06 May Selling During Different Economic Cycles

Understanding Economic Cycles

Economic cycles, comprising phases of growth or expansion and contraction or recession, are a fundamental aspect of the financial landscape. These cycles are a natural occurrence in all free economies, influencing how corporations navigate their operations to optimize profits and efficiencies. The U.S. economic cycle typically spans about five and a half years, although it can vary between eighteen months and ten years. Good times lead to difficult times, and vice versa. The stock market is dissimilar to the economic cycle, although they often experience similar behavior, as investors’ beliefs in the future economy and company profits influence the stock market.

Phase of the Economic Cycle

Expansion

During periods of expansion, the economy experiences a rise in activity characterized by optimism, increased employment, consumer spending, and investment. Corporations benefit from enhanced profits, allowing them to hire staff, allocate resources to capital expenditures, introduce new products, and explore new markets.

Peak

The peak marks the zenith of economic activity before a downturn begins. At this stage, the economy operates efficiently, with low unemployment rates and robust economic indicators. However, this phase is often short-lived, as the forces driving expansion may lead to imbalances, prompting a shift towards contraction.

Contraction and Recession

Contraction, or recession, is characterized by a decline in economic activity. Recessions typically last between twelve and fourteen months, significantly shorter than periods of expansion. During this phase, people are more pessimistic; companies often reduce spending, cut budgets, and streamline their workforces. Consumer confidence typically wanes, and non-essential projects are postponed.

Trough

The trough signifies the lowest point of economic activity, where the decline stabilizes. It is followed by a gradual recovery, setting the stage for a new cycle of expansion.

Impact on Corporations and Investors

Corporations and investors must skillfully navigate economic cycles to maintain profitability and efficiency. While the economic cycle is distinct from the stock market cycle, market values are influenced by current economic conditions and public sentiment about the future. The stock market reflects investors’ expectations for the future performance of companies’ stocks and can serve as a leading indicator of the economy’s future health. Conversely, the economy directly impacts stock prices through company earnings and economic growth.

Selling to corporations during these times is a “double-edged sword” in that each phase has positive and negative consequences.

During expansion, selling high-value products or services becomes less difficult, as corporations enjoy increased profits and there is less pressure to cut back on expenditures. Companies are more likely to explore new opportunities and expand their operations, although they may become so engrossed with internal growth that external projects take a back seat.

Conversely, selling during economic downturns poses greater challenges. Companies frequently reduce budgets and decrease their workforces, and only the necessary capital expenditures are undertaken.

Sellers must emphasize their products’ value proposition, convincing prospects that purchases will offer significant economic benefits, such as short-term ROI, that can mitigate recessionary impacts.

Strategies for Selling in Different Phases

Selling During Expansion

To capitalize on the favorable conditions of economic expansion, sellers should:

• Take advantage of the positivity due to the economic climate. “Ride the wave.”
• Highlight the innovative features and benefits of your products or services.
• Target emerging markets and verticals where expansion activities are prevalent.
• Position offerings as complementary to the buyer’s growth strategies – for this and next year!
• Anticipate that appointments may be difficult to obtain because of busy schedules.

Selling During Contraction

In periods of contraction, sellers should focus on:

• Demonstrating clear and immediate ROI in your presentation and proposal.  It’s all about value.
• Emphasizing cost-saving aspects of products or services or propose solutions for long-term strategic objectives
• Building trust by offering flexible payment options and strong post-purchase support.
• Creating a compelling message to gain an appointment that may be difficult to schedule due to spending cuts.
• Expecting that the sales cycle will be lengthened due to caution.  Do not try to shorten it artificially.
• Anticipating that the negative voice in the evaluation team will have greater weight.

Conclusion

The economy will always be in one of the four phases described above. Recognizing, understanding, and adapting to economic cycles is crucial for sellers. By strategically aligning your approaches and messages to the phase of the economic cycle, you can increase sales by helping buyers optimize their operations, achieve sustainable growth, and navigate the complexities of the financial landscape.