, which led to businesses having to reduce their expenses and investments, causing widespread job losses and reduced demand for products. What then happened was that the portfolios of even the prestigious banks and investment firms were revealed to be largely fictional, based on nearly worthless (“toxic”) assets.

This resulted in many such institutions declaring bankruptcy or applying for Government bailouts. Lehman Brothers went bankrupt. Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester all came within a whisker of going bankrupt and had to be rescued through Government bailout programs. The car companies General Motors and Chrysler also declared bankruptcy in 2009 and were forced to accept partial government ownership through bailout programs.

If you’re interested to read more, this article in the Guardian gives a really insightful timeline of what happened in the Three weeks that changed the world .

Which companies thrived in the Great Recession and why?

The next recession is looming over the horizon as 2022 draws to a close. Caused this time by the war in Ukraine, an energy crisis, a cost of living crisis and inflation, as well as the after-effects of a global pandemic in 2020-21. I was intrigued to find out what types of businesses thrive in a recession and which don’t. It’s fairly obvious that businesses that thrive are usually in essential services, like healthcare and grocery, as well as technology involving streaming services, cyber security, tech support and computer equipment, and companies providing guilty pleasures such as fast food, beer, wine and spirits, etc. As consumers cut back on nonessentials, it’s not surprising to see businesses in hospitality, restaurants and fashion retailers taking a hit and discount retailers performing strongly.

But, there must be more to this, so what were the traits of those businesses that thrived in the Great Recession?

Netflix - innovate and continue to appeal to your audience

In 2008, Netflix wasn’t the media giant it is today. In fact, Netflix introduced a new product (the streaming service) at the time of the Great Recession in response to dying video rental stores. It was these innovations that enabled Netflix to grow during the recession, but it did so by finding new ways to continue to appeal to its audience, whether that meant introducing new products, or expanding its products with partnerships and collaborations like Xbox.

Citigroup - focus on brand and offer quality services

By 2014, Citigroup had grown in assets, making it one of the only banks to have grown since the 2008 recession. They were able to grow in the aftermath of economic distress because they focussed on branding and offering quality services, which included supporting certain community services which helped with their brand story.

Lego - expand into new, more profitable markets

To a certain extent, Lego should have been impacted by the recession as toys and amusement parks are nonessential, however, during the 2008 recession, Lego expanded into a global market. They concentrated their efforts on building revenue in Europe and Asia, while the US market faced economic distress. By doing so, they reached all-time high profitability during a recession.

Mailchimp - change your business model

Mailchimp was founded in 2001, during the aftermath of the economic crisis caused by the dot-com bubble bursting. They survived the Great Recession because they changed their entire business model - they became a freemium business, and their revenue soared.

There are also a couple of iconic companies that succeeded during previous recessions.

Microsoft - eliminate barriers to entry

In the early 1970s, the US entered a 16-month recession and it was in 1975 that Bill Gates and Paul Allen developed the concept of easy-to-use computing for homes and offices. They paved the way for businesses to eliminate some of the highest boundaries to leverage technology.

Apple - invest during downturns

Apple transformed itself during the dot-com crash of the early 2000s and in the wake of 9/11. It was then that Apple launched the iconic iPod and completely disrupted the music industry.

COVID-19 Pandemic

We’re all familiar with the ongoing global coronavirus pandemic, but I thought it would be interesting to compare this to the Great Recession, in terms of which industries and companies thrived, to identify any common traits. Whilst the pandemic wasn’t a recession, it has affected all industries, but had a bigger impact on some sectors and firms than on others. The risk of infection from different activities, the ability of businesses to operate remotely, and the policies to contain the spread of the virus have each played a role.

The industries that were most negatively affected by the pandemic were those that are dependent on human contact and interaction, which coincidently are actually very similar to those most affected during the last recession, e.g. the nonessential shops and businesses forced to close - hospitality, restaurants and high street fashion retailers; as well as nonessential spending on travel. The pandemic also acted as an accelerator of digitalisation, thus boosting the technology sector (streaming services, cyber security, tech support and computer equipment) which typically happens in a recession.

When it comes to e-commerce, the global pandemic resulted in e-commerce becoming the primary method of shopping. The biggest increases of this shift to online were seen in IT, electronics, gardening and DIY, pharmaceuticals, education, household products, personal care and home fitness sectors; a direct result of working from home and increased recreational time due to lockdowns, as opposed to recessionary pressures. Despite e-commerce increasing in popularity and overall e-commerce sales growth, average online monthly spending per shopper has declined as a result of COVID-19 due to concerns about the effects of the pandemic on the economy. We then see similar changes to consumer behaviour as in a recession - cutting back on spending, bulk-buying certain items, spending less on experiences, delaying the purchase of more expensive items and saving for any future financial hardships.

COVID-19 - an accelerator of the pivot

We’re probably all familiar with the companies that prospered during the pandemic - Amazon, Google, Microsoft, Zoom, Hello Fresh, Peloton etc.; but what was more interesting was how successfully some businesses pivoted.

Spotify - make a lateral move

Prior to the COVID-19 pandemic, Spotify was the global leader in digital streaming and on an upward trajectory, with its large customer base of free users listening to advertisements before the music played. In response to advertisers cutting budgets in the wake of the pandemic, Spotify made a lateral move by pivoting into original podcast content, signing exclusive deals with celebrities and curating playlists.

Nike - DTC, just do it

This probably doesn’t sound particularly revolutionary, however, prior to the pandemic Nike has been exploring new ways to engage with customers, and had been scaling back their relationships with wholesale retailers to increase profit margins and have more control over the customer journey. Nike then hit the ground running when the pandemic hit, by fully embracing DTC - directing traffic to their website and app, and capitalizing on the health and fitness trend with their Training Club App and Nike Member, meaning they could stay in the pocket of close to 2m active users in over 200 countries.

Verizon - go touchless

US telecommunications giant Verizon used the pandemic as an opportunity to pivot its customer experience through technology. They introduced a new end-to-end retail experience beginning at the customer’s home, which not only offered safety, security and speed, but also used familiarity with every touchpoint, for example, appointment scheduling is similar to buying a movie ticket online.

How to thrive in a downturn - key take-outs

All of these companies succeeded because they looked for new opportunities, expanded into new markets, adjusted their business models, developed new products, innovated to continue to appeal to their audiences and pivoted their business models, distribution and customer experiences.

Thanks for reading and if you seek more inspiration check out the Zone 4 blog >