How to Generate Incremental Revenue in a Recession

The Key Is to Make the Most Out of Capabilities You Already Have

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Thomas Nagle
Thomas Nagle

Business pundits often argue that a recession is no time to cut spending on marketing. Few CFOs agree. Times like these, when margins are down and the cost of raising new capital is high, are relatively unfavorable to new investments. Even fast-payback investments in trade shows or new ad campaigns look less promising when customers are buying less and expecting lower prices anyway. Still, some companies do mitigate sales declines with innovative marketing, often putting themselves in a stronger position for recovery as well. The key is to make the most out of capabilities the company already has to generate incremental revenue.

For example, an international commodity supplier spent heavily during boom times to buy ships, enabling it to meet the rapid growth in demand and control where its product was delivered based on wherever prices were highest. In the recession, it finds itself with more shipping capacity than it needs and the burden of the associated cost. Fortunately, the company has figured out how to convert an operational burden into a marketing benefit by positioning ships filled with as-yet-unordered commodity products in the seas near large markets. Customers, who have minimized inventories and advance orders to conserve cash, are willing to pay a premium for the quick delivery the commodity supplier can now promise because of its "local" availability.

Other companies are leveraging "advantages" in consumer markets. A gourmet restaurant in a high-end hotel sent my wife and me an invitation to visit three years after I moved into my nearby condo. Because I am a neighbor, they offered us free appetizers or dessert. Given their nice river view, that makes them competitive and an acceptable alternative to our usual less-costly fare. It also fills some empty tables while business travel is down.

Thomas Nagle is a partner in the Cambridge, Mass., office of Monitor Group. He founded the Strategic Pricing Group in 1987, the year he published the first edition of "The Strategy and Tactics of Pricing" (Prentice Hall Business Publishing). He previously worked as a professor of marketing and strategy at the University of Chicago and at Boston University. Nagle is a graduate of Penn State University and received his Ph.D. from UCLA.

What makes recessions such good times to leverage existing advantages is that cash-strapped, or at least saving-motivated, customers are open to making changes they would not have made before. Millions of previously loyal Starbucks drinkers are now willing to forgo a custom-made beverage for a good-quality, standardized substitute at a lower price. Dunkin' Donuts and McDonald's are using that newfound price sensitivity to offer cut-price lattes and cappuccinos, at what are probably very good margins for those chains. And the customers they attract may also discover that the bagels at Dunkin' and the salads at McDonald's are an equally good value.

The key to success is to be open to some inside-out marketing. Look at what you're already capable of doing, probably in excess because of the recession, and figure out how that capacity could enable you to offer a new service or enter a new segment quickly, with relatively minimal investment. At least you can generate incremental contribution during the recession, and at best you may capture some new customers for future growth.

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