What to do during a recession

As you may or may not know, there is talk of an imminent recession in the US.

Warren Buffett has sold a significant portion of his stocks, unemployment is up and other indexes like Japan’s Nikkei are dropping in response to fears of a recession.

But if you’re worried this will affect your DTC business, Stefan Georgi, has some advice for you.

Just “ignore it and keep operating your biz as normal”.

Stefan relays learnings from the Great Depression, where companies that advertised as usual, or even doubled down on it when things got bad, ended up taking over their markets.

For instance, says Stefan, Ford had been outselling General Motors (GM)-owned Chevrolet by 10:1 during the 1920s. When the depression hit, Ford cut back on ad spend. Chevrolet significantly increased theirs instead.

By 1931, Chevrolet was the top car maker in the US.

Thing is, it isn’t quite that simple.

As the depression hit, Alfred P. Sloan, GM’s President and later Chairman from 1923 to 1956 reacted fast. They cut costs, laying off workers and scaling back production of middle-market and high-end brands, while reducing the breakeven point on their cheapest brands like Chevrolet.

But that’s not all.

They got rid of inventory by cutting higher-end car prices by 70%.

They merged their sales forces across middle to low-end brands to get more efficient.

They used the same engine parts across brands and models to redistribute inventory.

And only lastly did they go all in on the lower-cost Chevy.

Not only did they shift their remaining production capacity and ad spend towards it, but they also offered financing as a way to attract customers at a time when banks weren’t lending.

So GM did much, much more than continue business as usual.

This doesn’t mean Stefan was wrong, just that things are often more complicated. Here’s the thing – Stefan says “don’t cut back on advertising”, which GM leaders would have agreed with. However, they might have added that you’d want to be smart about where you put that advertising money. Products and offerings that worked during good times probably aren’t the same that will work during a recession.

If you think all of this talk about the Great Depression is outdated, you might find it interesting to know that during the Covid pandemic, P&G increased its marketing budget while Coca-Cola reduced theirs.

Can you guess what happened?

P&G posted its “strongest share growth in many years”, while Coke saw an 11% reduction in net revenue in 2020.

Takeaway: If a recession is coming, it doesn’t mean you should either cut back indiscriminately or continue to blindly plow ahead.

A recession, just like other macro tailwinds, may have specific impacts, implications, and even opportunities, for your business. You’ll need to have your ear to the ground and think strategically to both survive and thrive.

Some of the strongest, most enduring companies of the past were either born or gathered steam during ostensible down times. But it’s because they made specific tactical decisions relative to their competitors that enabled their growth.