The Mental Recession

In recent remarks, Phil Gram, John McCain's campaign co-chair, has been getting a lot of flack for describing the current economic situation as a Mental Recession.

While the primary fallout has been his related comment that America is a country full of whiners–always a good way to win the goodwill of voters–his characterization of the mental recession has some factual basis.

Q1 2008 GDP numbers show 1% economic growth (US Bureau of Economic Analysis). If you look at every economic forecast for GDP for 2008, all of them show POSITIVE growth. Fed Chair Bernanke in his address to Congress and the Senate two days ago announced the Fed expects 2008 GDP to end up in 1% to 1.6% growth range. Using the two consecutive quarters of negative growth definition, we're not in a recession.

Now the average person on the street is feeling uneasy about the economy. That's for certain. We may fear that we're in a recession or that a recession is imminent, even though factual data show we have not been in one and are unlikely to be in one for 2008.

That being said, inflation particularly in energy and commodities (food) is a serious concern and is probably the primary driver of consumer unease (along with the credit crunch). So  concerns about inflation are definitely justified. Does this have some medium and long-term consequences for the economy if not addressed?  Certainly, but inflation concerns versus recession concerns are different.

The average consumer may may not distinguish between the two, but if you're in business it's a big mistake to get the two confused. How you run your business in response to a recession versus an inflationary economy is vastly different.

Here's what this mean to CEOs, business owners and marketers.  First, don't let your own decision making be influenced by the mental recession. For example, there is no point in cutting prices and voluntarily reducing your profits in a recession that doesn't exist.

This is especially dangerous if inflation continues to be high, which is a very legitimate concern. There's nothing like cutting revenues through price cuts while your costs are being inflated. The margin squeeze can be quite painful.

If anything, in an inflationary environment you want to be looking to increase prices to protect your margins. This is the total opposite of what you might consider doing in a recession. Don't get the two confused!

You can raise prices through creative bundling, improved marketing and by passing along temporary fees such as fuel surcharges that most buyers don't associate with your prices. This is similar to how mail orders companies charge $X + shipping and handling. They don't even quote the shipping and handling, and most customers don't treat a $1increase in price the same as they do the $1 in shipping and handling.

Second, keep in mind that as as far as your customers are concerned, perception is reality. If customers think there's a recession going on, mental or otherwise, well, then it's a significant issue for you. This is the point that Gram completely missed. Even if it's mental, it doesn't mean that it's not a real concern.

For several months now, I've been advising all of my clients to start weaving in "the recession" into all of their marketing. Think of it as another sales objection. As any sales professional knows, an objection is an objection is an objection. And all objections must be addressed.

So if you're in retail, you should be throwing "Recession Blow Out Sales."  Any excuse for a sale is a good idea, and a recession is just as good an excuse as anything else.

If you sell luxury goods, you'd better be explaining why making such a purchase now is a wise financial decision. You'd better be using words like investment, return on investment, and not necessarily prestige and status.

If you're in services, you want to be talking about how to make your business "recession proof" or how to invest in ways to "weather the storm."

At the end of the day, you make decisions on your internal operations based on the factual economic data. You make marketing decisions based on your customer's perception of the economy. You definitely don't want to get the two mixed up.