Recession – Fight Or Flight?

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Under pressure? How can you possibly make it through a period when new business will be as rare as hen’s teeth, some of your best customers are falling over while still owing you money and your margins are as thin as a catwalk model?

Fight?

Fighting your way out means thinking up new ways of doing business. This will involve expanding your product range beyond your company’s comfort zone. You may slim down some products in order to bring them within purse range and repackage others in order emphasise their recession beating qualities. You may send your sales team into new territories, whether they be geographical or new industries.

You may even need to break some cardinal rules. For instance, you may decide to cut out the middle man if the middle man is floundering under the pressure. Marketing directly to end users and taking a greater cut is a risky business. It is hard to draw back from doing this once the investment is made in more sales staff and marketing material. Fighting your way out of recession also means maintaining your market presence so, do not let up on the advertising and increase it if possible.

Flight?

The flight method is far more cautious. It’s all about keeping slim and trim. Cut all unnecessary overheads. Concentrate on products that are winners. Cut out those products that have yet to turn a profit. Don’t keep waiting for them to take off. Cut them now. Keep up your standards. Do less, but do it well, rather than thrashing around and venturing into unknown areas. Do not allow your company to lose its dignity by attempting to be all things to all men. Draw back to your strengths. Keep to profitable, proven lines and maintain a reputation for quality. Accept that you will contract and do it gracefully so you can emerge from the recession with a good reputation and build again. It’s all about survival. This may mean a smaller product range. This may mean less customers as some go bust and new business does not come through. As the available business shrinks, so must your overheads. You may need to severely cut back on marketing apart from any with a proven track record for getting measurable results. If you don’t know if it is working then cut it out. Get smaller and tighter, but keep a good quality core so you can emerge again out of the bunker when the worst is over.

Case Studies

An example of taking flight when faced with recession can be found with transit packaging products. All retailers and logistics companies that handle fresh foods need a facility to transport and store goods in a chilled environment. There are also some products, such as bakery products and bananas that require a relatively warm environment. By covering these product with thermal roll cage covers and thermal pallet covers major investment in temperature controlled chambers in distribution centres, vehicles and even retail stores can be avoided. As you can imagine, the financial saving is mind boggling. The alternative of doing nothing is unthinkable as these goods will currently be handled and delivered direct to store by specialist handlers which is crippling in its expense. However, things are getting tough out there. Although the return on investment in using Roll Cage Insulation Covers is overwhelming and obvious, the benefit will not be seen for at least 12 months. These days, even very large companies are thinking of the here and now, and a payback of 12 months is simply too long for many, no matter how lucrative it is. So, this is a case of flight and there is no doubt that sales of thermal covers have started on a downward trend, after several years of rapid growth.

However an example of fighting can also be found with another transit packaging product. With every depressing announcement about job losses and company closures, the sales of padded covers which are attached to the tips of forks on fork lift trucks, Sumo Gloves, have increased rapidly. Businesses that were previously trialling this product are now buying in unprecedented numbers. So why fight the recession with fork lift protectors? Simple. The return on investment can be a matter of hours as there is also less damage to stock, racking, vehicles, fixtures and crucially to people. Spending rarely and wisely in a recession is obvious. Spending on a rapid payback product is a no-brainer and an example of taking positive, aggressive action to fight the recession.

Which Way to Go – Fight or Flight?

In nature, the two options are opposites of course. In another time, in another recession, you may indeed go one way or the other. This is different. This is serious. This is like no other recession we have seen in a lifetime or more. Somehow you must defy nature and logic. You need to somehow do both: fight AND flight.

This certainly means cutting out overheads. You may need to cut out existing lines that are still not showing you a profit. Be ruthless with poor performing products. If the pay back is in 6 months then just take a sober pill for a minute: your company may not be around in 6 months. Nothing with a payback of 3 months or more should be considered. However, if you take products out then consider putting new ones in their place by expanding your product range into new areas. However, it is vital to ensure that any new products are profitable form the start. This may require sharing start up costs and risk with producers and others in the chain.

