It might seem that the worst time to evaluate and pursue new markets is during a severe worldwide recession like the one businesses are experiencing right now. After all, your sales and profitability are probably down at least 25 percent. Cash is tight, and you’re doing more with less and basically hunkering down trying to survive. However, forward-looking companies of all sizes are using this time to develop new products and services that will allow them to penetrate new market segments and find new customers.
Some of these companies may be your competitors, and they want your customers. Your options?
- Play defense and try to hang on to the customers and markets you have now.
- Go on the offense so that when markets open up again you’ll be poised to take market share and customers from your competitors in existing and new markets.
The decision you make will likely define the fate of your company for the next five years or more. This article is for company leaders who are prepared to go on the offense and grow, in spite of the current difficult economic times.
Our Current Condition
The following econometric data from Bank of America/Merrill Lynch economist David Rosenberg paints the picture of the current conditions for most U.S. manufacturers.
- Industry optimism declined in March 2009 for the fourth month in a row to 88.7 percent, down from its peak in December 2003 of 106.9 percent, according to the National Federation of Independent Business Index. The last time it was this low was in April 1980.
- Around 30 percent of small business leaders cited “poor sales” as the reason for their lack of optimism, while a mere 6 percent referenced inflation.
- Small business plans to expand slid to a mere 1 percent in March, and capital expenditure plans were trimmed to their lowest levels since 1975.
- It appears that the only areas of business left that can possibly sustain expansion are exports and government spending.
- Capacity utilization in the manufacturing sector fell to a historic low (for the third straight month), to stand more than 10 percentage points below its five-year average.
- Within the auto sector, utilization remained extremely depressed, at 42.8 percent.
History tells us that the unemployment rate peaks six months after the recession ends. If the unemployment rate peaks “early next year,” as the Fed predicts, it would peg the end of the recession sometime in the fourth quarter of 2009. Rosenberg found that the unemployment rate peaks seven months after the bear market ends. So that would peg the bottom in the S&P 500 some time around September–October 2009 (when most bear markets end).
The Fed’s Beige Book offers up some of the timely, on-the-ground information on the state of the U.S. economy. Currently there are three times as many sectors with negative revenue growth as those with positive growth. Some examples of positive growth sectors include the following:
- Food production
- Defense equipment
- Health care products
The following are examples of negative growth sectors:
- Oil and gas
- Health care services
- Business consulting
- Travel and tourism
- Commercial real estate
- Electrical equipment
- Luxury goods retailing
What This Data Means
This data simply confirms what we already know, that the U.S. and global economy is in the tank and unlikely to improve much in 2009. However, if you believe the Federal Reserve’s projection that the recession will end in late 2009, then 2010 has the potential to be a decent year for manufacturing. So now is the time to focus on finding new markets and new customers. Plans should include the following:
- Uncovering new opportunities with your best customers
- Learning how to make marginal customers more profitable
- Improving existing products and services, or developing new ones
- Finding profitable new market segments that your company can penetrate effectively
- Selecting the most profitable customers to serve in these new market segments
- Improving the sales and marketing process to support this strategy
- Seeking dependable outside advisors to help your company accelerate this process
What You Can Do Today
Commit today to growing and diversifying your markets and customers, with the understanding that it will be a time-consuming process that must be done accurately and completely to be effective:
- Discuss market diversification with your management team and challenge them to develop an effective plan for 2010 and beyond right now.
- Form a small cross-functional team to develop this plan.
Contact your Manufacturing Extension Partnership Center for support during this process. This national network of specialists works with manufacturers to deliver cost savings and increase sales and improve productivity.
Form a team to address the following points as completely as possible:
- Identify the best customers to sell to now and in the future; the market segments and niches (customer groups) to focus on; and the kinds of products and services your best customers want.
- Compare your products to your major competitors’ products in terms of price, delivery, and key features, model by model.
- Pin down the specific reasons you are losing business to competitors on an order-by-order basis for the last year.
- Calculate whether your margins are adequate on each product line, model, or job.