Will this be your first recession rodeo?

In a previous article I referenced Mark Twain’s quote, “history doesn’t repeat itself, but it often rhymes.”  If true, then this is a poem about marketing in a recession by reflecting on lessons which I will attempt to freshen...Ok, no more poetry.

I recently revisited the WikiBranding articles I wrote during the 2008-2009 meltdown that spotlighted best practices from a range of marketers.  It struck me that those of us who guided businesses through The Great Recession can share lessons we learned with managers for whom this downturn might be their first.  (Bob Barrie, Stuart D’Rozario and I had just co-founded BD’M; learning how to navigate the recession was not a choice!) 

 

Who decides if we’re in a recession? 

 

Spoiler alert:  the consumer decides.

 

News stories about the economy lead us believe we’re in a recession – the “R-word” is having its moment.  

 

Economists might say otherwise, based on their often used definition of a recession, i.e., two consecutive quarters of falling GDP.  Other economists take a more holistic view to define a recession, e.g., labor market, consumer and business spending, industrial production, and income. 

 

Taking that wider view, payrolls increased in June, as did hourly wages, both growing faster than expected, as well as consumer spending.  

All good, right?  Hardly.

 

These broader data points miss a deeper point.  Consumer spending accounts for 70% of GDP, therefore when consumers feel we’re in a recession, their behaviors follow suit.

 

And that seems to be what’s happening.  

New polls show 58% of Americans believe the country is in a recession, up from 48% in May.  Unsurprisingly, consumer confidence has declined for three consecutive months.  And all this is happening in an environment where inflation is at a 40 year high and the average 401k is taking a beating.  It’s easy to understand why consumers feel anxious.

 

Lessons from the Great Recession

 

It’s worth taking stock of the present day and see how the forces that caused the Great Recession differ from what we are currently experiencing.

   

The 2008 recession was caused in large part by greed.  Lenders knowingly dealt toxic subprime mortgages and consumers gorged on easy credit to borrow and buy more than they should.  Financial regulators were asleep at the wheel, or worse yet, complicit.  (I’m dusting off “The Big Short,” Michael Lewis’ epic recount of that economic wildfire.)

 

This slowdown is different; it was caused largely by the pandemic.  In 2020 companies worldwide shut down, reduced output, and laid off workers.  Fast forward to 2022 and we see how this crippled the global supply chain which cannot keep pace with the post-pandemic spike in demand (i.e, “pleasure revenge”), leading to inflationary prices.  

 

So here are some lessons from the Great Recession that today’s marketing leaders may want to consider. 

 

Fear was the enemy:  

In 2008, in an environment of layoffs and home foreclosures, the vast majority of consumers were not at risk of losing their income or home, yet began cutting back on spending because they were uncertain about the future.  Back then, most automotive marketers defined affordability as the problem and set out to solve that through cut rate financing and lease rates.  

Hyundai did something different.  The company correctly diagnosed fear as the problem to be solved – the consumer’s uncertainty about might happen – and launched its successful Assurance program, allowing consumers to return their new car within a year if they lost their job. 

 

Discounting didn’t differentiate:  

Marketers in many categories attacked the affordability problem through unsustainable price cuts that eroded long-term pricing power.  Circuit City filed for bankruptcy, proving discounting alone was a race to the bottom.

Best Buy, a client of BD'M that was facing the risk of becoming Amazon’s showroom, took action on two fronts by matching online pricing while also adding unique value (and customer reassurance) through its in-store Blue Shirts and in-home Geek Squad.  Both actions helped Best Buy beat online retailers by offering something they could not – service and support.  

 

Customers have long memories:  

Many B2B companies slashed support budgets – e.g., downsized sales force, training, and customer service – as a way to cut costs, leaving their customers to dangle in the economic wind.  

