NEW SERIES - SURVIVING THE RECESSION

 The recession is upon us.  As the owner of a small business these challenging times provide an opportunity for rethinking and reinventing your business.   We hope you will find the first two articles in this series;"Keeping Things in Perspective" and "Rethinking Your Value Proposition" both thought provoking and helpful.Look for new articles in the series about every two weeks.

KEEPING THINGS IN PERSPECTIVE

These days it’s easy to feel like the rabbit frozen in the headlights of an oncoming semi.  Most of the news is bad; corporate icons filing bankruptcy, foreclosures, credit markets in crisis, unemployment rising, 401ks and IRAs in freefall, consumer confidence and spending plummeting.......   There can be no doubt that the situation is dire and that we have entered a recession that many small businesses will not survive.  As a business owner your options are limited; you either throw up your hands in despair or hunker down, start thinking and make the tough decisions and sacrafices necessary to emerge into the post-recession sunlight as a stronger company.

THINK GOOD THOUGHTS

Negativity is not your friend.  Here's some things to think about when life gets a bit grim:

• Recessions are capitalism's way of thinning out the herd.  The unprepared, the inefficient, the weak and yes, the unlucky are swept aside.  Those that  survive emerge stronger and better positioned to benefit from the next cycle of economic growth.  Admittedly, this can be difficult to appreciate if you're not among the survivors.
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• Unemployment in Lowell just hit 7.1% and the consesnus among economists is that it will peak nationally at around 7.5% which is certainly bad news, the good news is that 93% of the people in Lowell and around the country are still still working and collecting a paycheck!
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• Remember that life goes on.  Your customers, employed or otherwise, still have to buy groceries, drive somewhere and buy products as long as they are alive or in business.
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• Energy Prices Are Falling and in time we should see a decrease in the costs of raw materials and almost everything else.  This will allow you to increase margins and improve profitability.
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• Lastly,remember... You are not descended from the slow cavemen that got eaten by the sabertoothed tigers, you are descended from the quick ones that made it back to the cave.  You have the capacity to adapt and prevail.

Now that we're hopefully in a better frame of mind we can get into the specific things you can do to increase the liklihood of your survival.

RETHINKING YOUR VALUE PROPOSITION

Good marketing has always been the key to succeeding in business, it plays an even greater role in surviving a recession and prospering in its aftermath.  As we entered the recession many of the assumptions on which the success of your business is based changed.  Customers whether they are individuals or businesses have a predictable response to economic uncertainty, they reduce or defer spending, and shift their buying priorites.   Lets look a bit closer:

• Focus On Necessities - Goods and services that are regarded as luxuries are the first to feel the pullback by consumers.  Do I really need that $4.00 mocha chai latte?  Evidently not, when one considers that Starbucks profits fell 98% last quarter. 
• Pursue Lower Cost Alternatives - People pursue lower costs solutions, for example they will Replace the Mocha Chai Latte with a regular coffee or bring their lunch rather than eating out.
• Defer Discretionary Purchases -  Consumers defer the deferrable.   My auto repair shop says that people are going longer between oil changes and that expensive major maintenance services are being delayed by 3,000 to 5,000 miles.
• Reduce Purchase Size - Buying less is always a strategy for cutting back.  Go to the same restaurant but skip the appetizers, desserts, or wine with the meal.
• Decrease Frequency of Purchases - Continue to eat out but do so less often
• Pursue Value -  Buy what you need and want but aggressively shop for a better deal.  Walmart and the wholesale clubs are doing just fine in these recessionary times.

For some people these behaviors are driven by economic necessity, for others they represent a choice.  Both groups can be influenced to buy from you if you rethink and retool your marketing to create a compelling value proposition.

VALUE PROPOSITONS

A value proposition is marketing speak for the mix of reasons that people buy from you.  Value more than just a low price and it includes every aspect of your product or service.  Value is never just one thing and those things can be combined in all sorts of ways to induce a customer to buy.  Consider LL  Bean's value proposition - A reputation for quality  traditional clothing at a fair price with an iron clad customer service guarantee.   Walmart - Convenient locations with a large selection of merchandise at very low prices.  Tiffanies - A prestige brand of high quality jewelry and gifts at high prices that says something about the status of the buyer.  These are all different propositions that have worked  well over the years.  Among the thousands of creative possibilites :

If you select an value from each Column there are a total of 68,880 possible combinations and this list is far from complete, in fact it is endless.  There's plenty of room for creativity here.  You can differentiate your company from your competition and create a compelling value proposition.

WHY IS A VALUE PROPOSITION IMPORTANT 

 Value is in the eye of the beholder and has a direct and dramatic impact on purchasing behavior.   Percieved value can drive sales up or down; how much depends on the difference  between the price being charged and the customer's percieved value.  nothing succeds like a good value proposition. There are basically three possibilities: 

MODIFYING YOUR VALUE PROPOSITION

Increasing demand during a recessionary period requires bringing your current value proposition into line with the changing needs and values of your customer base.  Steps to the process are streight forward:  

What is your current value proposition - First you need to know your starting point.  What are you doing the that people value? What are you doing the people don't value? What are you doing that detracts from your value?  Ask your the people who know, your regular customers,why they buy from you. Ask how you can improve your business?  Remember it doesn't matter what you think, it only matters what they think.

Brainstorming on value adds - Think creatively about what you could add to your value proposition.  Get your employees or friends together, get a little silly and write down every suggestion no matter how absurd.  Revisit the list the next day and delete the truly dumb ideas, and the ideas that are beyond your financial limitations.  Some of the best ideas are found this way.

Get a Reality Check - Survey your customers since it is their opinion that matters.

Implement and Measure - Add value and then measure the number of customers, average sale and ordering frequency.  Did the changes make a difference?  If not try something else.

 

CONCLUDING THOUGHTS 

Creativity is what separates you from the "me too" businesses and what will make their customers your customers.  Creating Value is not the silver bullet that slays the recessionary dragon, it can, however, deminish its impact on your business.   The next installment Improving Your Cost Structure will help you think creatively about ways to reduce or eliminate costs, make your scarce money go further, and the implications of your cost structure on how you price your products or services.