So the economy is officially a mess.  The stock market is volitile.  One day its up, the next day it plummets.  You are safer taking your investment dollars to a casino.  Running your business is getting harder as worried  consumers refuse to relinquish their grip on cash.  You know that tough times can make or break a company.  So how do you judge the market and make the right moves for both your business and your portfolio?

I can’t tell you what products to sell or what stocks to invest in but I can draw on my experience with marketing and consumer behavior to give you a solid push in the right direction.  It might seem counter-intuitive, but the firms that adjust to recessionary consumer behavior are going to bite the economic bullet and lose.

It’s true that in order to dig ourselves out of this mess, we are going to have to shift our investments to more cost effective endeavors.  Demand for luxury goods is non-existant.  Companies that are conservative with their cash while only investing in expansion of their low cost product lines are going to do really well in the short term given the current market conditions.  These companies will see profits and accelerated growth which in time will begin to jumpstart the economy.  Consumer outlook will change, and with that, so will demand for better goods.  Firms that fail to plan beyond tough times will suddenly realize their conservative investments that brought great profit margins in periods of recession have left them ill prepared to compete in times of economic prosperity.  So how then do you figure out which companies will survive the recession and thrive once we are through it?

It all comes down to value branding and the willingness to take on extra risk in a forward thinking smart investment.  

By doing the exact opposite of what everybody else is doing and spending money to invest in the creation of new products, firms that may see losses now will find that they are an entire product generation ahead of their competition when things begin to get better.  This is the same forward thinking mentality that left Japanese auto manufacturers such as Honda and Toyota much more prepared for an increase in the price of oil.  Suddenly the demand appeared for fuel efficient cars and trucks and the American companies were caught with their pants down as they raced to catch up.

The other half of the equation is the value branding.  While a brand focused on very low cost products like Kia is going to take less of a hit and possibly even grow in this market while a premium brand like BMW suffers, the company that uses creative marketing and brands itself as the best value will succeed.  Value branding doesn’t mean a product has the lowest price, or even that it is priced in the middle of the market.  Value simply means getting the most for your money.  Value means your product has the highest quality in its price bracket.

South Korean automotive manufacturer Hyundai is an excellent example of such a brand.  By positioning themselves not as a cheap brand, a mainstream brand, or a luxury brand, but as a value brand, the company has injected immense new competition into the automotive marketplace.  They now have offerings at almost every single price point, and a great warranty only reinforces their value.  Entry level cars are available at used prices, midsize sedans are available at entry level prices, and luxury sedans are available at midsize prices.  The company is protected during recession by offering the cheapest products.  A Lexus buyer may decide to buy the new Genesis, while a Camry shopper may go for the Sonata.  In times of prosperity there is no penalty for being a value brand.

Lexus was able to position itself as a prestigious luxury brand during the booming 90’s by offering cars that were competitive with Mercedes and BMW at cheaper prices.  In bad times luxury is percieved as excessive and in good times, entry level as cheap.  Value however always works.  Seen below is the suprisingly nice interior of Hyundai’s amazingly low priced new Genesis.

Now I know that no matter how many times I refuse to give advice on particular stocks to invest in or specific products to sell, sombody is going to pester me with e-mails and ask me anyway so here it is.

Buy Google, sell liquor.

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