Other companies found unique ways to get closer to their customers.  American Express launched Small Business Saturdays to support main street merchants hammered by the downturn.  Ford Dealers still recall how Ford Motor Credit was their lifeline during the Great Recession, extending much-needed lines of credit.  Allergan ran outreach programs to train physicians to run a more profitable medical practice.

 

Don’t let a good crisis go to waste:  

If necessity is the mother of invention, then a recession is the father of cool objectivity.  A recession creates a rare opportunity to reevaluate strategies that worked in good times; a time to think how you might refocus and reprioritize your product portfolio, marketing and media mix for the road ahead.

BD'M worked with United Airlines to develop Travel Options – an a la carte pricing program that enable flyers to design and pay for the experiences they valued – a merchandising strategy United still uses today.

 

Don’t put innovation on pause:  

Customer, marketplace and competitive dynamics move too fast to make standing still anything less than a corporate death-wish.  Even in a recession, consumers have needs that remain unmet by the competition.  

Remember, Apple waved its magic wand and lifted our spirts (and opened our wallets) during the Great Recession with must-have iPhones and MacBooks.

 

We are the supply chain problem.

We can’t go a day without hearing, or sharing our own story, about a seemingly simple purchase that is taking eons to arrive, an impatience that has heightened in a next-day culture.

In casual conversations we hear people cite the cause as having something to do with lazy workers, politicians, Russia’s aggression in Ukraine, or myriad other heard-then-repeated explanations.

Turns out, we are the problem: Our business models, our disconnected systems, our labor practices, our personal shopping choices. We are the forces straining the system.

That’s why this WSJ video is so fascinating. It starts with the sobering truth, that global demand is greater than what supply chains can handle. From there it unpacks the thorny thicket of disconnected problems raging through the system – i.e., through factories, ocean shipping, ports, trucking, and distribution centers – all made worse by rapid changes in DTC business models and the resulting shift in consumer shopping behavior.

And, spoiler alert, this story might not have a happy ending. Our supply chains may be forever strained without a massive rethink of how we solve – and connect– the problems.

For those of us who don't have time to binge a 54 minute video, here are some key highlights:

Supply Chains scaled down when Covid hit (e.g., capacity, inventories, labor, etc), expecting that global consumer demand would contract.  It didn’t. 

Shipping ports are a fragile point of failure.  Our ports, most notably the Port of Long Beach here in the US), represent a singular intersection of the problems spanning ocean shipping, trucking, labor and consumer demand. 

We don’t have enough truckers in the US.  Nearly 10M people have a CDL license yet only 3.5M are driving. Why? They are poorly paid (new drivers barely earn minimum wage), are seldom home, and work 14+ hour days. 

Seismic changes in consumer behavior, acclerated by eCommerce and DTC models, are further straining supply chains, which must now deliver more products to specific addresses instead of mass deliveries to fewer big box stores. And as we know, more and more consumers embraced online shopping during the pandemic 

Distribution centers experience high employee burn-out. People working at these fast-paced, always-on distribution centers experience work-related injuries at a rate that’s nearly double coal mining, construction, and most manufacturing industries. (Turnover at many of Amazon’s distribution centers exceeds 100%.) 

We have a shortage of last-mile delivery drivers.  These are the drivers that more often than not are working for delivery partners subcontracted by Amazon and others. (This is why Amazon started its own package delivery company, which will in time be the largest parcel delivery company in the US.)

Navigating the Consumer "Pleasure Revenge"​ – advice from Mark Twain, a Surfer and a Futurist Named Popcorn.

The post-pandemic "Pleasure Revenge" is accelerating consumer spending and a return to pre-Covid behaviors.

As the Wall Street Journal recently reported, Americans are returning to gyms in big numbers; booking vacations and plane trips; rocking out at concerts; and going to popcorn-scented movie theaters to see Hollywood blockbusters such as Spider-Man.

What the WSJ missed is that we see this same human behavior after every major shock to the national psyche, as well as the inevitable post-exuberance counter-trend...which brings us to Mark Twain, Faith Popcorn and Laird Hamilton.

