Recession is not all bad news - now focus on innovation

News of the impending recession is all around us.  Banks collapsing, inflation rising, unemployment back in the headlines, bad news stories everywhere….

You might be forgiven for thinking that now is the time to curb R&D and marketing spending, minimise risk and to sit tight and ride out the storm.   But such a low risk strategy could be the very downfall of your business over the next few years.

Recession can be a good thing for business by forcing us to become more creative and innovative.  Recession, after all, is an established part of the economic cycle and history has shown time and again in a recession the winners are the ones who take risks, focus on customers and think beyond immediate survival tactics.

We need to look for ways to be one step ahead of the competition and what better way to achieve this than through innovation?  I'm not necessarily talking about radical innovation leading to a new product or service for your customers, it could just be innovative thinking leading to more efficient internal processes or production or innovations in the way you conduct your marketing and advertising campaigns.  The message is to look for ways to improve your business model and keep competitive. There's no better way to illustrate this with some classic examples from past recessions.

Ma Perkins Soap Opera

The most famous and hard hitting recession, (perhaps until now!) "The Great Depression" of the 1930's, saw Proctor and Gamble investing heavily in new products and advertising.  In 1933, its first synthetic detergent brand, Dreft was launched.  More radically, the president of P&G, Richard Deupree, took a step which changed not only that company but the broadcast medium forever while creating great demand for its products.  Traditionally, radio advertising was conducted on 'product oriented' shows which were similar to today's infomercials.  P&G shareholders were demanding advertising cuts but Deupree knew that people were still buying essential household products.  So he created radio programming that did not focus on a product.  Because of that, we now have a cultural attribute known as the "soap opera."

In 1933, P&G went on the air with its first "soap" - "Ma Perkins," sponsored by Oxydol.  By the time 1939 rolled around, P&G was sponsoring 21 radio programs and were the market giants that they still are today.  You don't have to be an addict of the modern soaps like EastEnders or Corrie to appreciate how innovative his concept was at the time.

The next deepest recession of the 20th Century in 1980-82 saw the birth of media giants CNN and MTV as well as technology names such as Sun Microsystems and Compaq Computer.  And a good example of innovative thinking forced by recessionary times was the birth of the airline miles-based loyalty programs by American Airlines and Delta Air Lines in 1981.

In the 1990/91 UK recession, Renault launched the Clio with its now infamous advertising campaign featuring Nicole and Papa.  Its first year's sales by far exceeded Renault's expectations.  Innovative brand management was emulated by other well known brands at that time such as Andrex, Gold Blend and Haagen-Daz, who all saw their market share increase during the recession.

Intel launched a marketing campaign in 1991 that revolutionised the computer industry and turned the obscure company into a household name.  The "Intel Inside" concept positioned the microprocessor chips as the "brains" of the personal computer directly to their consumers, rather than battle with their competitors on price alone.   The result was a 63% increase in sales world wide.  They became the 3rd most valuable brand in the world behind Coca Cola and Marlboro.  Within 2 years, the preference for the brand had risen 80% and the company claimed more than 75% of the microprocessor market.

iPod

And what of the short recession following the dot-com burst. Perhaps one of the most iconic products of our generation was born, the iPod.  Launched by Apple in 2001 it represented just one thread of their innovative approach.   2001 also saw the launch of their retail stores. Whilst many at the time saw it as a mistake, Apple stores in the US now generate as much revenue per square foot as jewellery stores.  Apple saw the recession as reason to pour more into innovation, not less.

Research backs the need to invest in innovation.  A British study of 1,000 businesses during the past 30 years, by Profit Impact of Market Strategy, found that companies that spent more on innovation during the downturn saw return on capital employed rise 23.8% during the recovery, compared with 0.6% for those that slashed spending. The longer-term improvement in profitability is likely to greatly outweigh the short-term reduction in expenditure.  In good times and bad, innovators win.

So if I'm asked what I think about the current recession, I can't help but feel positive.  After all, we champion innovation at Mindsheet.  Now is the time to really examine your business model - where can improvements be made, even small ones?  Get closer to your market to truly understand what your customers require and think how you can meet these needs.  Of course there are likely to be cuts, but these should be based not only on the business case but also where there is low long term market value.

And on the macro scale, there's no better time to really shake the market up with your disruptive innovations and establish your foothold for when the good times come back.

In the words of Sam Walton the Founder of Wal-Mart:

"I was asked what I thought about the recession. I thought about it and decided not to take part."