Regardless of the government’s official declaration of recession, most people and businesses are feeling intense, negative economic pressures. My monthly grocery bill has soared 30% through the course of this year. Friends and family are cutting back on travel and luxuries. As more people cut spending to pay higher prices for necessities, businesses are squeezed financially. It definitely feels a lot like a recession.
Economic recessions typically follow a similar pattern to those of the past. Individuals and households cut spending, so businesses hold back on investment. Profit margins drop and the stock market responds with decreased valuations. At some point, a trigger switches the freefall back to growth. The trigger can come from many areas in the socio-economic puzzle: population growth, new technologies, or even war. Interestingly, many economists will identify these same triggers as causes of recession in the first instance.
In response to recession and coincident drops in stock market valuations, individuals sell their shares. This is in direct opposition to the sage advice of “buy low, sell high”. Similarly, as businesses note an oncoming recession, executives tighten their belts by cutting expenses. In particular, travel, R&D, and marketing are frequent victims of so-called “cost-savings”.
Rather than starving investment in new product development (NPD) during a recession, we recommend wise investments. That is, “sell high and buy low”.
New Product Marketing in Recession
If you are in a consumer-driven industry, choose your product development wisely as a recession approaches. Lower price point models and bulk goods save consumers money. If you offer them competitive alternatives, they will stick with your brand for the long haul. Be sure to communicate the value your products deliver. Ensure that consumer value for your products outweighs the competitors.
For example, can you forgo fancy packaging? Is it possible to offer accessories with the prime product? Or, alternatively, can you strip down the product and simplify it? I’ve often used my bread machine as an example of an overly complicated product.
There are ten different digital settings, including white, wheat, pizza, cake, and jam. The primary purpose of the bread machine is to knead the dough and let it rise at a constant temperature, and to bake the bread (if desired). The marketing function of the product development team must ask which of these features are necessary and which are extra. By stripping excess settings, the cost of manufacturing the bread machine goes down and sales can continue during tough times with a simplified product.
Invest for the Long Haul
A corollary to “sell high, buy low” is to hold your money for the right investment period. (Please remember that I work in innovation, so I am by no means offering any investment advice. Any decisions you make regarding your money are your own decisions for which only you are responsible.) Holding cash or holding an investment for the long-term can time-average the ups and downs. Recognizing longer term investments in technology and R&D during both good and bad times can cost-average technical developments.
Businesses can invest for the long haul by not starving R&D budgets. Instead, identify trends in markets and technologies and invest – slowly – in designing new products for the future. Being poised to release new products as an economy emerges from recession allows a firm to take advantage of growth at the right time.
For example, if you manufacture household appliances, can you anticipate features for vacuum cleaners in two years? Will robotics increase at the same rate as particle size capture? Start development of the desired new technology now and be ready to release “first-to-the-world” products in 2024. You benefit from deliberate R&D and design work. You can take advantage of suppliers offering better deals. And, you hold on to your best and brilliant employees during the downturn.
New Product Development Through a Recession
Economic downturns are scary times. We feel the pressure of less money to spend, less money to invest, and lower profits. Instead of shutting down completely, consider targeted short-term marketing (simplified products) and dedicated long-term R&D efforts (new technologies). New product development is dynamic from a supply and demand perspective, just as the stock market ebbs and flows with economic times. Be prepared to invest incrementally in R&D to position your new products and brands when the economy begins to grow again.
Too many companies have built excessive risk aversion into their NPD processes. Waterfall (or staged-and-gated) approaches tend to become bloated with management reviews, documentation, and endless meetings. Agile systems often substitute lack of decision-making in the name of “flexibility,” leading to projects that are never done. Over the long run, neither waterfall nor Agile processes are perfect answers to giving project teams autonomy to design and develop for existing markets and new customers. To address economic risk while still learning and adopting for new product development, we recommend a hybrid NPD process approach.
If you find your company suffering from slow time-to-market for new technologies or low quality products, please join me for Designing a Hybrid Product Development Process starting 24 January 2023. Register here. You will learn to address strategic and economic risks with WAGILE Product Development and Lean NPD as hybrid NPD processes. Both approaches to product development recognize small investments through an economic downturn to manage declining profits in R&D while maintaining customer-focused NPD teams. Contact me at info at globalnpsolutions.com for additional details. Register before 30 November 2022 for a $50 discount.