"History doesn't repeat itself, but it often rhymes."

Mark Twain told us this would happen.

The national and personal sacrifice endured during WWI was followed by the Roaring Twenties. After WWII, the U.S. economy boomed as Americans bought homes, moved to the suburbs, drove the latest tail-finned beauty from Detroit, and had many, many kids. The economic malaise of the '70s ushered in the 1980s and "Beemer"-driving Yuppies with a voracious appetite for wine, martinis and cigars. And following the severe emotional and economic pain inflicted on 9/11, per capita consumer spending began to steadily climb.

"For every trend, there is a counter-trend."

This "Pleasure Revenge" – popularized by trend expert, Faith Popcorn – taps into a deep human need to soothe pain and maybe even re-exert control over our lives after having had our "normalcy" abruptly taken from us.

But as important as it for businesses to have strategies to profit during the post-crisis Pleasure Revenge, Ms. Popcorn cautions us to think beyond that exuberant period and prepare for the counter-trend, a theme she frequently cites.

What might a counter-trend look like a few years from now? Well, consider that each of those boom periods mentioned above eventually led to an equally large counter-force.

The Roaring Twenties was followed by the Great Depression. The insatiable consumerism of the 1950s and early 60s preceded the economic stagnation of the 1970s. In 1989, Yuppies woke up to Black Monday – their first global economic crisis. The post 9/11 economic growth abruptly crashed in 2008 because of the subprime lending meltdown.

Which brings us to surfing.

"Surfing's one of the few sports that you look ahead to see what's behind."

So what should businesses do? Well, perhaps take inspiration from surfing legend Laird Hamilton. Like a riding a heavy wave, get too far ahead of it and it will crush you; drop in too late and end up nowhere. Timing is everything.

Businesses must invest in products and experiences that satisfy the current unbridled demand and consumer spending.

But as Laird Hamilton advises, be aware of what's following from behind – a big counter trend that may lead to an eventual economic downturn. Best to not invest and expand with a mindset that this frothy consumer spending will never end. It will.

Just ask Mark Twain.

Marketing to the 66%.

A big issue confronting marketers is the shrinking middle class consumer.  Let's call them the 66%, after accounting for the famed 1% and the 33% of Americans living near or below poverty levels (an even bigger issue).

The middle class, a core target for most marketers, is hurting because technology and process-driven productivity increases is eliminating middle management jobs in manufacturing and service industries.

In 2011 marketers witnessed what the WSJ calls the "Barbell Effect."  Marketers catering to wealthy consumers fared relatively well.  Sales at Saks and Nordstrom were strong, as were sales for Mercedes, Land Rover, Porsche and BMW.  At the other end of the "barbell," sales at dollar stores and discount chains spiked as the middle class traded down, causing marketers such at Heinz and P&G to focus on discounting and bargain brands.

What should marketers do?  I'd suggest CMOs look at what Hyundai has done over the last few years to drive a remarkable surge in sales.  Several years back, Hyundai began addressing the fundamental issue depressing sales -- FEAR. The vast majority of consumers are not facing layoffs or home foreclosures, yet they curtail spending because they're understandably anxious about the future.

Hyundai launched its Assurance program, allowing consumers to return their new car within a year of purchase if they lost their job. (Sales jumped 14% that month while the industry was down 37%.)  The company followed that by sweetening the program by offering to pay the vehicle loan or lease for 90 days while the owner looked for work.  Moreover, Hyundai has also made buyers feel smart – another way to alleviate fear – through its warranty program, styling and quality.

Looking back on my recession-themed posts (a topic I look forward to not writing about in the future!), the strategies suggested at the outset of this recession remain applicable today:

• Reduce anxiety by making consumers feel smart; 
• Appeal to consumer's need for emotional security and "cocooning";
• Get closer to your best customers through true loyalty incentives and CRM; 
• Consider tiered pricing and value options; 
• Invest in innovation – "new" is still a powerful lure; 
• Finally, don't let a good crisis go to waste – refocus and reprioritize all elements of your product portfolio, marketing and media mix.

