How to Grow Business During Recession
Marketers in any recession find themselves in poorly charted waters and no two downturns are exactly the same. Nonetheless, we have established trends in customer behavior and corporate strategies that either drive or undermine efficiency in researching the marketing achievements and shortcomings of hundreds of firms as they navigated recessions from the 1970s onwards. Organizations must consider the changing trends of consumption and fine-tune their strategies accordingly.
Consumers, of course, set tighter goals during recessions and reduce their spending. When profits continue to decline, corporations usually cut expenses, increase prices, and delay new investments. Marketing expenditure in fields ranging from marketing to analysis is frequently cut across the board — but these indiscriminate cost cuts are a mistake.
Although reducing costs is wise, failing to help brands or analyzing the changing needs of core consumers can endanger performance over the long term. Companies that bring consumer desires under the microscope, take the marketing budget a scalpel rather than a cleaver, and change policies, approaches, and product offerings in response to changing demand are more likely to survive during and after a recession than others.
Understanding Recession Psychology:-
Marketers may forget in frothy periods of national prosperity that rising sales aren't caused by clever advertising and attractive products alone. Purchases rely on the disposable income of customers, feeling optimistic about their future, having faith in business and the economy, and adopting lifestyles and values that encourage consumption.
But this recession is by all accounts the severest since the Great Depression. The surge of negative economic news is eroding confidence and purchasing power, forcing consumers to make drastic and even irreversible changes to their behavior. We now know that over the past two to three decades, spending in most of Europe and the United States has been founded on fast sand of debt, and savings and home equity have dwindled. Marketers persuaded customers to define the good life in terms of money and advised them to live beyond their means. Consumers face bill piles, stagnant or falling incomes, and shrinking nest eggs in the ensuing meltdown. At the same time, a series of corporate scandals; political, housing, and insurance failures; and taxpayer bailouts of mismanaged companies have fostered customer mistrust and marketer cynicism. It is no surprise that the U.S. Consumer Confidence Index of the Conference Board sank to the lowest level in January 2009, since tracking began in 1967.
Such combined effects pose a tremendous challenge for advertisers, not only in the downturn but in the subsequent recovery that will follow. The first step in reacting has to be to consider the new types of consumers emerging in a recession. Such segmentation may be less important in a recession than a psychological segmentation which takes into account the emotional reactions of the consumers to the economic environment.
Think of your customers as falling into four groups:-
The slam-on-the-brakes group is feeling the most financially insecure and hardest hit. This category reduces all forms of spending by reducing, postponing, raising, or replacing purchases. While consumers with lower incomes usually fall into this segment, anxious consumers with higher incomes may also fall into this segment, particularly if health or income circumstances change for the worse. Pained-but-patient consumers tend to be resilient and optimistic about the long term but less confident about the short-term prospects for recovery or their ability to maintain their living standards.
Consumers, like slam-on-the-brakes, economize in all regions, but less violently. They are the largest group and form the vast majority of unemployed households, covering a wide variety of income levels. As news gets worse, pained-but-patient customers are moving steadily to the slam-on-the-brakes segment.
Consumers who are comfortably well off feel secure about their ability to ride out current and future economic bumps. They consume at near-precession levels, though they now tend to be a bit more selective (and less conspicuous) about their purchases. The group mostly consists of people in the top 5 percent income class. This also includes those who are less affluent but feel secure about their financial stability — the comfortably retired, for instance, or investors who got out of the market early or had their money in low-risk investments like CDs.
The Live-for-Today section continues as normal and remains completely unconcerned about savings. Consumers in this community respond to the recession mainly by stretching their timetables to make major purchases. Usually urban and younger, they 're more likely to rent than buy, and they're spending more on activities than on products (except consumer electronics). Unless they become unemployed, they 're unlikely to change their consumption behavior.
