We’re in unprecedented times within my lifetime, with the seriousness of the Coronavirus escalating daily. It’s a matter that a number of us initially took to be nothing more than media hype, used as the foundation for multiple memes sent on WhatsApp, to very quickly becoming as we stand today, a near total lockdown of day-to-day life as we know it.
For businesses these uncertain times can be incredibly tough to deal with, protecting people’s well-being while also ensuring the business is still trading in months to come, with sectors outside of IT, hand wash, toilet roll makers, essential foods and medical providers seeing a sharp decline in customer spend in just a few weeks as fear and legislation starts to take grip.
The closest financial comparison would be recessions of the past. And like in a recession it’s been proven that planning your marketing investment with a survival of the fittest mentality can gain a long- term advantage for brands. However many marketers and business owners alike, who are already constrained by budgets and the circumstances, don’t know what to do next.
From observations of recessions past, we know that consumers are quick to rein in spending when hard times are predicted and many businesses behave the same way. Anticipating reduced sales, they cut back on variable costs, including marketing. However, a great deal of evidence suggests that it’s not a good idea to reduce marketing spend during a recession in order to reduce expenditure. Doing so can leave brands in a less competitive position when the economy does eventually recover. Over the years, research studies have confirmed that the best strategy in terms of long-term Return On Investment (ROI) is to continue or even increase marketing expenditure during economic slowdown.
With the contagious nature of the Coronavirus forcing a number of businesses to deploy remote working, there is the ideal time to start planning and strategising your marketing efforts to ensure your business is able to survive and prosper. So, how should marketing decisions be taken in light of the overall prospects for both your brand and sector?
Well in reading a Harvard Business Review from back in 2009 after the last recession, editing a little and adding my own summary, here are the things to consider…
In every recession, marketers find themselves in poorly charted waters because no two downturns are exactly alike. However, in studying the marketing successes and failures of dozens of companies as they’ve navigated recessions from the 1970s onward, Harvard identified patterns in consumers’ behaviour and firms’ strategies that either propel or undermine performance. Companies need to understand the evolving consumption patterns and fine-tune their strategies accordingly.
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 can be a big mistake.
Although it’s wise to contain costs, failing to support brands or examine core customers’ changing needs can jeopardise performance over the 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.
Understanding Recession Psychology
In frothy periods of national prosperity, marketers may forget that rising sales aren’t caused by clever advertising and appealing products alone. Purchases depend on consumers having disposable income, feeling confident about their future, trusting in business and the economy, and embracing lifestyles and values that encourage consumption.
Think of your B2C or B2B customers as falling into four groups:
The slam-on-the-brakes segment
They feel the most vulnerable and hardest hit financially. This group reduces all types of spending by eliminating, postponing, decreasing, or substituting purchases. Although lower-income consumers typically fall into this segment, anxious higher-income consumers can as well, particularly if health or income circumstances change for the worse.
These consumers tend to be resilient and optimistic about the long term but less confident about the prospects for recovery in the near term or their ability to maintain their standard of living. Like slam-on-the-brakes consumers, they economise in all areas, though less aggressively. They constitute the largest segment and include the great majority of households unscathed by unemployment, representing a wide range of income levels. As news gets worse, pained-but-patient consumers increasingly migrate into the slam-on-the-brakes segment.
Comfortably well-off consumers
Feel secure about their ability to ride out current and future bumps in the economy. They consume at near-prerecession levels, though now they tend to be a little more selective (and less conspicuous) about their purchases. The segment consists primarily of people in the top 5% income bracket. It also includes those who are less wealthy but feel confident about the stability of their finances—the comfortably retired, for example, or investors who got out of the market early or had their money in low-risk investments such as CDs.
The live-for-today segment
Carry on as usual and for the most part remains unconcerned about savings. The consumers in this group respond to the recession mainly by extending their timetables for making major purchases. Typically urban and younger, they are more likely to rent than to own, and they spend on experiences rather than stuff (with the exception of consumer electronics). They’re unlikely to change their consumption behavior unless they become unemployed.
Regardless of which group consumers belong to, they prioritise consumption by sorting products and services into four categories:
- Essentials are necessary for survival or perceived as central to well-being.
- Treats are indulgences whose immediate purchase is considered justifiable.
- Postponables are needed or desired items whose purchase can be reasonably put off.
- Expendables are perceived as unnecessary or unjustifiable.
All consumers consider basic levels of food, shelter, and clothing to be essentials, and most would put transportation and medical care in that category. Beyond that, the assignment of particular goods and services to the various categories is highly idiosyncratic.
