When Launching a Product During a Recession Pays Off

Economic cycles are a fact of life for managers: Despite government policies that seek to promote growth and stability, events — such as the COVID-19 pandemic — and other types of financial shocks can drive a country into recession. While there’s a fair amount of advice for business leaders on managing during difficult times, the questions that have received little attention are whether to launch new products during a recession and, if so, when and which ones.

We set out to investigate why it might be advisable for companies to launch products during a recession, what types of products might be successfully launched, and at what stage in a downturn the launch should occur. In our research, we analyzed 63 years of data in the U.S. automotive industry that covered 1,071 product launches. We chose to focus on this sector because it is highly competitive, and new products greatly increase such companies’ long-term financial performance and business value whereas price promotions and rebates do not. We subsequently analyzed 18 years of data for 20 categories of fast-moving consumer goods (FMCG) in the U.K., covering 8,981 product launches (including crisps, breakfast cereals, yogurt, shampoos, cat food, dog food, salad dressing, butter, and margarine, among others) and obtained similar results.

We found that, on average, new products launched during a recession have higher sales and market share and remain on the market longer than those launched during boom times (19% longer for automotive and 14% longer for FMCG). We also 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.

The Advantage of Launching Late in a Recession

In both of the sectors we studied, products launched later in a recession performed better than those launched at its onset. There appears to be a strategic sweet spot for a launch, just before economic conditions improve and competition starts ramping up again. As an economic recovery begins, companies start increasing output, launching products, and increasing advertising.

That said, it is difficult to accurately predict when a recession will end — so how do you know its end is near? While absolute precision remains elusive, there are some helpful economic indicators. For example, the yield curve, particularly the term spread between long- and short-term interest rates, has consistently been one of the most reliable predictors of recessions, including their eventual end. An inverted yield curve has been widely used to signal economic downturns, and its normalization often indicates a shift toward recovery.

Finance leaders in the C-suite likely already track expert forecasts, of course. New methods supported by machine learning can capture nonlinear relationships between economic variables like stock prices, interest rates, and consumer sentiment. Other techniques allow for real-time monitoring of economic conditions by combining macroeconomic indicators with mixed-frequency data, providing a more timely and accurate way of assessing business cycle turning points. Another promising method is the use of nowcasting models, which incorporate real-time data from financial markets and indicators like the S&P Purchasing Managers’ Index to generate immediate forecasts. These have had success in predicting turning points of recessions, particularly when combined with high-frequency financial variables. These tools collectively provide managers and policy makers with practical insights to gauge economic recovery phases.

To enhance decision-making, managers should create a dashboard of KPIs that tracks key economic variables, such as labor market indicators, financial market data, and macroeconomic indicators (like GDP and inflation), as well as industry-specific data such as consumer spending trends in the FMCG sector or production rates in the automotive industry. By correlating these variables with data from past recessions, managers can identify patterns and signals that can help guide their strategy and determine the optimal timing for product launches.

So, what product characteristics boost the prospect for a successful launch in a recession? Our results show that luxury car models launched in a recession perform better than other classes of cars, possibly due to the fact that they target wealthier consumers who are less sensitive to downturns and often seek to signal stability or status, even during a recession. Luxury brands can claim more attention when there is reduced competition in the market.

At the other end of the price spectrum, we found that low-cost products that are often impulse purchases, such as snack foods, soft drinks, energy drinks, and candy, benefit more from being launched during a recession than those in low-impulse categories. In tough times, such products may be an affordable pleasure that customers allow themselves. We also saw that new personal care products — like hair care, skin care, and personal grooming items — do well when launched during a recession. And we saw that national FMCG products that are launched later in a recession perform better than private-label products launched at the same time. This could be because brand advertising may make more of an impact during a recession, as we discuss next.

The Upsides of a Downturn

There are underlying dynamics in recessions that companies can use to their advantage in product launches, even when there is an overall reduction in demand because customers have less credit available or have become more guarded in their spending. Because many companies are reducing their own spending and may pull back from advertising and product launches, the market is less cluttered, so companies that introduce new products benefit from reduced competition and greater visibility.

Additionally, in a downturn, companies often have stronger bargaining power with both their upstream and downstream supply chain partners. They can secure better deals on materials and components, get more favorable pricing from advertising agencies, and even obtain better or cheaper shelf space from retailers, all of which contribute to a product’s success despite a challenging economic climate. We suggest that the increased share of voice when competitors are quieter, combined with the signaling of financial health and product quality, often results in better performance for products launched during recessions compared with those launched in boom times, even amid generally reduced consumer demand.

Skillfully navigating these opportunities requires that business leaders pay close attention to customers, competitors, and credit. Doing so will help them understand what’s happening in their industry and whether their competitive context aligns with any of the beneficial scenarios we’ve described. First, managers need to closely monitor customers’ behavior to determine whether they are cutting back on purchases, delaying consumption, or shifting to lower-cost alternatives. If customers are cutting back, managers should consider launching essential, value-driven products or offer flexible pricing strategies like discounts or smaller versions to appeal to cost-conscious buyers. Alternatively, if consumers have been delaying purchases, creating urgency through limited-time offers or phased launches can encourage them to buy. If customers are switching to lower-cost alternatives, managers might introduce value-oriented versions of their products or emphasize the superior quality and long-term savings of their offerings to justify a premium price.

Second, it’s crucial to observe competitors’ actions, tracking whether they’re reducing their advertising spending, scaling back product launches, or withdrawing from certain market segments. This information can help managers identify gaps in the market or opportunities to capitalize on reduced competition. A pullback by competitors may provide a chance for a product to stand out and capture market share, thanks to less advertising and fewer new product launches competing for consumer attention.

Finally, managers must remain alert to the availability and cost of external financing because it will impact their company’s ability — and that of competitors — to fund advertising campaigns or develop new products. Access to affordable financing can be a decisive factor in a successful launch even during boom times, but it becomes especially critical during recessions, when securing funds may be more challenging yet offer a significant competitive advantage.

As they plan and execute launch strategies, managers should regularly monitor the feedback and sentiments of key stakeholders to ensure that the company’s actions align with the expectations of investors, customers, suppliers, and employees. Launching products during a recession can send a powerful signal to stakeholders that the company is resilient. This can enhance the company’s reputation, showcasing it as a strong, well-positioned player in the market, which can further boost confidence and trust in the business’s long-term prospects.

Deciding whether to launch a new product during a recession is not an easy call for managers to make. Some might argue that a drop in customer demand should delay a launch until after the economy has moved out of recession. Others might argue that the reduced competitor activity enjoyed during a recession, coupled with the reduction in media costs, makes a recession the best time to launch. Our research offers encouragement for managers who otherwise may be reluctant to launch.