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Geoff Colvin

Geoff Colvin

Geoff Colvin is a senior editor-at-large of Fortune Magazine and the author of Talent Is Overrated: What Really Separates World-Class Performers from Everybody Else.

Recession Leadership Is About More Than Cutting Costs

Maybe you've noticed that most major car companies are now offering consumers some kind of "out" if they finance a new car and then can't make the payments, saying, in effect, "We'll suspend the payments for X months, or reduce them, or at least let you give the car back and cancel the deal."

But do you remember who started this trend? It was Hyundai, back in January, when virtually all other car-makers could think of only one way to sell cars: Cut the price. When January ended, the sales results looked like this: Toyota down 32%, Ford down 40%, GM down 49%, Chrysler down 55% -- and Hyundai up 14%. Without even talking about price.

A large part of succeeding in this recession is finding innovative new ways to respond to the new problems of consumers. Back in January, most car marketers were apparently too tired to think creatively. They figured that since consumers were feeling financially stressed, price cuts were the obvious way to attract them. But Hyundai thought a little more deeply and realized that what really spooked consumers was a long-term commitment. In this recession, the worst in 75 years, with no one feeling confident about the future, consumers want more control over their financial lives. So Hyundai found a way to offer it to them, and it worked.

Players in a completely different industry are using the same idea. Traditional cell phone calling plans require customers to make a two-year commitment, which millions of them no longer want to do. In response, several companies are creating innovative prepaid plans that require no commitment. You pay for each month in advance, and each month you can change to a different, more appealing plan or pay nothing at all.

Note that prepaid calling requires a significant trade-off: You have to buy your phone outright rather than pay for it indirectly at a subsidized price, as you do with a traditional plan, and the monthly prepaid fee tends to be stiff. But many customers are happy to make that trade-off in order to get total control over their monthly mobile phone expenses. By the time the recession was well underway at the end of 2008, prepaid services were growing three times faster than traditional services.

Cutting prices is reflexive behavior for many managers in a recession. It's true that sometimes there's no alternative, and if you sell commodities -- grains, basic metals, oil -- your price is set in global markets. But for most managers in most businesses, better alternatives are almost always available. The winners in this recession will be those who can expand their minds to think of value propositions that go beyond price -- those who are most insightful in understanding customers' new wants and needs, and most creative in finding new ways to meet them.

By Geoff Colvin

 |  June 18, 2009; 1:24 PM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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