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  • How Businesses Can Survive Recession

    Published: Aug. 13, 2014
    [Image credit: Scott Beale / Laughing Squid]

    In a blog post on the Harvard Business Review, McCombs School of Business marketing professor Vijay Mahajan explains his research that reveals “Why Family Businesses Come Roaring out of Recessions.”

    Mahajan and his research partner and former Ph.D. student Saim Kashmiri (now an assistant professor at the University of Mississippi), compared the performance of 148 publicly listed family-owned companies between 2000 and 2009 with that of 127 non-family businesses.

    marketing professor Vijay Mahajan

    Vijay Mahajan

    “We found that family businesses handily outperformed non-family companies during both the 2001 and 2008 recessions in terms of a key metric, Tobin’s q,” Mahajan and Kashmiri wrote in the post, which was published in April. (Tobin’s q is the ratio between a company’s market capitalization and the replacement cost of its tangible assets.)

    They continue by outlining some pronounced differences in how the two types of companies tend to adjust marketing strategies during downtimes:

    We also found three differences in marketing strategies, which may account for the performances of the two types of companies.

    1. Family-owned businesses did not hold back on new product launches during the recessions. Not only is it easier to differentiate brands when there is less competition, but also, products introduced during recessions will enjoy a first-mover advantage as the economy recovers.
    2. Family businesses maintained almost the same levels of ad-spend during the recession years as they did during normal times, helping them do better than the professionally managed companies, which reduced ad-spend when the times got tough.
    3. Family businesses maintained their emphasis on corporate social responsibility regardless of the state of the economy. Customers penalize companies when they don’t maintain high social performance levels, especially in uncertain environments.

    Read the full post for more details about the researchers’ results.

    Mahajan is an expert in marketing strategy and is the author or editor of 12 books, including “The Arab World Unbound,” “Africa Rising” and “The 86% Solution.” He has received numerous lifetime achievement awards including the American Marketing Association (AMA) Charles Coolidge Parlin Award for visionary leadership in scientific marketing. He has consulted with various Fortune 500 companies and has delivered executive development programs worldwide.

    • Quote 2
      Wills said on Aug. 25, 2014 at 6:27 a.m.
      your three points regarding family business success during recession times probably sum it it up. Thanks for a very informative article. Andrea
    • Quote 2
      Darragh McCurragh said on Aug. 17, 2014 at 9:36 a.m.
      The eeriest thing that ever happened me during my consultancy career was at a big Fortune100 company which had a "bad" quarter. From "on high" all projects were ordered to go into hibernation if they were not absolutely mission-critical. That meant to axe the freelancers, like me, as the first line of defense. Which us freelancers do not necessarily mind as there is as a rule another company ramping up at the same time in a similar field. However, while I was mothballing all the project deliverables etc., I happened to sit across from a young up-and-coming project assistant who was talking via IP phone with his boss in the US, the general projects manager. What the guy was doing was deleting line after line from the master sheet of projects. And the longer they did this, the happier both seemed to get at the "savings" the EXCEL sheet started adding up. I couldn't help to overhear the name of the project I played a lead role in, so I knew all about that one. And ... drum roll ... a figure got deleted, "savings" got added up. I then realized they were actually deleting projected costs ... however, ours had already been 90% spent. If many more large public companies are run by such sleight of hand I do not wonder at the above differences in performance.
    • Quote 2
      Andy Johnson said on Aug. 15, 2014 at 9:14 a.m.
      In the times of recession, it’s very important for all businesses to keep any eye on their cost base. If the revenue is not where it should be then you have to cut the cost by improving efficiencies to ensure your bottom line is not affected by the financial crisis. Andy
    • Quote 2
      David Martinez said on Aug. 14, 2014 at 7:00 p.m.
      Very insightful research.
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