Keeping your business afloat, let alone successful, can be challenging during a recession. As the pandemic ebbs away, the economies of many countries are already experiencing the effects of a global recession.
The war in Europe has also served to exacerbate supply constraints, shortages, and inflation. The ‘great resignation’ shows no signs of slowing down, as more and more people quit their jobs.
Businesses around the globe are facing some unique challenges, and need to drastically change strategies to remain successful and relevant.
Let’s look at the factors that affect businesses during such economic downturns and the issues that marketers face. Plus, we’ll explore how you can use your marketing to boost sales when a recession is imminent or when you are in the middle of it.
What is a Recession?
A recession is a slowdown in economic activity. It is commonly measured by using a leading economic indicator. A recession has negative effects on many areas of the economy. It can lead to loss of jobs, bankruptcies, reductions in incomes, and loss of investments. It creates a vicious circle where fewer jobs lead to less spending which again results in lower economic activity.
Recessions often happen during the ‘trough’ part of a business cycle. A business cycle is a natural rise and fall in economic activity that occurs over time. It is typically measured by the growth in real GDP and is used as a way to gauge the health of an economy.
The business cycle has four phases: Expansion, peak, contraction, and trough. The peak is the highest point of the cycle and the trough is the lowest point.
A recession is considered over when economic activity rises above its trough. The length of a recession is typically defined as the length of time for economic growth to return to normal levels, which generally takes about a year.
How Does a Recession Affect Marketing?
A recession can have a significant impact on marketing efforts. During a recession, consumers may become more value-conscious and less likely to make discretionary purchases.
This can lead to a decrease in demand for products and services, which can lead to a decrease in sales and revenue. To combat this, marketers may need to adjust their strategies to focus on more value-oriented messaging and promotions.
They may also need to reconsider their target audience markets and focus on more price-sensitive consumers. In addition, marketers may need to invest more in market research to understand how consumers are feeling during a recession and what their needs and wants are.
Recession marketing is a way to balance your marketing efforts and shore up investments for the long term. It’s marketing during a crisis with the aim of improving brand health and maintaining stability in an economic trough.
What Businesses Can Do in a Recession
Companies will have to recalibrate their goals when a recession happens. They also have to review their strategies so they can adjust to the effects of a recession and make it easier for them to bounce back once the economy improves. They can do the following:
Manage Marketing Investments
During a recession, it’s important to manage marketing investments to ensure your business stays competitive. But it’s also essential to remember that clients and consumers are still the main sources of cash flow.
So even if budget cuts are necessary, a company must try to manage its investments and focus on which areas can increase cash flow instead of just imposing strategies to lower expenses.
A business must distinguish what is necessary and what is wasteful spending. For example, firing people may seem a clear option. But if it affects quality and production it might not necessarily be the best way to manage your resource investments.
Of course, budget cuts are inevitable, but it’s best to remove low-yielding tactics and expensive marketing strategies that do not perform well. In some cases where removing non-performing staff is unavoidable, you could try to get a company-wide buy-in for reallocating investments, reorganizing your teams, and determining the best strategies with a lower budget.
One way to manage marketing investments is to look for the most effective marketing strategies during a recession. These could be online, offline, or a combination of both. Once you know which marketing investments are generating enough leads or sales, you could then remove the ones which are simply a waste of money.
In a recession, it’s a good idea to assess your marketing and financial situation. But don’t immediately change your strategy; you have to understand that opportunities still exist.
Many marketers forget that the average consumer is still spending money, albeit a little less than in the past. So, it is still a great time to take advantage of creative marketing strategies that are more affordable than you would think, and assess which areas of opportunity are still open to you as a marketer.
You can start a triage of your products and study which ones may do poorly in a slower economic climate. You could also look for brands that may suffer a slowdown but will stabilize later. Finally, look for products or services that may flourish in both peaks and troughs.
This allows a business to stabilize easily once the recession is over.
Allocate for the Long Term
The economy is lagging, we are in the middle of a worldwide economic crisis, and businesses are going. Amongst all this, how does economic slowdown affect market demand? To answer that, one needs to study recession patterns.
By analyzing such patterns, you can have a fair idea of what generally happens to the economy during a recession and how long it takes to move upwards again. This is invaluable for formulating business strategies during a recession.
A key strategy could be to market your products across several segments of the population. You could have a high-market version of the brand, as well as a middle or down-market version.
Using this business strategy during a recession can keep sales stable, as you have a lower-priced option for those with less money to spend.
Some companies with deeper pockets often use a recession to expand their investments by acquiring smaller companies that might cater to a different market segment.
