Lower consumer spending and higher unemployment can make a recession seem like an inauspicious time to take a new product to market.
But a Northeastern professor says 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 at Northeastern’s D’Amore-McKim School of Business.
But according to research Pauwels and co-authors published in the MIT Sloan Management Review, “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 both the automotive market and that for “fast-moving consumer goods” such as snack food chips, yogurt and salad dressing. Time on market was 19% longer for the auto industry and 14% longer for consumer goods.
Fewer competitors and lower manufacturing and marketing costs contributed to recession launch success, Pauwels says.
“Our conceptual framework was the three C’s,” he says. “We looked at the consumer, the company and creditors.”
“Consumers have less credit and they may be, in general, less interested in buying cars. However, your competitors really cut down,” Pauwels says.
“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 also makes a difference, Pauwels says. There is less rationale for introducing new products early in a recession, when everyone is tightening their belts.
Researchers say they “determined that 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.”
“There appears to be a strategic sweet spot for a launch, just before economic conditions improve and competition starts ramping up again,” they say.
Several factors such as the historical record can assist in forecasting a recession’s cycles, Pauwels says. “There have been a dozen recessions since the Second World War. They do follow a pattern,” with the Great Recession lasting about 18 months.
“So if you’re nine months into the recession, you can say, unless something really bad happens, we’re probably going to get out of it in the next nine months. Let me launch a new product and ride that wave,” Pauwels says.
The standard definition of a recession typically includes two consecutive quarters of GDP decline. The National Bureau of Economic Research announces the beginning and end of recessions.
Auto purchasing is considered “extremely recession sensitive” since most cars are purchased as replacement vehicles, and thus easy to postpone, Pauwels says.
The research shows that new cars that sold best in a recession were luxury models, which are typically purchased by people who can afford a car even during an economic downturn, Pauwels says.
But new products at the other end of the price spectrum also did well during recessions, including the aforementioned consumer goods.
People look for an affordable pick-me-up during dim economic times, Pauwels says.
“For most people, that is not buying a car or a yacht,” he says. “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 says.
Does this mean the later stage of a recession could be a good time for entrepreneurs to launch a new candy product, beer brand or energy-saving device from their home or leased space in a commercial kitchen or lab?
Yes, Pauwels says. “Consumers want to have some good news. And new business launches can provide that.”
One of the benefits of an economic downturn is that companies tend to have more bargaining power with supply chain partners, which allows them to secure better deals, the researchers say.
But there are questions about how tariffs would impact some of these benefits amid growing concerns that the U.S. economy is headed for a slowdown or recession.
Unless a product is totally made in the U.S., tariffs force companies to constantly “rethink how they’re going to source the products,” Pauwels says.
“If the price of steel increases, it will likely eventually increase the price of some cars to consumers. But in between, the biggest headache for companies is where they’re going to source the (material) from,” he says.
For their study, the researchers analyzed 63 years of data in the U.S. automotive industry covering 1,071 launches as well as 18 years of data for 20 categories of consumer goods in the United Kingdom, for a total of 8,891 product launches.
The Sloan study that just came out was a summary of a report that appeared in the Journal of the Academy of Marketing Science in 2023, Pauwels says.
“Marketing is an applied science,” Pauwels says. “We’re trying to advise decision-makers, and so of course we’re always trying to find things that a decision-maker can control.”