All consumers find basic standards of food, shelter, and clothing important, and most will put transport and medical care in that category. Besides that, it is extremely idiosyncratic to assign specific products and services to the various groups. All customers except those in the live-for-to-day category usually re-evaluate their consumption preferences following a downturn. We know from previous recessions that goods and services such as restaurant dining, travel, arts and entertainment, new clothes, cars, appliances, and consumer electronics can change rapidly in the minds of customers, depending on the person, from necessary to treatments, postpones or even expendable. As preferences shift, customers may remove purchases in those categories entirely, such as household services (cleaning, lawn care, snow removal), shifting them from, say, necessary to expendable. Or they may substitute purchases in one category with purchases in another, maybe swapping dining out (a treat) for home cooking (a necessary one). And, as most consumers are more price-sensitive and less brand-loyal during recessions, they can be expected to search for favorite goods and brands at cheaper prices or opt for less-preferred alternatives.
They may, for example, pick cheaper private labels or switch from organic to non-organic foods. (See "Consumer Segment Changing Behaviour" exhibit)
Managing Marketing Investments:-
This is more critical than ever during recessions to note that loyal customers are the main, sustainable source of cash flow and organic growth. Marketing is not optional — it's a "reasonable expense," which is important to producing sales from these and other main customers.
Today cuts to the company's budget also disproportionately impact marketing. The costs of public communication can be cut faster than the costs of production — and without letting people go. Nonetheless, businesses must take caution in monitoring their marketing expenditures to differentiate between the necessary and the unnecessary. Creating and sustaining powerful brands – which are known and trusted by consumers – remains one of the best ways to minimize market risk. During recessions, stock prices of firms with established names, such as Colgate-Palmolive and Johnson & Johnson, hold up better than those of major consumer goods firms with less well-known logos.
During a downturn, surgically cutting budgets are easier to do than in prosperous times. Tough times impose an imperative to cut poor performers loose and eliminate tactics of low yield. When survival is at stake, it is easier to get buy-in across the company to revise marketing strategies and reallocate investments. Rather than focusing on the next line extension, administrators should challenge old mindsets and actively search for superior approaches to consumer needs. The challenge is to make case-by-case, well-defended decisions on where to cut spending, where to keep it stable, and even where to increase it.
Assess opportunities:-
Start with triage on your brands and on your products or services. Determine which have poor prospects for survival, which can suffer from declining sales but can be stabilized, and which are likely to thrive during and after the recession.
In the downturn, your competitive prospects will rely heavily on which of the four groups your core consumers belong to, and how they categorize your goods or services. For example, prospects are relatively good for value-mark products sold to slam-on-the-brakes customers, who would forgo premium labels in favor of lower prices. Value products can also successfully reach out to pained yet cautious customers who previously purchased higher-end products, a tactic that Wal-Mart used vigorously in the recession of 2001 with its "everyday low prices" campaign.
There are opportunities for value brands with postponable products, too. Repair services can market to the pained-but-patient group, which will attempt to prolong a refrigerator 's life rather than buying a new one.
Where market prospects are unclear or diminishing, it might be time to part with brands or goods that had been ailing before the recession and are now on life-support. Companies will focus their marketing efforts on those who remain on sustaining relevance to core consumers to support brands through the recession and into recovery.
Allocate for the long term:-
Companies should not panic when sales start to decline and alter the fundamental proposition or positioning of a brand. For example, marketers in the pained-but-patient segment who appeal to middle- or upper-income customers may be tempted to move down-market. It could confuse and alienate existing customers; it could also cause intense opposition from rivals whose activities are oriented towards a low-cost approach and who have detailed information about cost-conscious consumers.
Marketers moving away from their existing base that in the near term attract some new customers but will find themselves in a weakened position when the recession ends. Their best option is to keep the brand stable. Even cash-poor businesses will be wise to devote a large portion of their marketing capital to improve the core brand proposition. Reminding customers about how matters relate to the brand will add to the buffer created by previous investments in brand building and customer service. De Beers came to this realization after cutting back on its U.S.
"It’s critical to track how customers reassess priorities, reallocate funds, switch brands, and redefine value."
Marketing Throughout a Recession:-
During downturns, advertisers need to balance efforts to cover expenses and shore up short-term profits against long-term brand safety investments. Streamlining product portfolios, improving affordability, and strengthening confidence are three effective ways to meet these goals.
By, John Quelch is the Charles Edward Wilson Professor of Business Administration at Harvard Business School and holds a joint appointment at Harvard School of Public Health as a professor in health policy and management.
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