Author: Ian Betteridge
Date: 13/01/2009
Although companies having a hard time make the headlines when times are tough, some businesses will thrive when customers are cautious about spending.
For new companies, or ones looking to launch new products or services, the key is to know whether your idea is in tune with the times.
Of course, you need to consider all the questions you’d need to look at normally, and which should form part of your business plan. How big is the potential market? How are you going to distribute your product? What role will advertising play, if any? And how much will you need to invest before you see returns?
But beyond that, there are some additional things to consider. If you’re trying to work out whether your idea is going to work in tough economic times, ask yourself these three questions:
Can you take advantage of “the lipstick effect”?
When times are tough, the “lipstick effect” makes an appearance. While customers tend to put off buying big-ticket items like new cars, they continue purchasing small luxury goods – and, in some cases, actually increase their spend on this kinds of products. The classic example is lipstick: small, low-cost, but high on value and the “feel-good factor” for consumers.
But the lipstick effect isn’t just about cosmetics. So consider if there’s any aspect of your business plan which can take advantage of consumer desire for small luxuries. If there is, make it a central part of the plan.
Can you start small and scale?
In a downturn, the less your business needs large-scale investment, the more likely it is to be easy to find the funds to do it. So look at your business plan, and consider whether you can start with only a small investment of time or money and grow as it becomes established.
For example, if you are starting up a new business, rather than quitting your day job consider working on it during evenings, weekends, and the occasional block of leave time. This gives you a regular income while your business grows to the point at which it can become your full-time job.
Can your product save customers money?
If your product can save customers money, then it becomes far easier to justify the purchase.
As an example, take devices which allow you to easily see how much electricity you’re consuming: even though these can be expensive to purchase, customers see them as a method of saving money rather than as an expensive. If customers feel like they’ll be able to make the purchase price back in a relatively short period of time, they’ll often buy.