Author: Pär Österlund

Amidst the coronavirus turmoil, it seems inevitable that we’re about to enter a global recession. Stocks have already taken a huge hit, but the real economy is just starting to see the effects.

This means now is a perfect time to start reading up on how to sell in a recession.

How to sell in a recession in retail

During the financial crisis, management consultants Ken Favro, Tim Romberger and David Meer published a piece in the Harvard Business Review about selling in a downmarket.

They use Starbucks as an example of companies hit hard, which feels a bit off in retrospect, given what a massive success it became in the following decade.

This choice of case strengthens two key points to remember:

1. Starbucks did many things right during the financial crisis
2. There are opportunities to dramatically improve your business during a downturn

Let’s explore what learnings the management consultants derived from Starbucks and other retail companies they studied.

1. Go where there is market to gain and avoid excessive action

First and foremost, rushing to action has a low likelihood for success. Managers typically feel the need for broad and immediate action, but focus yields better results.

Retailers should focus on where they can grow market share, which the authors call headroom.

We define “headroom” as market share you don’t have minus market share you won’t get.

Favro, Romberger and Meer

For retail, the headroom often lies with non-loyal customers.

When times are good, loyal customers are often the most profitable and the easiest to grow. But when spending goes down across the board, it goes down also with loyal customers.

Non-loyal customers, on the other hand, are spending only part of their money at any given retailer. So even if their spending goes down, you can grow by capturing a larger part of their total spend.

2. Understand what the non-loyalists want and give it to them

Gradual optimisation will not help you capture growth from the non-loyal customers. They are not loyal for a reason and you need to understand what the reason is.

The authors give the following example about Starbucks.

Many coffee drinkers want a self-serve food experience much like that offered by such outlets as Pret A Manger. Coffee connoisseurs want the espressos, cappuccinos, and experience that can be found in Italy’s best coffee bars. And many just want their original Starbucks back—the socially responsible “third place” between the office and home.

Favro, Romberger and Meer

The gap between what the switchers want and what you offer can also be found in product categories, such as in the example below.

However, this retailer’s headroom in apparel was disproportionate to the sales it was realizing. Even its most frequent shoppers were going elsewhere to purchase their clothing.

Favro, Romberger and Meer

These gaps are, of course, difficult to capture in data, since data mainly shows you what has and hasn’t worked historically.

You need to combine historical data with inputs on possible growth segments (i.e. headroom) in order to identify which categories could serve those segments.

3. Take out bad costs

Every business has both good costs and bad costs.

Good costs are the ones which drive things customers are willing to pay for. Depending on your business, this might be convenience, speed or assortment.

Bad costs don’t add anything to the business that customers are willing to pay for. Every business has bad costs. During a recession, these need to go.

Another example by the authors on Starbucks below.

Starbucks’s bad costs might involve too much seating in stores used primarily by take-out customers, or unnecessarily extended hours in certain local markets, or too much inventory and space dedicated to accessories (those coffeepots, movies, and whatnot) that few customers purchase.

Favro, Romberger and Meer

The need to cut bad costs isn’t specific to retail. In my experience, all businesses need to go after bad costs relentlessly. It’s a grateful job, since margins go up and the negative consequences are minimal, usually limited to some individuals getting upset.

During good times, companies just tend to focus much more on growth and much less on cost, so the bad costs keep creeping up, a little bit at a time.

Recessions force most to cut out this fat and improve the health of the business.

4. Cluster stores and not just customers

All retail locations are different, but many of them share traits. By understanding which, and clustering together similar stores, decision making and optimising become easier.

In theory, stores could be clustered just by clustering customers and then comparing customer profiles, but this is often impractical if only for the reason, that many customers don’t fit neatly into given customer profiles.

The store clusters can be used to figure out which type of “headroom” exist for which cluster.

5. Adjust research and KPIs

During a recession, retailer’s research should focus on finding headroom and understanding what these new customers want and how to give it to them.

One supermarket chain we know of, for instance, routinely asks patrons, “Did you find what you need?” at checkout. But when the answer is “no,” the next question clerks ask is, “Did you ask for help in finding it?”

Favro, Romberger and Meer

The same goes for KPIs and performance management. The normal measures won’t help you understanding if you’re nailing headroom and closing the gap.

How to sell in a recession in B2B sales

B2B sales has a very different dynamic than consumer facing retail and hence the toolbox for B2B sales reps and managers will differ significantly from that of retail. Let’s dive into what previous downturns have taught us about this craft.

1. Risk-aversion does up, which means you should focus more

In the wake of the financial crisis, CBS news interviewed sales recruitment and sales training experts to figure out how to win in a downmarket. The key finding evolves around risk.

During bad times, people become more risk-averse. This means potential problems matter more than potential upside. If someone is scared for their livelihood, they will do whatever it takes to avoid bad decisions.

Adjust your story and focus accordingly.

Focus on risk slows down decisions. This means each prospect or lead needs more contact points to close a sale than during good times. In sales, you should focus more time on fewer leads, even if the default tendency would be to hedge bets by working as many leads as possible.

2. Change your attitude

Sales consultant Liz Wendling writes about attitudes.

When the going gets rough, we need to up our game to make it. In sales, the good news is that every sales rep can affect their outcomes, even when circumstances are bad.

In order to do this, you need to focus on your work instead of your circumstances. Up your activities and commit to getting deals.

3. Challenger sales methodology was created to sell in a downturn

The challenger selling method was created when the consultants behind it noticed, that some reps were able to keep hitting their quota while the majority underperformed during a recession.

So they dug into it and identified five different seller profiles:

1. Hard worker
2. Lone wolf
3. Problem solver
4. Relationship builder
5. Challenger

The conclusion was that the challenger was the most likely to keep getting results in tough environments.

The challenger model builds on three fundamental parts from an individual sales reps point of view:

1. Teaching
2. Taking control
3. Tailoring

Let’s take a look at each in turn.

Teach for differentiation

Key concepts for teaching are insights and reframing. What the challenger seller does, is to teach the customer something about their own business that they didn’t previously know.

One way of doing this is by reframing the customer’s problem or their proposed solution, or how they view their entire business.

Take control

The challenger will have control over the dialogue, push customer to action and resist any requests for discounts, expensive tailoring of the solution or other bad terms and conditions.

Pushing the customer to move is especially powerful in a downward market, since customers are more risk aware than normal.

Tailor for resonance

Tailoring doesn’t mean the solutions you sell need to be tailored. It means the messaging needs to be tailored and the customer needs to feel like they are getting something that’s as good a fit for them as if it was tailored.

In order to increase sense of tailoring, use the same reframing techniques as when teaching.

More information about challenger selling and rolling it out can be found in e.g. this Gartner summary and this Pipedrive summary.

Conclusions about how to sell in a recession

Selling and succeeding in a downward market is possible, but requires different tools and methods compared to selling and succeeding in a normal or growing market.

How to sell in a recession is different.

Because downward markets stir everything around, it can give a good opportunity to reposition your company for growth down the line. Like for Starbucks during the financial crisis.

There’s always business available somewhere, it’s just harder to find now.