Strategies followed by companies during Recession

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

According to (Silberston 1983)"A dynamically efficient firm is the one which is able to survive under any circumstances and even under recession. And a firm is statically efficient when it makes efficient use of the existing resources. For a firm to survive it has to be both dynamically and statically efficient."

Recession is quite unpredictable and it's a cyclic process faced by the companies, organization, industries and experienced even by common people. Every single person in the world would be affected either directly or indirectly during recession period. The market becomes unstable and quite impossible to predict. When it comes to business, surviving under this intricate and fickle environment requires lot of planning and assessment. Habitually companies follow exclusive strategies and tactics during recession phase in order to obtain more profit and increase the sales of the product or service.

A lot of research and theories has been put forth by eminent researchers based on their study of the measures taken by companies during recession. One view states that recession may lead to organization inertia and hence prevents them from innovating new product and services. According to "pit stop theory " (Gregg 1997) firms tend to go for innovating new products and services as the opportunity costs during this period is very much lower than another time. According to the study by (Cyert 1963) some business tend to fail and forces them to adapt alternate way of doing things.

The strategies followed by companies during recession are influenced by the environmental factors which include the market, government policies, the competitors and also the customers. On analyzing various companies it has been found that the common strategies followed by companies can be classified into financial strategy, business strategy, growth strategy, marketing strategy and the portfolio strategy.

2. General framework of the strategies:

The general framework of the strategies followed by companies during recession is shown in figure 2.1

Figure 2.1 Framework for strategies

The organization faces pressures from the internal and external environment. The firm exploits its capabilities in operational excellence, existing resources and innovation in order to survive during recession. Business strategy and performance of a company vary with resources and their capabilities, and the internal threats faced and opportunities available (e.g. Thomas et al. 1993), and the availability of organisational, market opportunities , and cultural contexts (e.g. (Clark 1996) (Schoenberger 1997)

3. Factors influencing strategies:

During recession, the firm faces lots of pressure from the internal and external environment. These pressures lead to the structuring of strategies which can be implemented by them. The market, government and the industry are the main factors which affects the strategy formulation .

The market share may change as the sales are affected by the recession. Ultimately the profit and the revenue of the companies would be affected. The customer's selling habits would show some change and there would be an increasing need to push the product to the customers.

The government policies during recession affect the firms working as all the important decisions have to be taken considering the standards. The government also provides help to the firms to some extent in order to prevent the firms from collapse.

The industry and the competitors have to be considered while initiating new strategies. The employees welfare , need and their satisfaction should be included. The working process, strategy and the activities of the competitors have to be explored while forming new strategy.

4. Strategies:

4.1Financial strategies:

In general , companies go for loan rescheduling and equity during recession in order to raise money for more innovation and investment.

4.2 Growth strategy:

The growth strategy includes introducing new products and services , employing new technology and diversifying the products. During recession most of the companies don't go for innovation and new product development but the opportunity cost is lower than usual during recession. Going for new product is actually a good strategy which can be followed by companies as they usually provide an edge over other companies.

Example: Dove was initially launched as a product for upscale people but it faced more competition and it affected the profit. So it went for adding the value of the product and introduced it as a product which can be used as a moisturizer and cleanser. Hence it was able to attract more customers.

Diversification of products is another strategy for growth. Making small change in the existing products would actually help in increasing sales. Increasing the number of products increases the number of clients. During recession the customers want more value for the money. Offering improved customer services increases customer satisfaction which would increase the sales and the profit. Make sure that the customers' existing needs are considered. Feedback from the sales force or customer service department has to be used to keep track of changing needs.

4.3 Business strategy:

In order to go on with the business without much aversion most companies remain focused and concentrate on core assets of the business. Companies take measures to retain (1) all the associates who have good knowledge about the company. The cost of hiring, training is more costly than retaining the employees. (2) the company traditions and cultures. Though they don't appear important for business , the success of the company depends on its core values, cultures and other differentiators. (3) the customers as getting a new customer is very difficult and costly.

It is also obligatory for the company to protect the core brand or products as recessions may call for a triage strategy. It is crucial to analyse the company's strong brand and concentrate on getting more benefit from it and leave the others. The company has to support the core proposition and emphasize its value (vob Mehren 2009)Strong brands would support a price premium. Consumers have loyal clear and strong attachment with these brands and thus focusing on the marketing efforts would help them to achieve good benefits. Most people find security in buying an established and reputable brand. Thus by making your brand accessible it is easy to sustain even under recession.

Example: During the Argentinean economic crisis of 2002, Unilever tried a new strategy to attract all segments of customers . it made Skip laundry brand available in small packages at low price. They also made large packages which is more economical.this attracted both the low and high scale people.

Keeping track of the competitors move and the exploiting current technology for business is quite a good move for firms even under recession. Its not necessary to go for cost cut as the competitors has gone for it. Going along with the competitors move may actually result in losing customer's trust and ultimately the profit margin. However it is vital for firms to adopt cutting edge technologies. It is wise to stay ahead in technology than the competitors. Using internet, CRM, E mail would actually help to attract customers from all over the world and aid in global exposure.

Example : During the recession of 2000. Asian local consumer products producing companies reduced their quantities. But people demanded for more and hence Emerson started exporting its product to Asian countries. Hence it was able to increase its market share.

Decision making is very crucial for any business during recession. Decisions are not advisable to be myopic or short sightedness. Keep eye on long term goals and objectives of the company. Every decision should be made focusing on the future. Even before hiring , firing or cutting costs it is vital to seek other ways to improve.

4.4 Marketing strategy:

During recession , companies follow different marketing strategy which includes intensive marketing, pricing , focus on customers and communication. By intensive marketing what the company implies is that not reducing the advertising and marketing cost but go for aggressive marketing. The media of marketing may differ as the companies go for cheaper mode of marketing which includes flyers, radio, posters. Offering discount for items , freebies and other incentives appeals the customers and increase the sales.

Identifying the USP(unique selling position) of the company is another essential factor for the firms. Every company needs to have their USP and take necessary steps to improve on their USP. In case of the pricing strategy, decisions has to be taken without panic and with confidence. It is not always advisable to go for cost cutting , instead the firms can go for developing flank products and services. The price of high value product should not be reduced as it may lose its identity and importance.

5. Conclusion:

During recessions, consumers and marketers must make the best use of the situation. Not all brands will cut expenditure and operating costs. Many of those who went for price reduction may find themselves at bad situation even after recession has recovered. Marketers need to spend maximum to protect and support their brand and core values in order to maintain good customer relation.thus the company remains efficient if it succeeds to take advantage of the situation and establish themselves in a stronger position.

6. References:

[1] Millward brown(2008) marketing during recession - the survival tactics , online at www.mb-blog.com.

[2] John Kitching (2009), "Business strategies and performance during difficult economic conditions:" online at http://www.berr.gov.uk/files/file51879.doc

[3] http://marketing.about.com/b/2009/03/01/marketing-during-a-recession.htm

[4]Geroski, (2007) The Founding Conditions for the Survival of New Firms, Druid Working Paper No. 07-11, online at: http://www.druid.dk/wp/pdf_files/07-11.pdf

[6]Vob Mehren, A. (2009) 'Global: Lessons learnt from the Great Depression', online at: http://mediaserver.fxstreet.com/Reports/a61c7417-1c76-4d4d-bcd5-64906de44414/13a7423f-cab0-486e-a6c6-9aa1dcbf1c48.pdf

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.