Surviving a Continued Slow Recovery—Three Business Strategies

By Bruce Barrett – Certified SCORE Mentor

Several warning signs have emerged that suggest a trend of a long, slow economic recovery from what has become known by several terms including “the great recession”, “the lesser depression”, and “the long recession”.  Consumer spending in recent quarters reinforces the concept of the long recession.  Media reports about this trend are not difficult to find.  A mid September CBS/AP poll reported that, “Americans are getting tighter with their money, which could retard economic growth in the months to come.”  Consumer confidence may be rising, but the reality is that spending has not rallied because of limited income growth.  A similar conclusion was drawn in a recent report by Cornell University researchers.  Their numbers show that unlike other post recession growth cycles, there is a strong possibility that the U.S. economy will either not return to its pre-recession growth path and perhaps even remain permanently below it, or return to the pre-crisis path but at a slower than normal pace.

Middle class spending has stagnated

A long, slow recovery is not good news.  Some economists have seen this trend coming.  Since the 1980’s, globalization and automation have slowed wage growth and the loss of family wealth from 2007 to 2010 has eaten into resources that could have been available for spending. The end result is that 70% of GDP that is made up of middle class spending has stagnated. There seems to be a growing sense of fatigue among those who have traditionally counted themselves among the middle class.  A recent report by the General Social Survey, a project of the independent research organization Norc at the University of Chicago states, “For decades, the vast majority of Americans have seen themselves as ‘middle class’ or ‘working class’.  Even during earlier downturns, so few people called themselves lower class that scholars routinely considered them part of the working class.  Activists for the poor often avoid the term, deeming it an insult.”

With this entrenched economic pressure being felt by the middle class, how do businesses that count on their purchasing power, compete for a share of their available dollars?  Here are three strategies with examples of national and regional companies that are successfully using these strategies.

Up-cycling

This is the label given items that may have little or no perceived value in the marketplace and might even be thought of as waste.  However, the mechanical process of using these items as raw material for new items, or adding features, creates a hybrid of the original.

Launched in September 2009, Looptworks up-cycles abandoned materials into limited-edition garments.  The company uses top-quality, excess materials and components that already exist. Instead of producing seasonal collections like traditional apparel manufacturers, Looptworks offers fresh, numbered, limited-edition eco-friendly clothing.  A local business owner is using the same up-cycling approach to create a new line of products.  Gordon Wilson owns WG Trading and Beaver Pond Products in Redmond.  They can be found on the web at beaverpondproducts.com.  He recently acquired an assortment of fur coats at salvage prices. According to Gordon, there is little or no value for vintage fur coats but he saw an opportunity and developed a business plan calling for disassembly of the coats and then up-cycling the fur into fly tying kits, quilt scraps and more fashionable garments.  Gordon finds a great deal of satisfaction in keeping these high quality items from being discarded and at the same time, meeting or creating a marketplace demand.

Marketing to the margins

In a stagnant economy, there will be more price sensitive customers than in the past.  These potential customers are on the left side of a bell curve and are not in the market for traditionally priced goods and services.  Companies that have taken advantage of and actually grown their business by marketing to this segment include Southwest Airlines with their no frills airfare and McDonalds with their “any size drink for $1.00”.  The psychology of this plan is that everyone is a potential value customer and many will become repeat customers.  Marketing experts know that in many cases, these same customers will buy products or services of higher value.  Studies have shown that people who believe they are getting a bargain will spend more on other products.

A local business that has been successful in marketing to the margins is e-Star Books in Prineville and on the web at www.estarbooks.com.  Amy Pettyjohn created this business to meet the demand for low-cost, e-books.  She acquires manuscripts in the public domain, converts them to digital format, adds some artwork and then makes it available on her website for download, for a modest price, starting at $1.00.

Value added

Enhancing the perceived value of a product is commonly referred to as “value added”. Wikipedia defines value added as "extra" feature(s) of a product or service that go beyond the standard expectations and provide something "more" while adding little or nothing to its cost. In addition, it can mean removing costly additions to a product or service that are not recognized as valuable to the customer.  Value-added features give competitive edges to companies with otherwise more expensive products.  This differentiation strategy can move a product from competing primarily on price, to focusing on product characteristics.  In 2011, Walgreens introduced a new value added store format called “Well Experience” which offers a new, enhanced layout, a completely revamped pharmacy and health care experience and a number of new product selections.  At the core of this approach is an effort to bring the pharmacist out from behind the counter so they can provide more counseling to patients, offer clinical services and answer questions.  This new effort addresses their overall vision to become “My Walgreens” for everyone in America by transforming the traditional drugstore into a health and daily living destination that offers a range of products and services to help customers get, stay and live well.

A local company that offers “value added” products is Art By Square.  It can be found on the web at www.ArtBySquare.com.  The company’s founder is Chuck Downs from Bend and he has over 30 years of professional graphic design experience.  He has used his graphic design talent to develop an extensive selection of artwork that comes in 6” and 12” squares and can be clipped together in any quantity, configuration and combination to make a unique, eco-friendly piece of artwork.  Pricing is competitive with other online fine art or framed posters but has the added value of not needing additional framing and is “interactive” in the sense that the buyer can manipulate the pieces to create their own unique look.

Help is available

It is no secret that the middle class, the engine driving a growing economy since the early 1950’s, has run out of steam and may take a long time to restart due to slow personal income growth.  Businesses will need to be creative, and in some cases, employ new strategies to continue to be relevant, given this new economic reality.

The business mentioned here and many others throughout Central Oregon have turned to the Central Oregon Chapter of SCORE for free and confidential business counseling.  SCORE works with individuals to identify strategies and then develop plans to implement those strategies. Bruce Barrett is a Certified SCORE Mentor and can be contacted at barrett@windermere.com.