The value of reputation in times of recession

By Carsten Böhme, Managing Partner & CEO Germany

“Companies brace for the downturn” was the headline in the German business media Handelsblatt at the end of last year. But you don’t have to follow the business media too closely to know the gloomy outlook of economists and analysts: Things are getting truly uncomfortable; a recession is just around the corner. And perhaps one that has it all.

Inflation, falling demand and unstable supply chains are threatening the liquidity of many industries. And how are companies preparing for this situation? If you follow the Handelsblatt article, cost-cutting programmes are high on the agenda – in Germany but also in most of the other countries.

Austerity measures are supposed to help against the downturn: Adidas 700, BASF 500, Bilfinger 55 million Euros in savings. And with which specific measures? First and foremost, in business trips, trade fair appearances, central administrative costs and… in external consulting assignments. External consultancies? Not entirely disinterestedly, I would say at this point: be careful!

Because in times of crisis, attack is usually the better defence. Professor Wolfgang Fritz of the Technical University of Braunschweig came to this conclusion. He took a closer look at corporate strategies during the recession in the 1990s. The result of his empirical study from 1994 is clear and states that:

…companies which, in the face of recessionary economic development, unilaterally rely on cost and rationalisation management measures, choose only the second-best way to overcome the difficulties caused by the economic cycle…

Aha! Of course, this immediately raises the question of the best way. And according to Professor Fritz, it looks like this:

…while companies can only partially compensate for the loss of success caused by tighter sales markets by means of a stronger production and cost orientation, they can almost completely compensate for this loss by forcing market orientation. Market orientation thus proves to be the even more effective means of management in tighter markets…

Especially during a recessionary market phase, market orientation is thus the important key to success. What does this mean in concrete terms? Investment in marketing and communication, in customer proximity, trust and loyalty. Active market orientation provides the decisive competitive advantage to more than make up for economic losses. In the face of headwinds, companies do not have to communicate less, but more efficiently and thus better, taking costs into account.

Reputation plays a special role here. Especially in an inflationary environment, an above-average reputation makes it possible, for example, to push through higher prices with customers. Furthermore, a good reputation also binds customers to brands and companies for longer. Such a strong reputation is built up systematically and continuously over many years. To sacrifice it in the crisis to an austerity programme would be short-sighted – almost negligent.

Experts, whether internal or external, who competently support companies in matters of market orientation, communication and reputation building and protection, should definitely not be spared in the looming recession. Unless you settle for the second-best way through it.

Read Carsten’s advice on ESG in difficult times