In this case, the company has widened its target market and added to its business portfolio. Adding a former competitor or smaller brand that could produce future sales for the company is another way to allocate for the long term.
Balance Communications Budget
Investing in communications is a big part of any marketing plan, but it may be difficult to justify the cost when the market is in recession. As a result, they often cut back on their marketing and communications budgets.
But it is critical to find ways to both maintain and improve your marketing and communications plans. Often those dealing with broadcast media decrease, while online ads and even direct marketing campaigns increase.
The rise of social media and eCommerce has only made marketing online a more viable marketing strategy in a recession because of the lower risk and higher yields.
But if broadcast media was a medium you used extensively, then you need to continue there as well, to remain relevant in the public consciousness. This is all the more important for big brands.
How Does an Economic Slowdown Affect Market Demand?
An economic slowdown can have a significant impact on market demand. When consumers have less money to spend, they are less likely to purchase non-essential items.
This can lead to a decrease in demand for goods and services, which can in turn lead to layoffs and a decrease in production. Additionally, a slowdown can cause a decrease in confidence, which can further reduce spending and investment.
What Happens to Consumer Spending During a Recession?
During a recession, consumer spending typically decreases as households tighten their belts and save more money. This can lead to a decrease in demand for goods and services, which can in turn leads to businesses reducing production.
Unemployment levels could then increase, which lessens consumer spending. This can lengthen a recession, or even affect it seriously enough that it turns into an economic depression.
Often governments and businesses work together to shorten a recession, which could include the government offering stimulus and relief packages for certain industries and temporary employment schemes to increase employment.
Let’s look at some more trends in consumer spending during a recession.
A recession has different effects on consumers depending on their financial situation and economic bracket. Often a recession results in layoffs in certain industries. Generally, people who work in these industries will decrease their household spending.
Consumer spending during the Great Recession (2007-2009) is an example of how consumers spent too much during an economic boom. Many consumers spent more than they earned and even bought real estate with interest loans that doubled over time.
But as soon as the housing bubble burst many of these consumers who had invested their nest eggs found themselves cleaned out by the banks and other mortgage companies. The economic downturn was disastrous for the US economy.
But how does a recession affect the spending habits of consumers these days?
Those in the lower income brackets will be the most vulnerable and will reduce and even eliminate purchases. Those in a higher income bracket, constrained by other concerns (such as medical or health), could still react the same way as those in the lower income brackets.
Other consumers might prefer a wait-and-see approach. They will remain optimistic but will still economize in some areas. If prices continue to rise or the recession worsens, these consumers will respond the same way as the first group and eliminate or reduce their purchases.
Consumer Spending Patterns
During a recession, most people are looking for ways to save money. They will often stop spending on things they don’t need and make a point of using coupons and discounts.
However, people will still spend money on essentials. Food is the classic example of what sells during a recession. Laundry detergent and toilet paper are other essentials consumers need, but here they will try to save by using coupons or buying a cheaper brand.
So, how can your company encourage consumers to spend more money with you during an economic downturn?
One way how to increase sales during a recession and encourage consumer spending is to use strategies that focus on brand trust, helping customer savings, and focusing on products with higher sales.
Strategies to Encourage Consumer Spending
There are many marketing and sales strategies during a recession that can help businesses in a recession. One is to focus on selling high-quality products and services that offer value for money. This can help to attract and retain customers, even when times are tough.
Another sales strategy during a recession is to offer discounts and special deals, which can help to boost sales. Consumers are more likely to look for deals that help them save their money.
Finally, it is important to keep marketing and sales efforts consistent. Knowing how to market in a recession can help businesses stay top of mind with potential customers, and ultimately help weather the storm of a recession. Here are strategies you could look into:
Streamline Your Portfolio
Business owners dislike eliminating or even downsizing their product lines. As noted earlier, you need to allocate your resources for the long term, and if a line of products or merchandise is not performing, you might need to stop production.
This will streamline your portfolio and focus your resources on the ones that produce higher revenues. Maintaining lines that do not perform well in sales will only hurt your business as the recession continues, so it’s best to cut these low-selling products.
Consumers want what they want, and they want it now. But how many of them are willing to pay for it? Many times, the cost of goods is simply too high for consumers to buy in bulk.
If you have a product that consumers want, but it is too expensive for them to buy, try to think of ways you can provide the product to them for a cheaper cost. This will not only help you sell more products, but it will improve your business overall.
Give discounts that require little effort from consumers and give cash back at the point of sale. Coupons and “buy one take one” sales could do well to improve the sales of low-performing products too.
