The 2020 COVID-19 epidemic has caused economic uncertainty which can only be so closely related to a recession. Economists throughout the globe are already predicted a recession worst than the 2008 financial market crash will follow the pandemic.
Due to furloughing (a new term for most of us) and plummeting demand, the majority of businesses immediately stopped or significantly reduced their outbound marketing on March 23rd (in the UK). The question at hand is this, is that the right thing to do?
To answer that, we must first look at periods of economic austerity in the past. Studying the marketing successes and failures of dozens of companies as they’ve navigated recessions from the 1970s onward, you can soon identify patterns in consumers’ behavior and firms’ strategies that either propel or undermine performance.
During recessions, of course, consumers set stricter priorities and reduce their spending. As sales start to drop, businesses typically cut costs, reduce prices, and postpone new investments. Marketing expenditures in areas from communications to research are often slashed across the board—but such indiscriminate cost-cutting is a mistake.
Whilst it may seem wise to curtail costs, failing to adapt to your existing or potential new customers changing needs will ultimately cost you in both the short and long term. Companies that put customer needs under the microscope, take a scalpel rather than a cleaver to the marketing budget, and nimbly adjust strategies, tactics, and product offerings in response to shifting demand are more likely than others to flourish both during and after a recession.
In periods of good economic growth, marketeers can be seen walking with a spring in their step, pleased with their work and the results their labor brings. What they may forget is that growing sales don’t come from savvy marketing alone in these periods, growth is natural. A customer’s propensity to purchase depends on many factors, from financial confidence, disposable income, and increasing consumerism.
A recession, or period of national austerity, challenges all of these factors. In fact, it completely propels the factors in the alternate direction. Swinging from factors making you more likely to buy, to factors making you far less likely to take the same action.
A post-COVID-19 recession will erode confidence and buying power, will see people adjust their behavior and purchasing patterns in fundamental and potentially permanent ways. Increased taxes to pay for the relief offered will see people stretching their incomes further, with luxury purchases the first to go.
These combined effects create a profound challenge for marketers, not only during the downturn but in the recovery that will eventually follow. The first step in responding must be to understand the new customer segments that emerge in a recession. Marketers typically segment according to demographics (“over 40,” say, or “new parent” or “middle income”) or lifestyle (“traditionalist” or “going green”). In a recession such segmentations may be less relevant than a psychological segmentation that takes into consideration consumers’ emotional reactions to the economic environment.
Think of consumer segments in these periods as falling into 4 groups:
Brake hard brake now – A segment hit hardest financially who reduce all expenditure where possible.
Pained but patient – A cautious demographic who remain optimistic but approach purchases with logic.
The well off – Groups with large incomes who feel confident to ride the wave of the downturn
You only live once – A group who carry on as normal, living for today, not concerned with future savings or potential impact of todays behaviour
Each of these demographics can categorize their purchases into groups, essentials, treats, postponables and expendables/luxury items (like a yacht).
Here’s how they will typically act:
The above image demonstrates perfectly how each typical segment reacts to each category purchase during a recession.
What to do?
It’s critical to track how customers reassess priorities, reallocate funds, switch brands, and redefine value.
This image demonstrates in a general and typical world, what action is best for each demographics response to an economic downturn, per purchase category.
Marketing in a downturn is difficult, there is no disguising this fact. However, choosing to strip marketing budget and curb marketing activity is sure to fail you in the short and long term. Here are the key takeaways of how to market in a downturn, pandemic, or recession.
- Keep marketing – While it may be true that proceeding with your existing marketing strategy would be wasted money. This does not constitute an excuse to pause or significantly reduce marketing. It’s THE reason to reassess the marketing strategy and switch it to one that is more in sync with the change in consumer behaviors.
- Understand how your customers react in a downturn – Communicate what appeals to them, knowing what appeals to them now, may not be what had appealed to them in the past when things were good.
- Stand out amongst your competitors. The most successful continue at a steady pace with their marketing activity, albeit potentially with a different message. The weak businesses who often fail long term, bury their head in the sands, hoping to ride out the downturn and return when their marketing strategy fits the economic outlook.
The key is to change your marketing strategy to match the current economic outlook at every turn.
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