Marketing during a recovery.

Over the past two years I've offered points of view on ways marketers can tailor message, media and product strategies to win share during the Great Recession.

Recent economic indicators – namely steadying home prices, declining unemployment claims and increasing consumer spending – point toward a slow but steady recovery.

Now we must summon the power of optimism and begin thinking about marketing strategies for the Great Recovery. An article in this month's Harvard Business Review offers two good starting points:

1. Withdraw recession-pricing tactics. It's time to phase out those lower-margin price-leaders and promotions (two-for-one, 18oz size for the price of 12oz, kids eat free).  If your brand cannot command a marginal price increase, then you must question if you really have a brand.  After all, the role of branding is to be able to charge a slight premium in exchange for intangible emotional values or a tangible point of difference.
2. Introduce new premium products.  I've written about the fallacy of the "new normal."  It always sounds dreamy, yet always gets trumped by the "pleasure revenge."  As paychecks become more secure and 401k plans once again conjur a sense of wealth, consumers will likely seek their hard-earned reward.

It would be wise to not abandon all strategies that worked during the recession.  For example, in earlier posts I wrote about marketers investing more in product innovation to increase differentiation and demand; developing programs to listen to and serve their best customers; or rethinking old rules and using interactive for branding, not just transactions.  These are sounds strategies during good times  as well.

Jobs = income = demand = profits. Not vice versa.

Yesterday I attended a leadership meeting for the Merage School of Business at the University of California Irvine, where I serve as Vice Chair of the Dean's Advisory Board.

At the meeting Paul Merage, whose gift and vision has helped propel the school's progress, reiterated his vision that the U.S. is in the midst of its third economic epoch. The current Innovation Economy is radically transforming our country from its earlier roots in its industrial and agrarian based economies. As Paul points out, our country faces twin challenges if it hopes to succeed in this economy: we need a new generation of executives to lead in a global innovation economy and we also need a well educated work force to ensure these innovation-driven jobs stay at home.

This same theme is put forward in a must-read article in Business Week by Andy Grove, former CEO of Intel. The legendary Silicon Valley leader makes a compelling case for why we need to fix America through jobs and not Wall Street profits, particularly when there is 10x more tech jobs in China for every one in the U.S. Sure, our jobs pay more, but left unchecked this is the path toward wider class and economic divisions in our country — a highly unsustainable economic and social model.

While Henry Ford is rightly credited with pioneering mass production, what he actually created was a viable middle class to consume these mass-produced and newly affordable cars, appliances and, later, TVs. Higher paying manufacturing jobs creates real income which fuels consumption which underpins demand. QED.

The same old "new normal"?

Today I saw a study on "The New Affluents" and how they will be behave differently from previous generations of people with more dollars than sense.

According to this study, affluent Americans are now into self-expression, not status.  They will not buy anything to impress others because conspicuous consumption is out.  Brand choices will be guided by perceptions of quality and authenticity.

Sure.  If that's true we'd all be driving a Honda.

I cannot remember the last time I heard somebody admit in research that they are shallow and driven by what the Jones' think.  Seriously, did the researcher expect that in the midst of the Great Recession respondents would agree that conspicuous consumption is a personal priority?

I am wary of research that predicts that consumers will respond differently during this recovery than we did following previous recessions.  As I posted at the onset of this recession, the narrative of the "new normal" (i.e., grounded values, cocooning, authenticity, personal fulfillment) always comes to the forefront during a recession, only to be followed by new cars, new houses and designer baby buggies during the shiny, happy days that follow.  This has occurred after every recession since the early '80s.  Marketers that bet against deeply ingrained human needs tend to lose.

