MARKETING STRATEGIES THAT MAKE ENTREPRENEURIAL FIRMS RECESSION-RESISTANT

The recession of 1990-1991 adversely affected nearly every industry in the United States, and entrepreneurial manufacturing firms were among those hardest hit by the recession. The failure rate among this group by mid-year 1991 had risen 37% from the previous year. Thus, recessio ns pose a serious threat to the survival of entrepreneurial firms. Und erstanding how the business cycle influences performance and what stra tegies are effective in such turbulent rimes has practical value for m anagers of entrepreneurial firms. In this paper we report a large-scal e empirical research study involving subjective and financial informat ion from 118 publicly traded U.S. manufacturing firms. The participati ng firms are involved in technologically demanding and highly innovati ve industry segments: Industrial and Computer Equipment; Electrical Eq uipment and Components; and Measuring Analysis, and Control Instrument s. None of the firms has achieved a market share of more than one half of one percent (< 0.5%). The goal of the study was to determine the c omponents of a marketing strategy that enabled a firm in these industr ies to withstand the negative financial consequences of a recession. W e find that, in these industries, a company's marketing strategies pre ceding a recession strongly impact the extent of economic downturn on the firm, and influence its odds of a timely and complete recovery. Ou r specific prescriptions follow: First, maintain marketing activities in the core business as assurance against recession. Increasing sales and advertising, increasing breadth of production, and increasing geog raphic coverage improve performance during both the peak and the contr action of the business cycle. Second, during the peak period, cautious ly expand with an emphasis on marketing efficiency. Increasing the num ber of channels of distribution and cutting price have a negative effe ct unless accompanied by sales-force performance measurement. A simple emphasis on incentives and efficiency alone hurts a firm as a recessi on hits. All of these prescriptions run counter to existing views that suggest that recession simply requires cutbacks and retrenchment. Rec essions seem to be different from other threats to firm viability, and marketing activities appear to help pull the firm through a macroecon omic downturn. (C) 1997 Elsevier Science Inc.