Managing Marketing Investments
During recessions it’s more important than ever to remember that loyal customers are the primary, enduring source of cash flow and organic growth. Marketing isn’t optional—it’s a “good cost,” essential to bringing in revenues from these key customers and others.
Still, company budget cuts often affect marketing disproportionately. Marketing communication costs can be trimmed more quickly than production costs—and without letting people go. In managing their marketing expenses, however, businesses must take care to distinguish between the necessary and the wasteful. Building and maintaining strong brands—ones that customers recognise and trust—remains one of the best ways to reduce business risk.
Surgically trimming the budget is easier to do during a downturn than in prosperous times. Tough times provide an imperative to cut loose poor performers and eliminate low-yield tactics. When survival is at stake, it is easier to get companywide buy-in for revising marketing strategies and reallocating investments. Managers can defy old mind-sets and creatively search for superior solutions to customer needs instead of relying on the next line extension. The challenge is to make well-defended, case-by-case recommendations about where to cut spending, where to hold it steady, and even where to increase it.
1: Assess opportunities
Begin by performing triage on your products or services. Determine which have poor survival prospects, which may suffer declining sales but can be stabilised, and which are likely to flourish during the recession and afterward.
Your strategic opportunities during the downturn will strongly depend on which of the four segments your core customers belong to and how they categorise your products or services. For example, prospects are reasonably good for value-brand essentials sold to slam-on-the-brakes consumers, who will forgo premium brands in favor of lower prices. Value brands can also effectively reach out to pained-but-patient consumers who previously bought higher-end brands. Value brands have opportunities with postponable products, as well. Repair services can market to the pained-but-patient group, who will try to prolong the life of a laptop rather than buy a new one.
Where the business opportunities are uncertain or declining, it may be time to part with brands or products that were ailing prior to the recession and are on life support now. For those that remain, companies should concentrate their marketing resources on maintaining relevance to core customers in order to sustain brands through the recession and into the recovery.
2: Allocate for the long term
When sales start to decline, companies shouldn’t panic and alter a brand’s fundamental proposition or positioning. Marketers that drift away from their established base may attract some new customers in the near term but find themselves in a weaker position when the recession ends. Their best course is to stabilise the brand. Even cash-poor firms would be wise to commit a substantial portion of their marketing resources to reinforcing the core brand proposition. Reminding people of how the brand matters can add to the cushion provided by previous investments in building the brand and customer satisfaction.
3: Balance the communications budget
During recessions, cash-strapped marketing departments are under pressure to do more with less and demonstrate high returns on investment. Typically, the share of the advertising budget devoted to broadcast media shrinks, whereas the share that goes toward efforts with more-measurable results, such as direct marketing campaigns and online ads, grows. Point-of-purchase marketing—promoting price cuts or generating in-store excitement—also tends to pick up during recessions. Internet advertising, in particular, is targeted and its performance is easily measured.
4: Bolster trust
Worried consumers—even in the comfortably well-off and live-for-today segments—see familiar, trusted brands and products as a safe and comforting choice in trying times. Reassuring messages that reinforce an emotional connection with the brand and demonstrate empathy (for example, by conveying a sense that “we’re going to get through this together”) are vital. When Dell fought to regain the ground it lost in the past, it released various print ads containing different messages that seemed designed to resonate with each of the four segments:
“Out of the box, within your means” (which will appeal to the slam-on-the-brakes segment),
“Depend on Dell for simple solutions in tough times” (pained-but-patient),
“The ideal laptop works anywhere, in any economy” (comfortably well-off), and
“Weak economy, powerful you” (live-for-today).
5: Positioning for Recovery
Survivors that make it through this period by focusing their attention on people’s needs will be strongly positioned for sunnier days ahead. However, companies must understand how people’s behaviour may change following any recession, so they will be able to offer products and communicate messages aligned with the needs of new consumer segments.
Given the concerns that are escalating daily now, there is a good possibility that consumer attitudes and behaviour shaped during this time will linger substantially beyond its end. While the comfortably well-off and live-for-today segments may carry on as usual, the slam-on-the-brakes and pained-but-patient segments—by far the large majority—may well retain the consumption habits they’ve learned. They’ll seek value and trusted brands, remain considered in their purchases of treats, and continue to delay purchases of postponables.
In summary, consider your marketing planning as follows:
- Think share of market and share of voice
- Consider the problems you are solving and the segment you are appealing to
- Reduced “noise” during recession provides opportunities
Finally get a plan in place, and be confident. If you can be smart and be a front-runner while others choke off their investment, you can build a gap that will be hard for others to make up without spending even more.