Default Category•Apr 06, 2020
Innovation in Recession: How to Use Ideation and Acquisition to Rise Above Economic Uncertainty
Uncertainty in the market due to COVID-19 and the impending recession has led companies to look at their business in a short-term view to ensure longevity. In fact, 72% of executives tend to focus on cost reduction during a recession. However, we believe the 50% of surveyed executives focusing on innovation such as market share capture and acquisition are more likely to be the ones with the stronger business for years to come.
The Dot Com Bubble burst led to a recession from March 2001 to November 2001, where the S&P 500 dropped 17%. More recently, the Great Recession lasted from December 2007 to June 2009 and saw the S&P 500 drop 60.3%.
Despite the recessions going on around them, the four following companies serve as examples of successful innovation. Our findings are outlined in the tables below.
Dot Com Bubble Burst (March 2001 – November 2001)
The Great Recession (December 2007 – July 2009)
Overall, these four companies were able to grow significantly faster than the rest of the market due to their focus on innovation during and after the recession. Their growth can be attributed to ideating new products or through strategic acquisitions.
Innovation Through Product Launch
In both recessions we see examples of product innovation that led to substantial growth in the following years.
Apple released the first iPad in April 2010, 10 months after the recession ended.
Amazon launched the AWS platform in July 2002, eight months after the recession ended.
Domino’s reinvented its pizza recipe in December 2009, six months after the recession ended.
A recession is an opportunity for companies to look at what changes are happening with their customer and the market as a whole. New pain points arise, which also means new opportunities for innovation. A recession is a chance to recalibrate your understanding of the customer as their spending habits become more conservative. For example, Dominos was tied for last place as the worst pizza company in 2009 for consumer taste preferences.
Consumers had very strong complaints regarding the taste of the pizza—many were comparing it to cardboard. Domino’s chose to listen to the consumer and make a change. By testing 15 sauces and 50 crust seasoning blends over two years, the company changed their entire pizza recipe and successfully won back consumer loyalty.
Domino’s took a risk during a recession to change their entire recipe, but due to their focus on the customer pain points and product ideation they were able to successfully innovate a new pizza.
Innovation Through Acquisition
Recessions also offer companies a chance to enhance their product offerings through acquisition. Companies looking to address existing pain points and further their business strategy can look to acquisitions to speed up their market offerings and attract new customers. eBay purchased PayPal in October 2002, 11 months after the recession and saw the value of their company significantly increase.
eBay and PayPal had an existing relationship prior to the acquisition (one in four winning auctions on eBay were handled by PayPal). However, eBay still needed to address the speed of payment processing as it hoped to move away from check and money order payments. Instead of building their own payment processor, eBay chose to purchase their main source of electronic payments.
The speed at which eBay was able to acquire and integrate PayPal provided them the necessary fuel to grow faster than the market during the post-recession years.
Listen and Innovate
As we’ve seen in previous recessions, companies who listen to consumers and innovate are able to capture a greater share of the market either through new products or acquisitions. The recession caused by COVID-19 will challenge companies to stay operational and solvent through a global pandemic and care for their employees who are isolated at home.
This pandemic and impending recession will have an economic impact for years to come. However, the companies that are able to innovate will become the market leaders as we move into a more favorable economic climate.