Economic conditions have deteriorated, doomsayers are increasingly using the “r” word, economists are warning of economic headwinds, and your organisation is tightening expenditure in anticipation of a coming economic downturn or storm. If this situation occurs, and it will occur sooner or later, what should you consider and what are some of the risks and benefits your business can encounter when faced with economic uncertainty? There are precedents for how businesses survive and even prosper through downturns.

Uncertain times

Whether the consensus view of economists is for an expanding or contracting economy, history shows that predicting the future is difficult. Economics is not an exact science and every economist has their own ideas.

Economies are dynamic, complex interacting systems that even the brightest people and most sophisticated models cannot predict with certainty. This is in part because the availability of economic data and clear trends often significantly lags behind what is happening in the economy. Things change, sometimes rapidly. Financial markets respond to rumour and emotion and can impact the real-world economy and as is often the case, economists are often surprised and sometimes can only explain what has happened and why with the benefit of hindsight.

In Australia recently, some predictions of interest rate cuts have changed to an expectation the RBA may hold rates high for longer or even be forced to further increase rates. They have now fallen back to an expectation of a hold or reduction in rates (e.g., due to data confirming a softening employment market). While the media profits from pontificating about economics and even arguably fearmongering at times (people tend to pay attention to negative news) there is clearly a range of diverse opinions amongst economists. This diversity and uncertainty can be seen in this Australian Financial Review article.

Plan, don’t panic

Even so, you should heed the commentary of economists, as the best experts we have, and stay abreast of economic news to be able to gauge the best and worst case scenarios along with the consensus opinion. However, given the level of uncertainty in any prediction, it is prudent to plan for a range of eventualities and to help foster a business culture that is agile and able to pivot from one strategy to another as developing conditions dictate.

The level of contingency planning you undertake depends on a lot of factors, such as:

  • The economic landscape
  • Your market exposure
  • The level of competition for your product/service and how they are reacting to any downturn
  • Your organisation’s risk appetite
  • Your ability to create a narrative around a business case and secure the support of key stakeholders (and ultimately a budget that is in-line with your aspirations)
  • Government interventions, including any support packages your business may be eligible for.

Risk and reward

Downturns create obvious risks to businesses and individuals but they also create opportunities and not everybody is equally affected or affected at the same time. Consider those consumers on an average or below wage. An economic downturn may force them to tighten their expenditure and so not dine out at restaurants as often. However, those same people still have to eat, and while they may reduce their supermarket expenditure, for example to purchase cheaper brands, there is a limit to savings they can make at the supermarket. How exposed is your client base and business to a downturn? Do you have a product portfolio that is broad enough to be resilient in times of economic stress?

It pays to understand your businesses’ value proposition to its customers and any differentiation you have compared to competitors. Hopefully, you already have a keen understanding of the demographics of your customers and therefore some insight into how your bottom line may be affected. This can help you develop business cases to respond appropriately to any emerging threat, including an economic one, e.g., to focus on more value-oriented products.

Equally, it is important to monitor how competitors respond. Are they repositioning their offerings, are they doubling down on marketing expenditure (notwithstanding the gloomy outlook)? There is a history of big winners and losers during downturns, and some good evidence that “marketing through a downturn” can help you leap-frog competitors. Downturns are times of reckoning for businesses, but the outcome is far from pre-ordained. How you respond can significantly impact outcomes.

Can you afford not to market during a time of increased market change? Mark-Hans Richer, Chief Marketing Officer of Fortune Brands innovations says: “Marketers have the toughest job of sacrificing the future just for the present. You can’t take a year off of marketing – it’ll take you two years to get back.”

You can thrive via increased marketing during economic downturns*

Table with examples of outcomes from marketing investment by companies during tough economic times.

*According to The History Of Advertising In A Recession – B&T (bandt.com.au)

Summary

  • Your success or failure as the result of a downturn is not guaranteed – how you respond to navigate challenging and changing conditions matters
  • Monitor economic news and data closely – things can change quickly
  • Make sure you have laid the foundation for tough times e.g., by having a range of products/services and a thorough understanding of your market; periodic war gaming should already be part of your BAU
  • Understand and monitor your competitors
  • Consider maintaining or even increasing your marketing spend – downturns can produce considerable market upheaval and accelerate change. You want to emerge stronger, not weaker, once market conditions pick up. You can also even increase your market share during a downturn (e.g., if a competitor fails to properly respond, such as by cutting budgets)
  • Focus on key stakeholders within your business that can support you and ensure you can articulate a compelling story/business case to garner business support for whatever marketing initiatives you require to weather the storm, or to even prosper.

Some useful sources of information for Australian economic news



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