When Launching a Product During a Recession Pays Off
Evidence from the automotive and consumer goods sectors indicates that economic downturns can be a strategic time to bring new offerings to market.
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Frontiers
Ken Orvidas/theispot.com
While many companies may be hesitant to launch new products during an economic downturn, research shows that doing so can be a successful marketing strategy for some types of products. Evidence from the automotive and fast-moving consumer goods sectors points to opportunities to capture market attention and willingness to buy, particularly late in a recession, when competitors have pulled back due to uncertainty.
Economic cycles are a fact of life for managers: Despite government policies that seek to promote growth and stability, events — such as the COVID-19 pandemic — and other types of financial shocks can drive a country into recession. While there’s a fair amount of advice for business leaders on managing during difficult times, the questions that have received little attention are whether to launch new products during a recession and, if so, when and which ones.
We set out to investigate why it might be advisable for companies to launch products during a recession, what types of products might be successfully launched, and at what stage in a downturn the launch should occur. In our research, we analyzed 63 years of data in the U.S. automotive industry that covered 1,071 product launches. We chose to focus on this sector because it is highly competitive, and new products greatly increase such companies’ long-term financial performance and business value whereas price promotions and rebates do not. We subsequently analyzed 18 years of data for 20 categories of fast-moving consumer goods (FMCG) in the U.K., covering 8,981 product launches (including crisps, breakfast cereals, yogurt, shampoos, cat food, dog food, salad dressing, butter, and margarine, among others) and obtained similar results.
We found that, on average, new products launched during a recession have higher sales and market share and remain on the market longer than those launched during boom times (19% longer for automotive and 14% longer for FMCG). We also determined that launching later in the recession is better than earlier. And we found that results are better in severe recessions than middling ones, perhaps due to greater pent-up demand.
The Advantage of Launching Late in a Recession
In both of the sectors we studied, products launched later in a recession performed better than those launched at its onset. There appears to be a strategic sweet spot for a launch, just before economic conditions improve and competition starts ramping up again. As an economic recovery begins, companies start increasing output, launching products, and increasing advertising.
That said, it is difficult to accurately predict when a recession will end — so how do you know its end is near? While absolute precision remains elusive, there are some helpful economic indicators.