To be sure, what will be different in this recovery is the power of social and online media to make us smarter and more empowered consumers.  But don't be surprised if we once again experience what Faith Popcorn once described as "the pleasure revenge."

The slipperly slope of discounting.

Today's New York Times has a good article on the slippery slope of discounting. Price cuts of 50% have given way to scorched earth discounts of up to 70%-80%.

Retailers find themselves between a rock and a hard place. Offer steep discounts and risk losing pricing power longer term. (Detroit car companies never really recovered from decades of discounts and rebates.) Or don't discount and risk a steep drop in store traffic and sales.

An added challenge with discounts is that they are easily matched and simply lower revenues for all competitors. Sandwich chains are seeing this in their $5 lunch wars. Ditto for airlines.

Some brands have found better alternatives, or have at least augmented their discounting with demand-building strategies that also strengthen brand equity.

Best Buy is broadening its appeal to price conscious shoppers by featuring low prices on house brands such as Insignia. The retailer is also maintaining its emphasis on customer service and support (e.g., Geek Squad).

Hyundai was the first car company to realize that consumer anxiety was the main obstacle to sales, not purely affordability. Its Assurance program recognized the emotional component of value -- i.e., the need for consumers to feel smart and in control.

There is no doubt that discounting must play a role in spurring demand during a recession. But marketers would be wise to balance this pricing strategy with other offers -- e.g., loyalty bonus, warranty, added convenience -- that can help differentiate the promotion while also building a lasting positive brand image.

Optimism requires hard work. And that's the point.

Optimism has long been a uniquely American trait. It defines who we are. We are a nation of people who believe tomorrow will be better than today. It is why our forefathers and mothers risked long ocean voyages in search of a new world, why settlers in wagons ventured ever westward and why immigrants continue to come here by any means possible, by plane or make-shift raft from Cuba. (As a Pakistani born son of Irish immigrants, it is why I am here today.)

Our ingrained sense of optimism was set in motion by our founding story, fueled by generations of immigrants and reinforced by years of abundance and success.

Lately, though, I've come to wonder if our definition of optimism, or more pointedly our underlying motivation, has changed over the past decade, perhaps not in a good way.

American optimism was always an extension of our "can do" spirit. Anything was possible if we worked hard enough to make it happen. Our optimism sprang from hard work, not hope. We knew tomorrow could be better for us and our children if we rolled up our sleeves.

Recently, however, optimism evolved to become an entitlement, no longer an earned reward. We bought houses bigger than we could afford because we had every reason to believe we would get another raise or that our portfolio would continue to grow. We used magic money -- a.k.a., home equity loans -- to buy the muscular SUVs we coveted. We didn't have to work any harder. Good things just happened.

While the current recession has shaken our confidence, recent polls suggest that President Obama is inspiring us to find reasons to be hopeful once again.

I am hopeful the current "cleansing" process will bring us back to the true definition of American optimism. Tomorrow will be better than today, but only if we roll up our sleeves and earn it.

Marketers, fear is thy enemy

I've posted several times about ways in which marketers are adapting strategies to grow market share during the recession. I continue to applaud what I see from Hyundai.

Hyundai is addressing the fundamental issue -- FEAR. The vast majority of consumers are not facing layoffs or home foreclosures, yet are understandably anxious about the future. Therefore, they curtail spending.

Hyundai launched its Assurance program in January, allowing consumers to return their new Hyundai within a year of purchase if they lose their job. Smart. Sales jumped 14% in January in a month when the industry was down 37%.

Yesterday Hyundai sweetened the program by offering to pay the vehicle loan or lease for 90 days while the owner looks for work. The owner will not have to repay Hyundai for these payments if they decide to keep the car.

Marketing in a recession

I've written some earlier posts on marketing in a recession. Here's the next installment.

Hyundai and Allstate offer two different examples of how to market in a recession. One attacks the issue with a tangible offer; the other through an intangible and comforting message. What they have in common is that they attack the underlying issue: fear. (Perhaps inspired by FDR when he proclaimed, "the only thing we have to fear is fear itself.")

