Launching a new product during a recession can pay off, study shows

But a professor from Northeastern University in the US has found that the tail-end of a recession can be a good time to launch any product – from luxury cars to low-cost snacks. 

“The common wisdom in companies is that you should not launch products in recessions,” says Koen Pauwels, Distinguished Professor of Marketing. 

According to research Pauwels and his co-authors published in the MIT Sloan Management Review business journal, “new products launched during a recession have higher sales and market share and remain on the market longer than those during boom times”. 

The study looked at the automotive market at FMCG markets such as snack food (potato chips), yogurt and salad dressing. Time on market for products launched in the latter stages of a recession was 19% longer for the auto industry and 14% longer for consumer goods. 

Less competition can boost visibility and success 

Fewer competitors and lower manufacturing and marketing costs contributed to recession launch success, Pauwels explains. 

“Our conceptual framework was the three Cs. We looked at the consumer, the company and [at] creditors. 

“Consumers have less credit and they may be, in general, less interested in buying cars. However, your competitors really cut down.” 

Pauwels continues: “That means there’s less competitive clutter in the marketplace. So, if you’re one of the only ones to launch a new car, people really pay attention.” 

Timing matters – the later in a recession the better 

Timing also makes a difference, Pauwels notes. There is less rationale for introducing new products early in a recession, when everyone is tightening their belts. 

“Launching later in the recession is better than earlier. And we found that results are better in severe recessions than middling ones, perhaps due to greater pent-up demand,” the researchers say. 

“There appears to be a strategic sweet spot for a launch – just before economic conditions improve and competition starts ramping up again.” 

But new FMCG products at the other end of the price spectrum also did well during recessions, among them the previously mentioned potato chips, yogurt and salad dressing. 

Shoppers want affordable treats and small upgrades 

People look for an affordable pick-me-up during dim economic times, Pauwels believes. 

“For most people, that [does not mean] buying a car or a yacht,” he states. “You may upgrade your snacks. It could be buying a slightly better brand of chocolate. People buy more beer during a recession, too. It’s an affordable luxury.” 

Pauwels says national brands in mid-price tiers tend not to do as well as private label or store brands, since consumers are looking either for savings or a treat, in which case they would go for a premium brand. 

The thinking is: “I will splurge on some categories. But in other categories, I want to save money,” he explains. 

Concludes Pauwels: “Consumers want to have some good news. And new business launches can provide that.”