John and I discuss three of the most popular questions from our Office Hours these days:
- Are our customers impacted by a recession?
- How long do recessions last?
- Should you slow or stop your marketing?
We don’t have all the answers, but we’ve been through a recession or two (or more than that, if we’re willing to admit it!) and have learned a few things!
And, we share the three things we recommend to clients preparing for a recession:
1- Control Expenses
2- Sell Value
3- Keep Marketing
Paula Williams: Welcome to this week’s episode. I’m Paula Williams.
John: I’m John Williams.
Paula: And we are ABCI and ABCI’s mission is?
John: To help all you folks out there in the aviation world sell more of your products and services as long as we can help.
Paula: Exactly. And so this week, we get asked a lot in office hours, are we heading for a recession? What’s going on with the economy? How should we adjust to what’s happening and all of that very good questions. That is exactly what we should be talking about in office hours, right?
John: Yup.
Paula: But we thought that we would share some of our thoughts and experiences having done this for more than a few minutes. So actually, we’ve both been in the business world for a lot longer than we’ve been doing ADCI, and so we have some insights into recessions. We’ve been through at least 2 big ones that I know of.
John: Do you have?
Paula: Yeah. How about you?
John: More than that.
Paula: Okay, cool. So anyway, for some of our clients and some folks this is the first time that they’ve approached what appears to be a recession and
it can be kind of scary, right?
John: Yeah, I suppose.
Paula: Just like anything else, you haven’t done before.
John: Yeah. From that perspective, yeah. A recessions, I have had the opportunity to do business cycle planning and had the presidential advisor, teach the class. So, I’ve run business cycle analysis before and watch it play out over the succeeding years.
Paula: And we will get to that. And we will ask you lots of questions. On a particular slide.
John: Of course you will.
Paula: Okay. So 3 questions that we’re going to answer in this podcast, for at least talk about.
John: [inaudible] we’ve got to talk about.
Paula: Right. Number 1, our customers impacted by recession, meaning they are the customers of our customers. Meeting our clients customers to get really confusing. So are the customers of..
John: You and your customers.
Paula: Business aviation, is this market impacted by a recession and how do they react differently during a recession and not? So, that’s question 1. Question 2, How long do recessions last? Well, what people are asking is, how long is this one going to at last? And if we knew the answer to that, we could..
John: Make a lot more money.
Paula: And then, number 3, should we be slowing or stopping or adapting or marketing? And we will get into that as well. So?
John: All good.
Paula: Without further ado..
John: Ado?
Paula: Yeah. So most of our clients are in the business aviation market or the general aviation market. Their customers tend to be higher income than the rest of the population that’s just demographic reality, right?
John: Yes.
Paula: And so, we have high net worth and ultra high net worth individuals. We have companies, we have entrepreneurs, we have generally speaking, some people who are in the upper 10% of the economic strata, sometimes in the upper 1% of the economic strata worldwide, right?
John: Yeah. And not only that but because the way things are going, I think you’re going to see some upper middle-class folks.
Paula: Mmm-hmm. Getting into business aviation?
John: Right. They are least using it.
Paula: Exactly. So you know, at least we break at upper middle class.
John: Mmm-hmm.
Paula: Okay. At a minimum. So, those are the kinds of folks that we’re talking about and the reality of recessions or any other economic issue or any natural disaster or anything else, is that it hits middle class and lower the hardest. Because they have the fewest resources to deal with it. And, is that the way things should be? We could argue that all day long, but is that the way things are? Is that the way it is?
John: Likely.
Paula: Yeah. So, we’re dealing with with the reality of people who are in this market and they are going to buy a large, do what they’re going to do. They’re going to raise their families, the way they want to. They’re going to run their businesses. They’re going to be making some changes. They’re going to be perhaps more cautious and spend more time on a transaction than before. But for the most part, the way that we’ve seen people act and react in other recessions in 2009 and any of the other ones we want a name.
John: Well, I go all the way back. Okay, this will show my age, right?
Paula: Mmm-hmm.
John: The recession [inaudible].
Paula: Wow.
John: So, I lived through that one as well.
Paula: So is it true what I just said?
John: Now, she asked.
Paula: But, high net worth and ultra high net worth and upper middle class people will do typically what they do. The recession’s generally have the biggest impact on the rest of the economy.
John: Oh yeah, I remember getting a raise in the heaven[?] less spendable
Paula: Yeah.
John: Because taxes were just escalating out of control.
Paula: Right. So, I mean, it does impact everybody everyone, but, if we were running a Walmart in a neighborhood that was really impacted by a plant closure or something like that, we’d be having an entirely different conversation than we’re having right now. So, when a lot of people think about recessions, they’re thinking about how it affects the entire economy and we need to pull that back and think how does that affect our customers and their customers?
John: Exactly.
Paula: Okay, now this is the slide where we get to ask you a lot of questions because you took an entire class in college on this wiggly line.
