Guest Post

Innovating During a Recession

by G. Michael Maddock and Raphael Louis Vitón

"Be fearful when others are greedy, and be greedy when others are fearful."—Warren Buffett

Don't Retreat. Attack.

Thanks to the recession, conservative companies are acting as predicted: slashing marketing budgets, hunkering down, talking about line extensions. Case in point: Earlier this month we were sitting in a financial services roundtable at a research conference. Not a happy room. Leaders from a dozen or so firms were discussing how they planned on handling the economic downturn. What we heard over and over again was the usual talk about belt tightening and layoffs. Not a single person who spoke talked about how when everyone else is retreating, they planned to attack.

But they should have. And so should you.

If you have competitors that have stopped innovating and marketing, they are going out of their way to help you. They are inviting you to take some of their market share. Their silence makes it easier for you to be heard in the marketplace. Their timidity is giving you the perfect opportunity to really listen for the new choices customers need when they are low on cash and high on fear.

Let us give you two ideas to help you capitalize.

Innovation Strategy No. 1—Win It Now, Expand It Later

This is for the bravest among you. It gives you a chance to gain substantial market share. It works best if you are not under pressure to meet short-term financial hurdles. If you are a privately held firm, your ears should have just perked up. And if you are part of a big, publicly traded firm, you should be very afraid—because when it comes to innovation, David almost always beats Goliath.

The win now, grow later strategy has little to do with short-term profit and everything to do with long-term growth. It has been well-documented that maintaining marketing and innovation during a recession creates a major bounce effect once the market stabilizes, so if you gain market share now—even if it costs you money—your growth will be exponentially larger when the market recovers.

Innovation Strategy No. 2—Ready, Aim, Aim, Aim, Fire

If you don't like, or can't implement Plan A, then it is time for Plan B. If you have a disciplined research function, you are already sitting on insights into customer buying behaviors, segment value and marketing. (If you don't have it, start building it today.) These insights can enable you to build an innovation plan that lets you focus on and win one segment at a time, meaning you can lower your marketing budget, still spend more than your competitors by segment, and beat them soundly. An example would be Marriott. Each of its "brands" targets a particular segment: Marriott Suites for long-term vacationers, Fairfield Inn for economy travelers, Residence Inn for extended stays and Courtyard for budget-conscious business travelers. In light of the recession, where do you think the company should focus its marketing and innovation efforts?

This strategy allows you to focus your brightest people and financial resources on "must win" innovation that will drive the majority of the growth during the recovery.

The takeaway from all this: The innovator sees that there is a huge upside to this recession. If you don't, well, you better hope your competition doesn't follow Warren Buffett.

G. Michael Maddock is Founding Partner and Raphael Louis Vitón is President of Maddock Douglas, a company that invents, brands and markets products, services and business models "for companies driven by innovation."

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