Fear of the unknown. Will I keep my job? Will I have to cut costs to survive? It is this anxiety, even among people who may not be facing a layoff, that stops us from buying an expensive new car, or compels us to opt for lesser brands as a way to cut costs.

Hyundai is offering its Assurance Program. Buy a new Hyundai, and if you lose your job can return the car and be protected from the first $7,500 in depreciation.

Allstate's new advertising is seeking to give us the emotional comfort that we've been through this before and will come out the other side, no need to panic (or choose cheaper insurance).

Hyundai's sales in January were up 14% vs year ago. I don't have similar data on Allstate.

Time for the good stuff

I'm seeing more articles citing the increase in competitive advertising. The basic storyline goes something like this: the economy stinks, marketers need to be more effective, so they're dialing up more head-to-head competitive advertising.

One Interpublic executive was quoted in yesterday's WSJ saying, "Ads have to get competitive in bad times. It's a dog fight. It's about getting leaner and meaner."

Really? Was he knowingly serving up the ineffective stuff during the good times? I doubt it. When was the last time you heard a marketer or agency exec say, "Hey, let's hold that really effective idea until we need to sell something."

To be sure, competitive advertising has its role in the mix. It's a way to clearly convey a brand's advantages. It's particularly effective on-line and at point-of-sale. But if a brand adopts this as its sole message it runs the risk of becoming the grumpy McCain to the category leader's more inspiring Obama.

Marketing in a recession: Message from the front lines

A few weeks ago I conducted a marketing survey of senior executives across a range of businesses such as automotive, pharmaceuticals, toys, home remodeling, consumer electronics and retail.

I wanted to learn if there were common themes in the way a diverse group marketers was navigating the current recession (depression?).

Not surprisingly, all marketers are hurting and nearly every segment of their business is down. Lack of credit is affecting consumers and businesses alike. High priced premium segments, which seemed unaffected at first, have caved. Consumers are saving money by trading down to a lesser alternative or waiting for deep discounts on the products they desire. B2B purchases are drying up as companies cut CapEx budgets. There is a “slash and burn” mentality to marketing budgets.

But there are some bright spots as well.

Products and services that appeal to the consumer’s “cocooning” instinct – e.g., entertain at home, family games – are showing some resiliency.

Toys receiving heavy TV support seem to be holding up because parents may not want to scrimp on giving their kids what they want for Christmas.

Brands that feature a broad price range -- e..g, high/medium/low tiers, value bundles, etc. -- seem to be holding customers in the brand franchise.

Several executives reported that they are counting on their recent investments in new innovations to help weather the storm. “New” still attracts interest and curiosity.

However, if there is one single theme that is consistent across these marketers it is this: Get closer to your best customers.

Companies such as Allergan and Kohler, which sell through intermediaries, are investing in service and training to maintain loyalty among the people who recommend their products to end-users. For example, Allergan runs outreach programs designed to train physicians be better business people and run a more profitable medical practice.

Best Buy and Volvo are appealing to their best customers with more 1:1 marketing, private shopping events and loyalty incentives.

Land Rover and Sony are turning to smarter database marketing efforts.

Mattel is using street teams to put its electronic games into the hands of its priority customers.

Navistar is evaluating using more outbound telemarketing to better qualify and prioritize sales prospects.

I recently heard a quote that said, “never let a good crisis go to waste.” This captures the mood of theses marketers. The intensity of this recession is compelling many companies to reassess all aspects of their marketing plans.

Done right, many of the tactics they are using to survive today may continue to frame their strategies when the economy picks up again in the future. (And it will pick up again.)

Focus on your best customers. Do not take them for granted. Lavish them with appreciation and respect during the good times as well.

Focus your media spending. Digital media is the new branding medium, not just a tactical and transactional medium. Use a mobile call to action to transform all offline advertising into opt-in, interactive media.

