Who Grows In A Shrinking Economy?

A downturn is always an upturn for someone.

We’ve officially been in a recession now since December 2007.  By the time this was announced many Americans were inclined to the same reaction: “no sh*t!”  We’ve been feeling the pinch for some time now – in some sectors a lot more than others.

Yet there are companies that thrive in the worst economic climates.  Some have seen substantial increases in revenue over the last few months.

The classic example of a product that historically has done well during the worst economic times: lipstick.  Lipstick sales have always gone up when the economy overall has tanked.  Why?  Because lipstick is a cheap mood enhancer.

A look at sectors that are growing when the economy overall is shrinking clues us in to some important points that we ought not overlook.

Infomercials are going prime time

Infomercials can seem a bit ridiculous.  Billy Mays screaming about how just how strong Mighty Putty™ is and how many of our problems it can save never struck me as an ingenious ad campaign.  I often ask myself, “who actually buys these products, and why are they up as late as I am?”

But since the economy has taken a swan dive, something has changed – infomercials, once banished to the wee morning hours, are showing up in prime time TV spots.  And they’re making a killing.

NRP recently interviewed A.J. Khubani, president and CEO of the direct response company TeleBrands, for the Jan 7th edition of All Things Considered to hear from the horse’s mouth how and why the downturn has been a skyrocket for direct response products like the Ped Egg™ – an egg-shaped cheese grater-like tool used to shave the calluses off your feet (saving you the cost of a pedicure).

Mr. Khubani calls direct response companies like his the “bottom feeders in advertising.”  They send their tapes out to all the networks, and whatever unsold time is left goes to them at very low rates – usually they get the early morning hours when most people are sleeping.  Over the last few months, however, many prime time advertisers, most notably automobile manufacturers, have had to cut their advertising due to drastically reduced budgets.  And the bottom feeders are thriving.

There are two basic things causing TeleBrands to earn more as we head into this recession:

1. Advertising costs are dropping
   This is pretty simple.  With less competition advertising costs fall. Suddenly the prime time TV spots that were once beyond the budgets of companies like TeleBrand are within reach.  They’re getting more exposure for their money and are therefore getting a better return on the investment.
2. Consumers are responding to cheap, mood enhancing purchases
   None of the TeleBrand products cost more than $20. Most people can still spare that cost.  Additionally, the products are always marketed as money savers – the Ped Egg, for example, will save you the cost of a pedicure. And, as Khubani points out, many of these products are mood enhancers – people feel good about buying them.

What does this mean for your market?

You’re probably not selling direct response products.  If you’re selling cars, there’s little silver lining here – you’re in for a rough couple of years no doubt (although Hyundai has taken an interesting step in response to the recession that may drive their sales in ’09).  But most businesses in other sectors stand to benefit from understanding these shifts – both in terms of lower advertising costs and in the changing minds of your market.

“Quick and cheap mood enhancers” may not describe your products or services, but falling advertising costs certainly do.  Keep an eye out for cheaper ad space.  That blog you were thinking about purchasing ad space on – they may be more flexible on their pricing with less people vying for the space.

Your marketing message needs to change as well.  Selling B2B products or services?  Businesses are being forced to cut spending across the board.  How is your solution going to help them do that?  B2B services should always be an investment, not a cost – but people are used to hearing this.  Thinking is shifting from “I want the best return” to “I want the lowest risk.”  How can you prove your solution is low-risk?

The bottom line: it’s closer

Companies are going to fail this year – many of them.  The bottom line is that much closer.  But those who survive will:

• Recognize the shake ups and failures as opportunities to grab a bigger slice of the pie
• Find ways to optimize their marketing budgets
• Assess without flinching the direction their market is shifting, and
• Take action now to position themselves ahead of the curve

What is changing in your market?

What did you do last week to prepare for what’s coming?

What are you going to do tomorrow?