The Best Business Strategy For Surviving A Recession? Not What You’d Think.

Recession ahead - road sign warning concept

CEO’s are concerned that a recession is looming, and they have good reason to be worried.

For the past decade, the United States has enjoyed the longest economic expansion in American history.  One thing’s for sure, though – it’s not going to last.

That realization has apparently hit home for the nation’s chief executives.  According to the Conference Board’s latest annual CEO Survey, the risk of an economic recession now tops the list of CEO concerns (both in the U.S. and globally).

It’s been a while since the U.S. had a recession, so it’s worth reminding everyone that these downturns are a normal part of the economic cycle.  Expansions lead into contractions which then lead into more expansions, and so on.  The next downturn is coming, even if no one (not even the most brilliant CEO) can predict exactly when.

It’s a fool’s errand to try and predict when a recession will arrive.  A much more fruitful endeavor is to simply prepare one’s business for that eventuality.

Unfortunately, in the minds of many business leaders, that preparation translates into one decidedly unglamorous task:  cost cutting.

The knee-jerk reaction to an economic slowdown is to reduce expenses – curtail travel, freeze hiring, postpone investments.  While that can help, it can also hurt.  A lot depends on where the cuts are made, and how those cuts affect the customer experience.

Indeed, as it turns out, the quality of a company’s customer experience plays an important role in how effectively it can weather a recession.

To illustrate that point, consider this data from Watermark Consulting’s Customer Experience (CX) ROI Study.  (The study analyzes the stock market performance of the top-rated companies in customer experience versus the bottom-rated.)

The graph below shows the performance of CX Leaders and CX Laggards during the period of the last U.S. recession, 2007-2009 (a time span selected based on the National Bureau of Economic Research’s official designation of when the last U.S. contraction began and ended.)

The story the graph tells is quite striking.  While CX Leaders weren’t immune from the effects of the recession, they clearly fared better than other companies.  Whereas the broader market and the CX Laggards lost significant market value during the contraction, the CX Leaders actually notched positive returns.  What does that tell us?

It certainly suggests that the quality of a company’s customer experience does influence its ability to successfully navigate a downturn.  CX Leaders tend to be cushioned from the most severe impacts of a recession, because they represent one of the last places people cut back (or seek less expensive alternatives), as well as one of the first places to which they return.

Of course, the protection a great customer experience affords during recessions isn’t unqualified.  There are many ways a company can sabotage its own success, despite offering an appealing customer experience (for a classic example, see this story about the 2011 bankruptcy of the top-rated company in customer experience).

However, the data indicates that, in general, companies offering a top-notch customer experience are far better positioned to withstand a recession than those that don’t.  For business leaders, this means two things:

  • First, when the economy is expanding and/or business is good, invest in the customer experience to further differentiate your company in the marketplace. This might sound obvious, but the fact is, when revenues are growing and the future looks bright, many organizations de-prioritize CX investments, under the premise that, if business is booming, customers must already be happy and loyal.
  • Second, when the economy sours and/or business slows, be especially judicious when considering expense cuts that could materially impact customer experience quality. Such actions might yield short-term gains, but they also introduce serious long-term risks.  Furthermore, don’t ignore opportunities to actually improve the customer experience while simultaneously lowering expenses (read more about that approach here).

Famed investor (and CEO of Berkshire Hathaway) Warren Buffett once commented that “You only find out who is swimming naked when the tide goes out.”  His point?  Every business leader looks smart during times of economic boom; it’s only when adversity strikes that you see who the real geniuses are.

With an economic slowdown looming, the tide will soon go out.  What will it reveal about your business?

[“source=forbes”]