Focus on the products in your portfolio that truly matter. Don’t get too broad and scattered. If a product isn’t delivering profitable growth, loyalty or a strategic halo for the brand, don’t waste precious resources even in good times.

Deja vu all over again

Yogi Berra allegedly said “this is like déjà vu all over again.” I was reminded of Yogi’s wisdom while thinking about what marketers can learn from the way in which consumers reacted during previous economic meltdowns.

Our economy is a mess. Jobs are fragile. Real net income for working Americans is stagnant. We knew this for a while but chose to ignore it while buying our McMansions with zero money down. It takes the evaporation of trillions in personal wealth to get our full attention.

Now that we’re duly panicked, how will we respond? One clue is to examine how consumers reacted the first few times we saw this movie.

Let’s go in the way-back machine. No, not 1929, let’s start in 1987. Conspicuous consumption was in vogue. Michael Milken was peddling junk bonds. Yuppies drove “beemers.” Wall Street’s ficitonal Gordon Gekko preached how “greed is good.”

Then came Black Monday, the day the Dow plummeted over 20%. (To put this in context, this past Monday’s 777-point free fall was a 7% decline.)

The consumer response was best defined by trend guru Faith Popcorn who coined the term “cocooning” to describe our desire to seek shelter from the storm by embracing simple pleasures and honest, back-to-basic comforts.

Out went the “beemers” and in came SUVs. The Ford Explorer and the Jeep Cherokee took off because SUVs provided a sense of security, strength and escape from a dangerous world.

Pop culture captured the zeitgeist in movies like Baby Boom and TV shows like Thirtysomething. “Nesting” gave rise to enjoying movies and board games at home with friends as well as the over-hyped trend of women leaving the career track for the so-called mommy track. New brands like Lexus capitalized on our desire for luxury without the premium price and the stigma of conspicuous consumption.

Soon enough the stock market bounced back. BMW sales went up. Martinis and cigars were rediscovered. Michael Milken was replaced by sock puppets. We believed the new economy would spare us from ever again having to eat meatloaf.

By 2001, Greenspan’s warning of our “irrational exuberance” caught up with us when the early dot.com companies proved worthless and the tragic events of 9/11 shook our country to its foundations. The market plunged southward, wiping out retirement nest eggs, diluting 401k accounts and creating a pervasive feeling of vulnerability. Setting aside the impact of 9/11, we learned the “new economy” was as irrational and cyclical as the old one.

But the way in which consumers responded this time was different. Consumers didn’t “cocoon” and “nest” or get all warm and fuzzy about staying at home with kids. We got smarter. Unlike 1987, we had the Internet to help us save money without having to give up the brands we enjoy. We still bought BMWs, but we found the best deal on autobytel.com before going to the dealership. Off-line, we witnessed the advent of strategic shopping – i.e., shop at Wal-Mart for daily necessities to be able to indulge at Nordstroms for those things we truly desired.

What now? Is this credit crisis (and war and failure of leadership and…) jarring enough to send us back to home and hearth? If so, does this provide growth opportunities for brands such as Mattel (games), Volvo (security), Best Buy (stay at home entertainment) and Kohler (remodel instead of move)? Has the Internet fundamentally changed how we respond as consumers because we are better informed and empowered? Or will we seek what Faith Popcorn describes as the “pleasure revenge”?

Predicting the future is a fool’s game. But being unprepared could be even more foolish. Marketers should immediately connect with customers. Listen to what they're saying, but really listen to how they're feeling.

Begin taking steps to be well-positioned for what’s ahead. Find a clear and honest value proposition. Reinforce emotional connections and a sense of community. Invest in service and warranties to replace risk with reassurance. And use the web to help consumers make smart and informed choices.

Google "google" for a smart innovation strategy.

