Innovating During a Recession

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Profits will come later through economies of scale, the ability to reduce marketing costs once the brand is established, and, yes, mothers' loyalty will support respectable price increases once the economy is on the mend.

We understand the idea of innovating at a temporary loss is especially scary during these times. So now more than ever, the ability to create predictive financial models is critical. Our baby formula company needs to prove that a low introductory price approach will be profitable within a reasonable period of time.

Says Jim Lenskold, author of Marketing ROI who has a Web site devoted to generating the highest possible return on your marketing dollar: "If marketing does not step up to participate in these critical business decisions, it is very likely that growth opportunities will be missed. This is not a time when executives will go on faith that innovation, good branding, or share of voice is critical to maintain. A solid ROI analysis that shows short-term and long-term returns from current investments will guide the discussion to the appropriate decision."

Strategy No. 2—Ready, aim, aim, aim, fire

If you don't like, or can't implement Plan A (Win It Now, Expand It Later), then it is time for plan B. If you have a disciplined research function, you are already sitting on insights into customer buying behaviors, segment value, and marketing. (If you don't have it, start building it today.)

These insights enable you to build an innovation plan that lets you win one segment at a time, meaning you can lower your marketing budget, still spend more than your competitors by segment, and beat them soundly. The approach is to keep or expand investments just in specific areas of innovation that are sure fire. An example would be Marriott (MAR). Each of its "brands" targets a particular segment: Marriott Suites for long-term vacationers, Fairfield Inn for economy travelers, Residence Inn for extended stayers, and Courtyard for budget-conscious business travelers. In light of the recession, where do you think the company should focus innovation spending?

The irony is that most innovation efforts fail because of lack of focus; budgets and teams are spread too thin. This approach allows you to focus your brightest people and financial resources on "must win" innovation that will drive the majority of the growth during the recovery.

The takeaway from all this: The innovator sees that there is a huge upside to this recession.

If you don't see it, well, you better hope your competitor doesn't follow Warren Buffett.

G. Michael Maddock is founding partner, and Raphael Louis Vitón is president, of Maddock Douglas, a company that invents, brands, and markets products "for companies driven by innovation." .