23 Jul 08 Recession – A business survival guide (Part 2 – The “Aldi Effect”)

In earlier blogs I have argued that in a recession one must not “shoot the usual suspects”. By “shooting the usual suspects” I mean across the board cost cutting in areas such as sales, marketing and new product development.

My point is that during a recession a firm that wishes to survive and grow needs a greater capacity for innovation than in the times of economic buoyancy. The fact is that your customers’ needs and/or buying habits will change during an economic downturn.

One of the central challenges for business leaders during a recession is to at least retain customers. Getting new customers is usually an expensive process. One scenario to avoid is the loss of hard-won customers to competitors that can keep up with changing demand patterns better than you can – winning back those lost customers after a recession has ended may be a harder job than you imagine.

In the UK we already have several examples of this shift in customers’ needs and buying habits. The retailer Marks and Spencer has been hit with a fall in demand for food products.  One of its core offerings are luxury ready cooked chilled meals.  The problem is that customers are re-evaluating their spending patterns and substituting cheaper, more basic ready meals or even doing the cooking themselves form raw ingredients!  The problem for Marks and Spencer is that their competitors are probably better placed to meet this demand shift.  Customers are now spending 20% more at Aldi and Aldi aims to retain its newly found customers.  A similar story can be found in the takeaway meals sector where Domino’s – the pizza chain – has noticed that whilst sales to established customers are falling, sales to new customers have risen by around 20% as consumers opt for a takeaway instead of that expensive restaurant meal.

The central message is that the “Aldi Effect” – customers’ changing needs and buying behaviours – will take place during a recession – and not just in the consumer sector.  Innovation and astute marketing may be needed more than ever during a recession to avoid the loss of customers that may never be won back again when the economic clouds have lifted.

Tags: business survival, economic downturn, recession, Recession Survival & Growth

Leave a Comment

Name (required)

Mail (will not be published) (required)

Website