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Why “Recession-Proof” Is A Terrible Way To Advertise Your Franchise

The past few weeks have been an absolutely wild ride for the global and U.S. financial markets. Here’s the chart of the S&P 500’s performance between the beginning of 2015 and now:

S&P 500 Performance Jan 2015 - Aug 2015

Notice how the past few weeks are not only quite lower than the rest of the year but also how the magnitude of the short term changes (both up and down) have been increased in the past little while.

One way to measure volatility in the market is the VIX (short for CBOE Volatility Index). It models the predicted volatility in the market over the next 30 days. So as it goes up so does the expected volatility in the market.

Here’s that chart year to date:

VIX Index Jan 2015 - Aug 2015

How’s that for a comparison? The past few weeks have seen an absolute explosion in predicted volatility.

One of the street names for the VIX is actually the “fear index” as it can track how confident the market is in its own ability to predict the future. A high VIX means that the future is more uncertain.

One of the major benefits of our position here at FranchiseHelp is that we get a glimpse into how just about every franchise in America markets itself to potential franchisees. No matter the shape or size, we’ve got a pulse on every different strategy for attracting franchisees.

Recession Proof

And one of our personal favorite tactics that franchise marketers use is the term “recession-proof.” It seems that no matter which industry you’re looking at, there are always a few players who insist on using this buzzword. Their hypothesis must be that the memories of 2008-2009 are quite strong and especially able to drive action.

And that brings us back today. Fear is again high! Higher than it’s been in quite some time. So theoretically, the “recession proof” theme would never be stronger than the past few weeks!

However, I’m here today to argue that marketing your franchise as “recession proof” is simply not a good idea.

The Financial Argument

  1. There’s no such thing as “recession proof” – A recession is defined in the U.S. as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."Usually, the rule of thumb is two consecutive quarters of negative GDP growth.That means that when a recession hits, the entire economy is shrinking. So, if nothing else, the average wealth of your potential customers at a franchise will be going down. Individuals and businesses spend less, causing issues for everyone.
  2. Every recession is different – The easiest come back to the first point is for someone to point to the fact that their franchise actually grew during the last recession. While unlikely, that fact is certainly not impossible. However, the ability of a business to grow during the Great Recession doesn’t mean that it will thrive during the next one! Past performance does NOT guarantee future results. At all. In fact, in all likelihood, that business will suffer during the next recession. Those are just the facts. So saying that your franchise grew 6-7 years ago (also not the most relevant fact!) may be true, but I wouldn’t bet on it growing during the next one.
  3. Being “recession proof” may actually be a bad thing – Looking back to the 1920s, the stock market seems to grow at about 12% annualized. Now, once again, that’s just an average. That market is made up of stocks that grew faster than that and those that grew slower. The measure of an individual company’s volatility is called it’s beta.If a stock has low beta and therefore a lower volatility, it means that it is likely to lose value slower than the market during a recession. (In my opinion, this would be the closest thing to recession proof.) However, the tradeoff to a stock with a low beta is that it also grow slower than the market when it’s going up. So if you’re in the business of mitigating recessions, you are likely to also be in the business of limiting growth during good times! (Good luck marketing that!)

The Marketing Argument

So, being recession proof isn’t actually a thing. So that leads to a big issue in today’s marketing environment. Everything you read about the web these days is that transparency seems to be ruling the day! Here’s a few articles to check out:

The days of selling people on hopes and dreams without having the goods to back it up are quickly coming to an end. Review sites and bloggers have never been more powerful than they are right now and seem to only be trending in that direction. Imagine selling your franchise as recession proof only to have hundreds of franchisees go out of business during the next recession. The backlash would be so outrageously strong that you’d be playing defense for years to come.

Focus on what you know you can deliver to franchisees. What makes your franchise different? Why does becoming a franchisee of your concept make sense? What can you guarantee will happen as a franchisee?

Don’t cross your fingers and hope that your franchisees can grow during a recession because it’s not likely to happen. And simply playing on people’s fear may work for insurance companies, but not for franchises.

If you’re interested in learning more about FranchiseHelp’s lead generation programs, let us know.

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