John: Yeah, well that is only 1 of 4 cycles that are going on and they are all 90 or 180 degrees out of phase. So, you got the government cycle, you got the financial cycle, you got the business cycle and I don’t remember the 4th one right now.
Paula: Do they all impact the people we’re talking?
John: Of course.
Paula: Okay.
John: And they’re meeting out of phase, when one’s up, another ones down, and when they’re in the middle [inaudible]. And you can tell when you plot these things, when the economy is going to be rip-roaring good and when it’s going to be really bad. And we did that as a class project. When I graduated, I watched and plotted the results for the 1st year and we hit it dead on. It’s amazing how it works.
Paula: So, what does your plot say now?
John: Oh, I haven’t done this for this current.
Paula: Okay, cool. So, you have no crystal ball. You can’t tell us.
John: Well, if I had the same computer program and the same access to data, heck, yes, I could do it.
Paula: Okay.
John: As people are doing it all over our country at least. The economists for sure, another people, some people are trying to massage it to make it look one way. Somewhere trying to massage it to look another. But we just take the raw data and plot it. And it hasn’t lied in the past so…
Paula: Well, I guess the point that comes to me for this slide here is that you could argue about how long it’s going to be, or how deep it’s going to be, but one thing about recessions is that they are never permanent. No business cycle, no economic cycle, no government cycle, no any other cycle is permanent. That is the nature of cycles. They go up and down. In fact, there are some people, you sent me an article earlier today, saying that having a smaller recession earlier, may actually be better than having a worse recession later. And, there are some people saying that it’s kind of a good thing that we’ve been in an expansion and a peak for so long, that a recession was coming at some point.
John: Yeah. Well and then, you have to look. People will talk about Keynesian method or the Friedman method or this or that, and they’re opposing. So, you sort of have to think about what these guys said and approach it logically. And then, figured it out for yourself.
Paula: Yeah.
John: But, it’s not easy.
Paula: Right. But given all that, what it boils down to, for me anyway, is that we know that there will be an end to the recession, whatever that is, and we want to be prepared for the next recovery cycle. We want to be prepared to weather a trough, but we also want to be ready for that next upswing, right?
John: Yup.
Paula: Okay, cool. So, what do we do in a recession? How do we mark it? How do we handle our businesses and how do we thrive basically, or continue to thrive or at least not die in a recession? There are 3 things that we are going to recommend. One, is to control the expenses. Number two, is to sell value as opposed to selling experiences or pleasure or any other thing. And number three, is to keep marketing. So for a lot of folks, there are some adjustments to be made in all of those areas, right?
John: Yeah. Controlling expenses is pretty straightforward, but sometimes people think that controlling expenses means slashing marketing.
Paula: Right. And there’s lots of ways to control expenses.
John: That is not a good one.
Paula: Right?
John: We’ll talk about that.
Paula: Exactly.
John: And that because we’re in marketing. Because I have seen as you guys think about it, you probably have seen what happens as well, but we’re going to talk about.
Paula: So,
Apple has had a much better quarter than most other technology companies, not because of the cool new iPhone or not, because of the cool new iMac and, you know, we’re Apple people. So, I mean, I love Apple things. The products notwithstanding. The company has secured their supply chain. They’ve solved some problems that happened during the pandemic. They have controlled cash, they have kept their staff lean, they are doing all of the things that have good…
John: To control expenses.
Paula:…business person does to control expenses and they know their numbers. They know exactly what they need to make and by when. And they’re predictable and they are boring and they are a fantastic company in that way, right?
John: Uh-huh.
Paula: Okay. So your products don’t have to be boring, but your company should be boring. You should be able to make predictions and fulfill them.
John: And the thing we’ll talk about it later that they also do, they have increased their marketing.
Paula: Mmm-hmm. That is true. But right now, we’re talking about controlling expenses.
John: Just put a note in there.
Paula: Exactly. So, some of the things that you can do to control expenses would be, maybe if you lost somebody, you might want to think about do we want to replace this person? That we love…
John: Full time [inaudible] part-time.
Paula: Right. Or could we use contract work instead of part-time or full-time? There’s lots of ways to make your workforce more flexible, especially nowadays. And a lot of benefits that you can offer to make a job more attractive without paying people more money, so, there’s a lots of things that you can do with flexible scheduling, work from home, other things like that, that make the job fit into people’s lifestyle and you can get great talent without having the shiny cubicle, all of that stuff. Because people don’t want to [inaudible] anymore.
John: Well, those sort of office buildings are expensive.
Paula: Yeah. So, if your lease is coming up, you might want to think, do we need all this office space? Could we just use a conference room once a month and get the same value from that? So, there’s a lot of things that you can do to control expenses. Let’s talk about value. How do you sell value as opposed to selling the wow experience. And I think, there has been a lot of prestige marketing in business aviation, and it’s not a bad thing. Prestige is one of the things that we sell. So, that’s one of the things that we mark, but I think the pendulum has swung a little bit the other way, or will be during a recession into value. How can I prove to my board or to my wife or to my whomever it is, stakeholders in this transaction that this is a good value. So, in order to do that, you have to define what is value. Is convenience worth more to this person than the money that they’re spending is saving more time, being able to make more appointments, being able to get more places in a shorter amount of time.
