How to Survive a Recession

LESSON 38: Sell (and Buy) Cheaper Products and Services

Unless your target market consists of billionaires and sheiks, a recession will inevitably reduce the purchasing power of your customers. The best tactic is to move "down market" along with your customers.

The first thing purchasers do in a recession is cut luxury expenses such as vacations to Tahiti, diamond necklaces, and $100 dinners on the town. The next thing they do is start buying cheaper “value” products. That does not automatically mean they seek out low-quality products, sales, or bulk purchasing discounts. Instead, they may simply cut down on the number of unnecessary product or service options such as leather seats or one-on-one meetings, substituting cloth seats and toll-free customer service.

This “down market” purchasing dynamic is reflected in well-known prestige brand companies moving down market with products that appeal to value conscious buyers. Examples include Mercedes-Benz and its SMART car, Brooks Brothers suits, and Kendall-Jackson wines. If you offer any type of high-end product or service, it is critical to come up with a value substitute to accommodate the lower purchasing power of your customers.

One technique is to reduce the number of features or offer the same features at a more affordable price. In fact, this may actually allow you to make more money because you will gain economies of scale by focusing on fewer product or service features that appeal to a broader customer base, and you will naturally gain efficiencies in manufacturing or delivery. This technique can be applied to any product or service, from 99-cent Value Meals to funeral services.

Do not reduce the quality of your packaging or delivery, as this is core to your brand image. FedEx may offer cheaper 2-day service, but it still offers 1-day delivery, and all of its boxes have the familiar colorful FedEx logo. BMW may sell a compact car at a lower price, but it still uses the same paint as on its luxury 7 Series cars. If you do not modify your offerings, your competitors surely will, and you will quickly see your core customer base being eroded.

As a buyer, it makes good sense to reduce the number of unnecessary features that you pay for. Buying a commuter car instead of an SUV reduces purchase price, lowers insurance, and increases fuel economy. Families considering college for their sons and daughters should consider sending them to lower-priced state schools. Businesses should push hard on their suppliers to provide only the necessary features, and lower prices for the same quality so the savings can be passed on to end customers.

From both a buyer and seller perspective, these temporary "down market" measures are absolutely necessary to maintain financial success in a recession.