In my previous post on strategic innovation I wrote about the mistake many companies make putting innovation on the back burner during a recession.  In a difficult economic climate strategic innovation is often viewed as a luxury.  Smart companies, on the other hand, view innovation as a growth strategy, and these companies never place growth on the back burner.

This interview with Google's CEO Eric Schmidt reinforces this point and sheds light on Google's innovative approach to innovation.  He nails a huge idea -- i.e., innovation is a culture, not just a strategic process.

Should you innovate during a recession?

That's the question that seems to be popping up in business media.

What a silly question. Yes we should. Customer, marketplace and competitive dynamics are moving too fast to make standing still anything less than a corporate death-wish. The recent issue of Business Week got the story right.

Great brands project a sense of infectious momentum that comes from continuous improvement and innovation. Innovation does not have to be whiz-bang, bet-the-ranch new products like a Wii or an iPhone. Innovation can take the form of small, but meaningful, improvements in the customer experience, such as Target's color-coded pharmacy bottles. It can be the result of continuous improvements in the customer experience as practiced by Google, Amazon and Toyota. (Toyota, while credited for the market-changing Prius, more often than not wins by innovating new business processes that improve its ability to meet customer wants and needs.) Or it can take the form of a smart cross-promotion, such at Tide with Febreze fabric softener.

Not investing in ongoing innovation is a recipe for failure. Think Sony Walkman. Or Ford Taurus. Or Motorola Razr.

From my collaboration with the Merage School of Business, which focuses its program on sustainable growth through strategic innovation, I've grown to believe that effective marketing innovations share these traits:

1. They solve real customer needs. The demand, whether articulated by the customer or not, already exists.
2. They are based on rigorous analytics and not blue sky brainstorming sessions. There must be an underlying business case to set the direction for truly fresh thinking. (Norman Berry, the creative head of Ogilvy when I joined years ago, used to say "Give me the freedom of a tightly defined strategy." How true.)
3. They are inspired by truly creative and anthropological research. Customers can't tell you what's missing in their world. True innovation is inspired by authentic human insights.
4. They often mesh disparate insights or trends into a single new idea. Running + Music = Nike Plus. Latchkey kids + Microwaves = Hot Pockets. Trend toward self-expression + small cars = Scion. The "we" generation + the web = MySpace.
5. They are sustainable ideas and not one-off diversions that sap resources and focus. They have the ability to scale to something big and lasting.
6. From an internal perspective, innovation is born within collaborative and multidisciplinary teams, executed with speed and efficiency. Markets are extremely complex and windows of opportunity tend to be short-lived.
7. And, importantly, innovation demands the backing and the courage of the CEO. Corporate corridors are lined with idea-killers. The folks with the guts and stamina to innovate new ideas could use a little air cover.
   

Building brand value during a recession

A reporter asked me the other day if marketers should weather a recession by putting strategic branding activities on hold and instead focus on tactical promotions that drive short-term results.

I don’t know whether the story will run, but I thought I’d share my response.

Consumer spending accounts for nearly two-thirds of our GDP.  Consumer spending rises and falls with consumer confidence.  During uncertain times consumers look for safer bets than during boom periods.

So what should brand marketers do? Certainly marketers must create new ways to provide value. Starbucks recently announced the return of its $1 short coffee. Our clients at Best Buy are offering free appliance delivery and recycling. And United Airlines, another BD’M client, is partnering with Visa on a Beijing Olympics promotion.

But beyond price promotions, I believe empathy and authenticity become increasingly important sources of brand differentiation in a recessionary environment.

During uncertain times we tend to place our trust in those people, brands and institutions we believe truly understand us. When every dollar counts we take fewer risks and are likely to choose brands that are highly relevant to our immediate needs. We seek products that represent a genuine value, not because of a price cut, but because they deliver on their promise.

Empathy and authenticity are essential ingredients in any healthy brand, even during good times. But now, more than ever, marketers must earn market share by being the brand consumers believe is the most relevant and genuine value.