Sigh, it’s like we can’t catch a break. So much has happened over the past two years and now some experts are saying we’re heading towards a recession.
Defined as “a significant decline in economic activity that lasts for months or even years,” a recession is classified by certain criteria. These, according to Forbes, include: negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.
We’re not trying to be Negative Nancy….more like Prepared Polly. It pays to be prepared, so whether the impact has been great or minimal, we want you to feel confident in your marketing strategies to survive the impending period of decreased spending. To help, let’s talk tips for marketing in a recession.
But, before we dive into the marketing tips, it’s important to briefly touch on why the recession is happening in the first place.
It was originally speculated that, in a post-pandemic world, there’d be an economic boom. People were home, out of work, and spending less. Now—because the pandemic has slowed a bit and we’ve returned to a quasi-normal existence—experts expected an increase in demand.
With multiple factors, in addition to COVID-19, playing a part, however, the opposite happened. Forbes points to three factors that are contributing to Americans’ current concerns of a recession: inflation and supply chain disruptions, Federal interest rate hikes, and yield curve inversion.
Knowing these factors could cause a recession, how should marketers prepare?
Marketing in a Recession
A recession means less consumer spending. People aren’t going to be as receptive to advertising with both prices and unemployment increasing. Marketers have to tread lightly between customer needs and selling products, understanding—and being sensitive to—the financial climate.
Brands’ first instinct for marketing in a recession may be to decrease overall marketing budget. The thought being, if people aren’t going to be shopping, what’s the point in putting dollars behind marketing efforts? But, according to Harvard Business Review (HBR), that’s not necessarily the right move. In fact, according to HBR, “Companies that have bounced back most strongly from previous recessions usually did not cut their marketing spend, and in many cases actually increased it.”
While HBR recommends maintaining—maybe even increasing—your marketing budget during a recession, how the money is spent should change.
This brings us to our first tip for marketing in a recession: reinvest in R&D.
HBR advises businesses to refocus their marketing money towards R&D and, as counterintuitive as it may be, actually launch new products during a recession. “Products launched during a recession have both higher long-term survival chances and higher sales revenues.”
With fewer new products flooding the market and brands investing in their most promising ventures, products launched just after the midpoint of a recession end up being highly successful.
With fewer sales being made, brands often jump the gun and increase their prices to make up the difference. And, as HBR points out, once it’s evident that customers still aren’t buying, these businesses then have to price-cut with promotions. What’s interesting, however, is that it’s not the price increase that decreases market share, it’s actually the flip-flopping between high and low prices that negatively impacts brands.
Dr. Koen Pauwels, Marketing Professor at Northeastern University, says that if you can afford to reduce regular product prices during a recession, by all means, go for it. But, if you can’t comfortably reduce prices for the foreseeable future and have to revert back to regular (or inflated) prices after a promotional price-cut, it could have negative effects.
Our second tip for marketing in a recession: pick prices and stick to them.
In a healthy economic climate, customers can afford regular pricing, so they aren’t as upset when prices return to normal. In a recession however, as Dr. Pauwels mentions, “when unemployment becomes problematic, the market tends to shift toward a prevention focus (avoid bad outcomes), which we showed yields less sales gains from the temporary price cut.”
With most brands cutting advertising budgets and cutting their share of voice in the market, being able to maintain or even increase advertising efforts can be beneficial. In a time when consumers are shying away from purchasing, brands should promote their benefits and demonstrate why their products are still worth it, even in a recession.
HBR points to Reckitt Benckiser, the world’s biggest manufacturer of household cleaning supplies, as a prime example of successful increased advertising during the 2008 recession. According to The Economist “Reckitt increased its spending on marketing by 25% [in 2008], when most of its competitors were cutting back. The firm takes pains to cater to all budgets. It sells four versions of its Finish dishwashing detergent, for example, at different prices.”
Our final tip for marketing in a recession: make your name known and demonstrate your benefits.
Staying visible during a recession also helps gauge your brand’s most loyal customers. Those who continue to make purchases can provide valuable data to better understand how loyal customers behave—data which you can use both in, and after, a recession.
Understanding the Environment and the Customer
The overarching theme in all of these tips for marketing in a recession is the need to understand the environment. Whether reinvesting in R&D, strategically sticking to pricing, or demonstrating brand values and product benefits, your marketing team needs to have a broader understanding of the climate in a recession.
Let’s also not forget the continued need for individualization. Like the Reckitt Benckiser example proves, every individual customer will have different needs and wants during a recession. By using historical data and continuously collecting new data through customers’ interactions with your brand, you’ll develop a better understanding of what they will each require. Don’t put individualization efforts on the backburner when your customers need it most.
To learn more about how to automate your marketing individualization efforts, schedule a demo today.