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Blue Sky

Rising corporate debt looms threateningly around the world, and highly leveraged firms rightly focus on maintaining liquidity. Often it takes more than cutting costs to stay afloat, however. Companies in this predicament must also revisit key strategies – in particular, product marketing. Financial distress scares customers, and if customers go away, revenues dry up, and liquidity concerns can quickly become cash flow crises.

Although Management 101 suggests that corporations should differentiate their products from competitors&#39 offerings and erect barriers to switching once a customer is on board, we believe the better strategic choice for distressed companies is to undifferentiate their products, so that it is easier for customers who feel nervous about the company&#39s future to switch or replace their product with those from another maker.

Customers see risk in buying from companies they think have a chance of going under. Indeed, when a company is perceived to be unstable, a product&#39s uniqueness may be just the reason a company loses customers and market share.Extract from Undifferentiate Your Way out of Debt by Gyöngyi Lóránth, a research fellow at the London Business School, and Stefan Arping, assistant professor of finance at the University of Amsterdam

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