John: And then after you’ve done that, you need to communicate it.
Paula: Right. So, you create the value and communicate the value. You deliver on that value and then you make sure that you sustain that in a way that they understand and that they are continuing to benefit from.
John: Yep.
Paula: And so, how can you do that if you’re a charter company? You can do that by offering additional services to make it even more convenient, where you pick people up at their house, there may be ways that you can go over the top adding value to making things convenient for them, if that’s what you do. If you’re a flight school, you can offer interview prep or some other way to increase the value of what you’re offering above and beyond that of the other flight schools in your area. Because if you think about what does this customer really want? They want flight training, but what they really want is a job. If they are a charter customer, they want the charter flight, but what they really want is to make all their sales appointments without being dead at the end of the week.
John: Or, in the case of some upper-middle-class people, they just don’t want to hassle with the airlines, they want to take the whole family and they can do it for a slightly more than the cost of tickets for airline and they don’t have to put up with a hassle cancel flight and all the TSA stuff at the airport.
Paula: Great. So they want to take their family on a vacation or to a wedding or an event and they want to take their grandma and their kids and their dog. You can’t do that on an airline nowadays. So, those are things that you..
John: And then, most FBOs, you have a car driver right up the airplane, get their stuff, put it in the car, get them in the car and get them going.
Paula: Right. They’re not buying a flake, they’re buying an experience and they’re buying convenience.
John: Which is value at.
Paula: Exactly. Okay. So, we’ve talked about it reducing expenses, we’ve talked about adding value. Now, let’s talk about marketing, right?
John: Uh-huh.
Paula: And the word of the day for marketing through a recession is, persistence. You want to be the only one left standing in the magazines you advertised in, in the shows that you typically go to, in social media, in your website, and every other way, you want to still be the one that they find, when they type in flight training in your city, or charter flights from here to here, or engine Services in this location. You want to be the last one standing and you want to be the one who has had the persistence to maintain that trust and maintain that solidity, to be that rock in the industry.
John: And there’s reasons for that. [inaudible] in the past, I mean, even Coke and Pepsi fallen prey, they have reduced marketing, not illuminated it, they reduced in some areas and they regretted it. So, they’ll not do that anymore. But if you chop marketing expenses because it’s easy and you still have your customers, right?
Paula: Mmm-hmm.
John: Well, if you aren’t out there every day, then customers no longer see. They start to think, “Well, maybe you fallen prey to the recession and you’re out of business.” I mean…
Paula: Or yeah, that you are in trouble.
John: Yeah.
Paula: And that’s the last thing you want to look like.
John: And so, then the customers try to go in other places. And then, you have to try to get those back. And now you’re in trouble because you’ve been gone from marketing for 9 days to 6 months. So now, you will start over again. Now, it takes you up to 8 months to regain where you were. So you’re out of the marketing business, your customers are miss sliding out, going away for up to a year. Well, what good…
Paula: And your competitors will be, if they’d kept marketing, they have no run-up time.
John: Yeah, exactly.
Paula: And they got full pipelines and they’re ready to go as soon as the market turns around. So, you want to be the one that is still the market leader at the end of this.
John: So, you don’t want to cut marketing, you want to get smarter with it. And you can do that, at least with people like us, but you need to get smarter with your marketing if you haven’t been.
Paula: Right. So, there’s a saying that bad company thrive in good times and good companies thrive during bad times. So, this is where you want to tighten your processes and your procedures. And you want to become like Apple, where you got your supply chain figured, you got your costs nailed, you’re running lean and smooth and cool, you got a team that is getting a long, and you got everything running well. All of that you want to have in place before the recession, ideally, and then keep that running as you go through.
John: Ideally, you would increase your marketing during a recession, but at least, maintain what you got.
Paula: Yeah. There’s lots of places to cut, marketing is not it.
John: No.
Paula: Right. And I’m not saying this because we sell marketing, we’re saying this because we see what happens when people have cut marketing and they’re on the other side of that recession going, coming to us with less than nothing and marketing assets and an empty pipeline and not much prospect, to get back up to where they were before.
John: And if you follow us, you know that we believe all we’re saying because we do it.
Paula” Exactly. Yep. We are actually advertising more than we ever have. And whether that’s because of the recession or that was just because of opportunities and things as they come up, it’s hard to say, but here we are.
John: We’re not reducing it because [inaudible].
Paula: Certainly. Exactly. So, 3 things to do in a recession will leave you with these control expenses, sell value, and keep marketing.
John: As a minimum.
Paula: Keep calm and keep marketing, right?
John: Exactly.
Paula: Okay. Have a great week.
John: Stay safe and healthy. We’ll see you.
[END]
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