ChasNote

In his latest piece James Surowiecki, the New Yorker’s financial page columnist and author of The Wisdom of Crowds, looks at sales performance and market share trends for brands that invested (or at least didn’t cut) their way through past recessions and depressions.

“In the late nineteen-twenties, two companies — Kellogg and Post — dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.

Surowiecki cites a half dozen research studies from recessions going back to the early 1920s (by economist Roland Vaile, McKinsey, and Bain, among others) and market cases (Chrysler and Kraft’s Miracle Whip, both in the early 1930s; Texas Instruments, 1954; Apple’s iPod, 2001; and Hyundai, 2009) that suggest Kellogg’s experience wasn’t anomalous. Yet it’s a rare brand that has the chutzpah.

“You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return.”