We recently posted about how to approach marketing during a recession, with our analysis leading to the conclusion that it is best to maintain or even increase ad spend during these times. In this article, we aim to answer a similar, but different question: What is the best way to approach a company’s future when the economy is humming along, but business’s sales have taken a hit?
A recent example of this has occurred over the past few years, in the aftermath of the COVID-19 pandemic. Following the stay-at home orders, which were largely in effect between March and May 2020, the home improvement industry saw significant increases in revenues. In fact, between 2019 and 2022, the industry saw an increase in sales of about 40%. With everyone at home during that period, people spent a significant amount of time in their homes and noticing ways that they could be improved. As a result, people spent much of their “home budgets” in the months immediately following, including re-modeling, re-designing their homes, and more. While these brands experienced some very good years, sales in the home improvement industry in 2024 had dropped 7% from their 2022 high, a frustrating reality for many in the industry.
While this is an example resulting from a unique situation that impacted an entire industry (and so much more), all industries and businesses have their ups and downs. According to an article from the Harvard Business Review, “When Growth Stalls,” which reviewed revenues of the more than 400 companies that have graced the Fortune 100 since its inception in 1955, 87% of these organizations went through what it describes as at least one “stall point,” where a given company has enjoyed at least 2% compound annual growth for 10 years and then seen a decrease of at least 4 percentage points in compound annual growth over the next 10 years. In addition, companies lose about 74% of their market capitalization in the decade surrounding the “stall point,” and may never return to previous revenues if the underlying issues are not identified and addressed quickly. In fact, according to the article, if a stall persists for more than 10 years, businesses have a mere 7% chance of regaining even moderate sales growth. Clearly, such stalls are not at all uncommon and, given the long-term repercussions, companies would be wise to be prepared for this potential pitfall.
Because business operations are often deeply intertwined, there is frequently no specific right answer to address “stall points.” But, as when facing a recession, it is important not to play it safe, and making changes will likely be necessary. One important and fairly simple way to begin addressing an issue like this is to work to better understand the brand’s customer base. One brand that took the time to do this and responded accordingly was a Georgia-based ice cream shop named Marble Slab Creamery. The company had at one point based its pricing on weight; the result was that as customers added more toppings, the price increased. Over time, the company realized that they were missing out on potential revenue because some customers were making fewer trips to Marble Slab due to their dissatisfaction, which stemmed from the fact that they did not add the full assortment of toppings they desired due to the increased price. In response, the company decided to change their pricing model to be based on cup size, allowing customers to add as many toppings as they want without additional charges. In addition, the organization also decided to provide complimentary waffle cones to provide even more value to their customers. The result was a 5.8% increase in same store sales after two years, which ended a 5-year decline. By understanding their customers’ “pain point” and working to address it, the brand not only increased sales but likely fostered a number of brand loyalists as well.
While this example obviously details a very specific type of business, the importance of understanding one’s customers remains no matter the organization. Generally, when sales decrease, it signifies a disconnect with one’s consumer base. So, in these situations, it is imperative to work to gain a more complete understanding of those people to understand if what is occurring is an anomaly or a sign of a larger issue with the brand. The key is, just like during a recession, to invest more significantly during trying times. In fact, the Harvard Business Review estimates that 87% of what it describes as revenue “stall points” are the result of issues within management’s control, with a significant majority related to strategic missteps. Even if your brand is extremely successful at a given time, it is important to have the foresight to recognize that at some point things might not be as rosy. Having procedures in place to continually monitor and assess changing consumer perceptions is essential for brands to remain competitive. By gathering data and having the willingness to change accordingly, brands allow themselves the flexibility to succeed in a variety of situations.
Ultimately, it is important to not become discouraged when sales do not align with expectations and understand that it happens to many businesses. What is important is having a company and leaders with a willingness to adapt to changing realities and engage with your customers and potentially alter your company’s approach. Business leaders must ask themselves if they are satisfied with the status quo, or if they are willing to adjust to realize the full potential of their brand.