Fears of a recession are widespread as we enter the second half of 2022. Even the whispers of economic depression have started their ascent into the mainstream. This month, J.P. Morgan Chase CEO Jamie Dimon told reporters that he still believes a storm of uncertain magnitude is coming for the economy. The risks, he said, "are nearer than they were before. The potential outcome ranges from a soft-landing to something much harder.”
Major equities are faltering. Netflix is down 68% YTD. GM and Ford have lost 45%; Amazon is off 32%. Moreover, inflation is raging at a four-decade high, and the Fed is raising rates much faster than in the fiscal crisis of 2008-2010. So how should financial services firms prepare?
It may seem evident at first glance how to approach the problem, but when confronted with these recent rather unique challenges, even asking the right questions is not always intuitive. To be sure, deciding what a financial services firm should do in these circumstances will be a good beginning. Yet, identifying those practices to avoid can be even harder to discern.
During years of plenty, many companies will begin to add new products and services on top of the core offerings for which the companies are known. Many of these are experimental, even if highly profitable. Most begin to move away from the central value proposition of the company. This strategy can adversely impact the brand’s perception among the most loyal customer base. When it begins to affect the CEO’s and the board’s strategic planning, the risk arises of forgetting these selfsame customers and why they are the company’s best customers. It can also obscure the laser focus on the company’s core competencies and jeopardize future revenue.
A disciplined doubling-down on the company’s core strengths is one of the key drivers in keeping a company afloat as the storm of uncertain economic forces threatens. The question then is: What are the company’s core competencies? What is the company primarily known for in the industry?
Even with slimmer margins, strengthening the core business can provide critical protection during uncertain times. However, it could be time to take a hard look at those peripheral products and services that are either too new, haven’t gained the needed traction, or aren’t offerings at which the company excels. Can it be outsourced? Can a partnership be a better option during these times compared with an in-house model?
The company will serve its best and most loyal customers well by doubling down on what the company is best at doing. This may provide new opportunities to increase brand loyalty by identifying what matters. What resonates with the best customer base? What truly matters? Find that out and double down on memorable customer experiences, and the company may find itself growing through a recession.
An economic contraction need not mean wholesale budget tightening. Instead, leaning into the company’s core business combined with increased but targeted marketing may strengthen the brand and the bottom line.
One of the great temptations of successful corporations is a gradual change of focus from satisfying the customer and generating sustainable long-term growth to focusing on short-term financial indicators, such as quarterly profits or lagging indicators like asset size. This backward and myopic approach loses focus on the present customer’s needs and avoids planning for future growth opportunities. However, by combining a core competency focus with memorable customer experiences and making a difference to the customer, a company can set itself up for success even through a difficult economic situation.
Proactive strategic planning takes courage to ask the tough questions to set the company up for future success. What does the leadership know? What do they not know? What sorts of honest questions will provide clarity? Identifying the most critical operational improvements and solidifying those decisions now will be crucial in the months ahead. Which systems can the company improve the quickest? Which improvements are the highest priority?
When sharpening the focus on the customer, executives should ask: What are the “extra miles” of service that will set the company apart and create memorable brand interactions? What stories must the company tell to generate customer trust and loyalty?
With tailwinds turning into headwinds, the time to prepare is now. However, hunkering down and hoping for the best is a losing strategy. Instead, to prepare for the uncertainty and potential negative economic context, financial services firms need to address the following challenges:
Shedding peripheral products or services not aligned with the organization's core competencies will keep the company focused on doing what it does best. As famously said, “Only do that which only you can do.” This will serve the best customers, establish brand loyalty, and provide opportunities to create more memorable customer experiences.
In addition to leaning into core products and services, the company should actively listen to its best customers and find new ways to delight them through enhancement of existing and development of new products and services closely aligned with actual customer needs.
The company should also avoid complacency with lagging metrics and look forward to indicators of future growth, such as rising wallet share and increasing numbers of delighted customers.
And finally, doubling down on new and increased marketing when successfully implementing the above - even amid an uncertain macro environment - will set the company up for success amid significant challenges.