Looking back at previous economic downturns can help guide your business through the potentially tough road ahead as consumers and businesses adjust to the aftermath of the pandemic. In 2009, Harvard Business Review published an article that looks back at recessions from the 1970s until the article’s publication. This post is based on that article with added perspective from our current situation.
One of the first things that we know about consumer behavior is that it is rooted in the availability of disposable income combined confidence about the economy and a predictable immediate future, all of which makes consumers more likely to spend. During recessions, the current pandemic, or any any kind of economic downturn, consumers set different priorities and reduce their spending.
In response to lower sales, the first inclination of businesses is to cut costs and cancel or reduce investments.
Businesses tend to eliminate anything that doesn’t have a proven ROI, that cannot be tracked and therefore cannot prove its worth. This often includes marketing budgets, but this kind of cut costing measure can be very detrimental to a brand.
The 2020 downturn is unprecedented and is being compared to the Great Depression within many circles. George Hassett in an interview on April 26th on ABC mentioned: “This is the biggest negative shock that our economy, I think, has ever seen. We're going to be looking at an unemployment rate that approaches rates that we saw during the Great Depression." He then compared job losses to those of the Great Recession of 2008 – when “we lost 8.7 million jobs.” As of this writing there have been 26 million jobs lost in the last 5 weeks alone!
This grim economic news indicates that consumers will face the inability to pay bills, including home mortgages or rent, imminent and widespread layoffs and closure of their suddenly failed businesses. In addition, due to the coronavirus and state stay-in-place orders, consumer behavior is being changed radically.
According to CNBC there has been a
“49% increase in online ordering at retail stores in the US”
“200% increase in curbside pickup orders from March to April of 2020”
What is unique to 2020 is many consumer’s initial desire to support their favorite brands or local businesses. Thinking this was temporary and they could make sacrifices to help the community, people started supporting businesses with modified behaviors like ordering take out from restaurants or buying gift certificates. However, as unemployment and businesses losses mount, this behavior is not sustainable.
loyalty to brands may be replaced by the search for cheaper prices
How do you prepare your brand for what is to come?
Convert your marketing team into a research team. They are the closest to your audience and have the pulse of the market. They can identify the new habits consumers have acquired and are expected to implement in the next three to six months. They can identify if the brand is aligning with these new habits and if certain services are still relevant.
Reevaluate the products and services your brand is offering. For the products and service opportunities that were questionable before the downturn, you may have to get rid of them and instead concentrate on something that had a clear chance of survival before or has clearly evolved into something that can be an new opportunity like grocery pickup services for stores that did not have it before.
Preserve your brand positioning. Positioning is everything for a brand. It defines who you are and why consumers buy from you. As soon as you start lowering prices in order to increase sales you start luring bargain hunters to your brand. Deal chasers are customers that may not stay with your brand when the deal is gone because their motivation was always price rather than value.
Remind consumers what brought them to the brand. Now is a time to reassure and reinforce that connection. Also, showing empathy to their perspective and needs in the current situation can result in a heightened association of trust with your brand.
Lean in to your strengths. As stated in the HBR article: “in past downturns, consumer goods companies that were able to increase their advertising spending captured market share from weaker rivals” and “they did it at a lower cost than when times were good.” Your brands needs to be top of mind because your audience’s attention moves on to the next shiny thing very quickly. Out of sight = out of mind.
Look beyond today. Once the economy improves and things go back to normal (even if that is a “new normal”) consumers will be ready to try new products. Brands that wait until stable and predictable times to innovate will be behind those that already invested in innovation and are ready to ramp up.
Consider online advertising. Audiences seem to be engaging and consuming online content at a higher rate now and it can be inexpensive to reach them online where they are spending much of their time while at home. Because of an increase in online traffic and the fact that some advertisers have taken a break or already slowed ad spend, online media inventory is cheaper now and reach is potentially greater.
Avoid cutting marketing budgets indiscriminately. take a careful approach to modify and adapt them instead.
After light downturns, consumer behavior returns to pre-downturn habits within a year or two. However, what we are seeing right now is not a light downturn. We don’t know how long the current situation is going to last or how deep it’s going to affect us all, so we should expect the uncertainty to create long lasting changes in attitudes and habits, some of which could become permanent, like less brick and mortar retail traffic in favor of online purchasing and curbside pick up.
Increase research now and look for how your audience is adapting to their new situation. Innovate and adapt your services and products so your brand remains relevant.
Lean into the market when everybody is leaning out and take advantage of the void that others will leave behind.
If you are considering starting digital marketing for your business or just want fresh eyes on your current digital marketing efforts, we may be able to help. Please reach out.