Reading daily about the economic downturn? Sales and profits figures slashed? Government bailouts, cutbacks, layoffs and facilities closings? Well, the best strategy may not be to cut and run.
Following the herd can be dangerous to your brand, and to your business.
While you were growing your business, you invested heavily in building your brand. Beginning by defining your business’ core values and devising your strategy for communicating these values to your customers through every aspect of your business, you offered your consumer a clear promise of the products, services, experience that would bear your label. If you were successful in delivering on your promise, the consumer rewarded you with purchases and loyalty.
In bad economic times, your brand, your most precious, off-balance sheet asset, might very well be your best protection. So, before you rush in and indiscriminately cut costs, first carefully examine the health of what you’ve created. In those instances where the euphoria of seemingly endless good times induce you to spend opportunistically, diverging from or ignoring your original branding strategy, you might indeed find costs worth cutting, or business lines that might best be divested. But, where your investments yielded a strong brand foundation, you should certainly move to protect your brand and if you have the means to invest, enhance it. Consider that there may be no more advantageous moment to build your brand than the moment that your competitors are weakening theirs.
Reacting to the news reported in the general media, may also mean that your timing is off. Often, by the time the economic data is disseminated and reported by the press, the economic problems may be well under way and the moment to take aggressive preventative measures may have passed. Limited access to timely financial data and reliance on the pundits means that many mid market companies are always relegated to playing catch up ball.
Across the board cut backs in business spending and investment may in fact exacerbate the severity of the decline. Contractions in business activity are opportune moments to re-examine the basic principles on which the business was built, to critically evaluate the business’ relationship with its core customer, and to take action to strengthen those relationships.
Brand driven businesses have unique relationships with their customers; the customer relationship is a deal between the brand and the customer, in which the brand makes certain promises and the customer remains loyal so long as those commitments are met. The core of the brand-customer relationship is trust.
While exercising caution in anticipation of a downturn in business is surely warranted, one of the reasons why this strategy may not be best for smaller or medium size businesses is that by the time we acknowledge the problem, it is well under way. Limited access to timely financial data and reliance on the pundits means that many mid market companies are always relegated to playing catch up ball.
Particularly after long periods of economic growth and business expansion, a business would do well to ask: Have we remained true to our core principles? Have we clearly articulated to our customers what we stand for, and, have we consistently delivered on our promise?
A variety of tactics are available to businesses of all sizes to develop the data necessary to answer these questions. Larger and flusher businesses may commission professional, quantitative and qualitative market studies to ask their customers “how are we doing”. Through questionnaires and focus groups, the marketing professionals can develop a fairly accurate answer to this question.
But as New York’s Mayor, Ed Koch who was famous for walking down the streets of his city and asking his constituents, “How am I doing” taught us, asking customers directly often yields excellent results. Businesses too can develop fairly reliable information using anecdotal techniques. Conversations with customers both before and after a sale is made, with suppliers and others integral to the success of the business can yield significant and reliable information. In fact, a personal interaction with your customer not only gets you access to information, but also demonstrates to your customer that you care, and that’s always good.
Once this information is collected, management should implement a program of discussions, with appropriate executives, to digest the information and determine where the business may have strayed from its core message in ways that might have been hidden or overlooked during the expansive years.
With the business leadership properly focused on the brand message, the ways in which it was successfully delivered and the areas in which it might have been obscured or worse, overlooked in favor of a more opportunistic tactic, management is equipped to develop corrective measures.
Quality control, merchandising, design, selling strategies and marketing all need to be critically examined. And where improvements can be made, they should be implemented. But the common theme in all of this is a laser like focus on the customer: What have we promised, what may he expect, how can we better deliver, how can we make him aware of our commitment and earn or re-earn his trust. Truly, in bad times as well as good, the customer is key.
If new products or service lines were added that are not in keeping with the brand promise, these should be cut or scaled back. Even when the short-term effect of these cutbacks might reduce near term revenues, the moderate to long-term benefits or enhancing focus, investing in the further development of core businesses will outweigh the short term pain. In some instances, where these diversions from the business’ core message have been well enough developed to be of interest to industry partners, a sale or divesture of these ancillary businesses might make some sense.
It is very tempting to cut prices, staff, and facilities to protect the business. But more often than not, these cuts will reduce the business’ flexibility to respond to market demands. Ironically, this loss of flexibility to innovate to meet new market conditions will often handcuff the business and commit it to stay with the very strategies that led to its problems. And while price cutting alone might reduce inventory and increase or maintain cash flow, it will also reduce margins and drag an up market business into the domain of its lower priced competitors, frequently increasing the downward business spiral. One need only look at the pernicious effects of end-of-year sales in the department and mass retailer sector to appreciate this phenomenon.
In an ideal world, a brand driven business would keep to its message, secure its market niche and continuously enhance its bond with its customers. But this is not usually the case. Periods of rapid growth and expansion often present tempting “opportunities” to quickly enter new markets, increase product categories and expand the business. When the economy or business shows signs of faltering, the smarter brand driven business is one which appreciates the value of its brand, understands how it is a strong, yet fragile, engine for stability and profitability, and takes measures to protect it.