Cutting prices in order to stay in business may be an absolute necessity. However, it does not follow that this will result in a dangerous slimming of margins. Once again, share the pain. If you expect to suffer in a recession then so do your suppliers. Tell them the story: you can only continue trading with them if you can compete in the market. They, in turn, will presumably share the pain with upstream suppliers. You must encourage as much of the supply chain as possible to share the margin squeeze so the pain is spread around. As I said, this is what they will be expecting anyway, so don’t disappoint them!

As you will inevitably need to slash prices, make a show of it. Use the opportunity to push certain products, especially those where you think that margin can be reclaimed with minimum effort once the worst is over. Products that will be profit winners in the future are the ones to push right now. You may even consider splitting a product into 2, with one being a low cost value line and the other being a high margin premium product. Be careful: customers do not like being given a load of hype. The difference between the two products must be substantial and not just cosmetic. Another warning: be careful not to confuse your customers. you may end up with lower sales if they can’t find the original product. A safer alternative would be to keep the original just as it was and introduce a value version only. This will promote the original product as the premium line without having to change it at all.

Selling to new areas, whether they be geographical or new unfamiliar industries is a hard one to call. This is a credible and quite common example: you are faced with the choice of laying off sales staff as the business is simply not there or moving them into new territories in order to make use of the spare capacity. This is a classic flight of fight scenario. Once again, as this is not just another recession, neither option is adequate. Think outside the box. Why take the gamble on your own back? Why not put an offer to those sales people most at risk: reduce their salaries and increase their commission or even consider offering them work on commission only basis (effectively they would be self-employed, but this may not be allowed in some jurisdictions). Their task will be to develop new areas of business and pay for their own costs in the process. They will be motivated to win your company new business. They will still be a part of your company and your industry. Although this might be quite scary for them, it would surely better than having them digging up the garden or watching daytime TV.

Be careful of taking drastic action unless it is absolutely necessary. Depending on your sales structure, if one of your distributors is struggling to the point that they can no longer effectively sell your products, you must take quick and decisive action. Selling directly may be a step too far, however, As I said above, however serious things get, you must not lose your dignity. You must be ruthless about cutting out dead wood, but keeping the network together is still very important. It would probably be preferable to spread the work of the failed distributor amongst the others as you may need all the help you can get rather than having the cost of setting up direct sales yourself. In any case, such a move might send all the wrong signals to your other distributors and cause a gradual decline in performance as they look elsewhere for their future income.

As far as marketing and advertising is concerned, you must insist on having your cake and eating it as well. Remember the old adage of using advertising to beat your way out of recession. Well, it’s not an old adage as it was thought up by media executives hungry for advertising. Remember, it’s the guys with the transmitters, microphones, TV cameras, web sites and printing presses who have managed to get this “old adage” across to us. Tell those companies that the rules of the game have changed. Once again, they will expect some pain as well, so spread it liberally. If you cannot achieve the price cuts that you wanted then you must consider changing suppliers of marketing. There are so many media outlets and such rampant competition out there, that, despite the disruption and pain, the change may be well worth it. Also, it would be well worth considering asking your supplier to contribute to campaigns that are specific to their products. You must try to maintain your market presence (and ideally increase it) but this must be at a lower cost than it was previously. This is something you must push as the door is already open when it comes to getting good deals on marketing and advertising.

That goes for other purchases too. Get more bangs for your buck. On all purchases make sure you are driving prices down and getting the best deal you can. Do not meekly accept price rises. You are squeezing margins so expect others to share the pain.

Happy Ending?

So, too much fight and you may make take unnecessary gambles, potentially destabilising your company and its distribution and sales chains. You risk alienating those around you and possibly confusing your customers. Too much flight and you risk shrinking your company back to embryo stage to the point where you will lucky to have a park bench and mobile phone to do business from. The key is to do some of both, but do both smartly. Be careful not to make investment decisions that will bring benefits when it is too late. However, be alert to opportunities that will bring you a rapid return on investment.

The key is to share the pain with others, whether they be supply chain partners or staff. If you survive – and there are no guarantees – you will come out of it stronger and with closer ties to all those that helped in the process. Above all, you will still have customers and still have a business to build up again.

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Source by Vernon Stent