Learning from Recessions Past

This is the fifth recession that has occurred during my marketing career. In every decade, at some point in time, I have been advertising and marketing during a recession. The reality is that recessions come and go.

The way to deal with them is to look for the opportunities, and then change strategies to capture market share in a new way. The case studies of the strategies I used for each decade may give you ideas of what you can do now. You can read the details, or jump to the end of my muse and get the short list. But either way, use this list to guide you through decisions you’re making now.

I’m assuming the recessions of the 1990s and the aftermath of 9/11 in 2001 are still fresh in most people’s minds. But I’ll give you some background on the events that caused the recessions of the ’70s and ’80s to explain how we profited during down times.

The 1970s

Beginning in 1973 soaring oil prices from the Middle East caused American industries to raise prices at unprecedented levels, causing an inflation rate of more than 6%. Interest rates for mortgages and financing were at more than 12%. The economic “misery” index was 21.98%. Then there was an oil shortage that created long lines and waits at gas stations. Some of you may remember there were restrictions on when you could purchase gasoline, depending on your license plate number.

I was in my first advertising job. I had four main products to promote. Fortunately for me, all of my products related to American history. And in 1976 the U.S. would be celebrating the bicentennial. Excitement was building for the 200th year celebration, and massive plans were being made. Despite the economy, people were excited about the bicentennial. And they were willing to spend money for things associated with our history and heritage.

The strategy we used was to position all of our products to relate in some way to the bicentennial. One was a perfect fit. Two others were good fits. The fourth…, well that was a stretch. But by linking what I had to sell with a major celebration, we found customers and buyers when others were seeing declines.

The lesson learned was that even in a bad economy, patriotism and national pride are mighty powerful motivators. By looking for what was strong in the marketplace, and ignoring what was weak during this recession, we were able to achieve spectacular growth for our products. When the economy is bad, seize an opportunity to position your product away from the economic situation.

The 1980s

The recession began in July 1981 and “officially” lasted until November of 1982. Once again our oil policies were responsible for our economic woes. In 1980 the inflation rate in the U.S. was 13.5% - more than double that of the earlier problem in the 1970s. Key industries such as housing, steel and automobile production were hit hard, and the sub-industries that depended on them for growth saw massive declines as well. The prime interest rate was at a staggering 21.5% by June of 1982. Unemployment was at 10.8% by the end of 1982.

In mid-1982 bank failures had reached a post-depression high with 42 bank failures. By the end of 1982 the FDIC had spent $870 million to purchase bad loans in order to keep banks afloat. In 1983 another 49 banks failed. Between 1980 and 1983, 118 Savings and Loan Institutions failed. This was called the most serious recession since the Great Depression. By now you should be experiencing an overwhelming feeling of deja vu.

The company I worked for at this time was in an aggressive growth mode when this recession hit. Instead of being cautious, I was told to accelerate the growth program. As part of my acceleration I included dry-testing of new products for development, and market evaluations for products/companies that could be acquired. The 1980s was the decade that spawned a surge in acquisitions.

The accelerated growth policies I was told to implement in the six years from 1980 to 1986, allowed us to successfully launch 4 new product lines, acquire four new businesses, and launch 2 additional new product lines for two of our acquisitions. And it was all done profitably.

The lessons learned are that in a recession, businesses can be acquired at bargain prices. New ideas and products can be launched at a lower cost because so many industries are under-utilized. That creates a price-competitive marketplace where goods and services can be purchased at lower rates. If you look for expansion opportunities through development or acquisition when the economy falters, you’ll be positioned for massive growth and profit when it recovers.

The 1990s

The recession of the 1990s was caused by what is now an old but familiar story – oil. It began with the Gulf War and the spike in the price of oil in 1990 as a result of that war. At the time I was working at a manufacturing company. Most of our revenue was generated by very high-end equipment sold to the consumer market.

It seemed that overnight the bottom dropped out of our market. The cost-to-profit ratio of our sales narrowed until there was no profit. Re-strategizing was a necessity. So we looked at our lower-end, lower-price product line and immediately geared up to increase production and advertising for it. In the past we had viewed this product line as a sideline to the major business. Now we re-grouped and viewed it as our mainstay business.

As advertising increased, so did sales. As sales volume increased our per-unit manufacturing costs became lower and our profit margins higher. Before long we looked at ways to spin-off new products in the lower price brackets. We developed our marketing to educate a broader base of consumers about the use of the products and opened up new consumer markets.

The lesson learned was that there is tremendous opportunity available if you allow yourself to think differently. Had we stayed in our old mind set, we would have been a recession fatality. By opening our minds we elevated a secondary product into a huge success, dropped what had been the major product line, and turned the company in a new direction. It is still successful today. Try thinking differently. You may astound yourself with what you discover.

2001 – Post 9/11

When the twin towers and the pentagon were hit on September 11, 2001, the entire U.S. economy came to a standstill. This was an economic downturn of a different kind. Fear, uncertainty, and skepticism were rooted in something more than price indexes and prime rates.

Excelsior Marketing had been around for eight years. It was my first recession as a business owner. But when you own a marketing agency, you deal with recessionary times not only for yourself, but also for every business and industry you have as a client. During this time we didn’t lose a single customer. But our customers weren’t spending. At least they weren’t spending much, and certainly not enough to sustain us.

18,500 jobs were lost in the marketing service industry within four months. Many small agencies closed. Others, the lucky ones (?), were bought by larger firms. I believe we survived for one reason. In 1998, when the economy was vibrant and healthy, we started a policy of diversifying.

I made the decision that it wasn’t healthy to have too much of my income tied to any one client, or any one market. That way if there was a slump in one area of the economy, and one client pulled back, it would not have a serious impact on us. In the professional services sector, the single major reason for failure is to rely too much on just a few clients, for the majority of the earnings.

The lesson learned is that you can’t become dependent on one source of revenue for your financial health. If you are niched too closely to just one market, or if you are dependent on relationships with a couple of big clients or contracts, you are vulnerable to the whims of others or market events you can’t control. Diversify and create a business that receives revenue from a variety of sources and you’ll increase the odds of winning the game.

So as you look at your strategies for 2009 remember these points:

1. The recession will not last.
2. Look for opportunities that are not tied to the economy.
3. Take advantage of lower-costs to engage in expansion, development and acquisition.
4. Think differently about your business so you can see new ways to develop.
5. Keep your revenue channels diversified so that no single situation can cause a serious impact to your survival.

In planning for a recession, keep in mind the words of the award-winning economist Paul A. Samuelson, “The stock market has forecast nine of the last five recessions.”

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