Bolster Brand Trust
In times of uncertainty people often go back to brands or products they trust. You need to engage with consumers and bolster the trustworthiness of your brand.
The best way to do this is to reinforce your customers’ trust in you before you try to sell to them. This is done by demonstrating empathy. Empathy is the ability to understand and share the feelings of someone else.
By showing empathy toward your customer, you are letting them know that you understand them and their problems. And, if you can do something about their problems, they’ll see you as a much more trustworthy and helpful company.
What Strategies Can a Company Use in an Economic Downturn?
So what marketing strategies could encourage consumers to these actions? Here are strategies that could work before, after, and during a market recession.
Improve Customer Experience
One of the most effective ways of retaining customers is to focus on the customer experience. Companies that listen to their customers and provide options that suit their preferences will enjoy continued success.
Can an economic recession increase demand for products and services? Surprisingly, yes! A classic example was the increase in the demand for pet food and pet services during the pandemic. But the sales point here is that consumers are more focused and discerning about their choices. They will often rely on customer reviews to ensure that they are getting their money’s worth.
Thus, focusing your marketing strategy to provide your customers a voice is a big part of how to grow a business during a recession. These can include testimonials, reviews, and surveys to help you understand exactly what your customers need.
Customers will typically be more price-sensitive and less likely to make discretionary purchases during this time. To improve their experience and encourage spending, businesses need to focus on providing value.
This can be done through targeted marketing campaigns, special promotions, and providing superior customer service. By making the customer experience a priority and thinking of creative marketing ideas during a crisis, businesses can weather the storm of a recession and come out ahead of the competition.
Use Automatic Emails to Improve Conversion Rates
Businesses are looking for ways to improve market costs and efficiency in a recession. One way to do this is to automate marketing efforts. Automatic emails are a great way to improve your conversion rates and keep your customers informed about your products and services.
Automated emails also allow you to track your results and see which campaigns are working and which ones need to be tweaked.
Analyze the Actions of Your Competitors
Analyzing your competitors is a reliable marketing and recession strategy as it allows you to identify their weaknesses and adapt your own business accordingly. Furthermore, by understanding your competitor’s marketing strategy, you can learn from their mistakes and avoid making the same ones yourself.
Additionally, during a recession, consumers are often more price sensitive and may be more likely to switch to a cheaper alternative. When you understand your competitor’s pricing strategies, you can stay ahead of the game and ensure your prices are competitive.
Ultimately, taking the time to understand your competitors is an essential part of any marketing strategy, but is especially important during a recession when businesses are under pressure to perform.
Use Social Media to Engage with Customers
One way to save money and still reach potential customers is to use social media or explore digital marketing in a recession.
Social media platforms like Facebook, Twitter, and Instagram are free to use and have a wide reach. Businesses can use social media to post updates, special offers, and engaging content.
But engaging with customers on social media is a two-way street. Customers can also post reviews and feedback on social media, which can help businesses improve their products and services.
You need to keep your customers happy and engaged, and exchanging comments, sharing posts, and highlighting them on your social media handles are excellent ways to make them happy.
Use Content Marketing to Attract Customers
Content marketing can be useful for any creative marketing during a recession. By creating and distributing relevant and engaging content, businesses can reach a wider audience and build trust and credibility with potential customers.
Content marketing helps businesses attract attention and drive traffic to their products or services. You can also use it to promote special offers and sales, showcase product tie-ins and deals, or simply engage and educate potential customers on what they could do to save money.
When done correctly, content marketing can be an extremely effective tool for growing a business even in a recession.
Use Analytics to Track Marketing Progress
The marketing budget is often one of the first things to be cut. However, using analytics to track your marketing progress is a reliable marketing strategy that can help you make the most of your limited marketing budget.
Tracking your marketing campaigns and measuring their results help you identify which ones are most effective and make adjustments as needed. This data-driven approach can help you stretch your marketing budget further and make sure your campaigns are as effective as possible.
Businesses Can Overcome a Recession Using the Right Strategies
Recessions are a normal part of the business cycle but can have disastrous effects on businesses, consumers, and countries. Businesses that cannot (or will not) adapt or use appropriate recession strategies are usually forced to sell out or end up going bankrupt.
But there are ways that companies can overcome economic troughs. The key is to know what to do during a recession: Focus on customers and remain empathetic to their situation. It helps companies understand how and why their market responds to a tenuous economic climate. Empathetic customer focus also shows your customers that you care about their plight, understand it and make them feel that you are in this together.
Budget cuts and tightening company spending are still viable options, but no amount of cost-cutting will increase customer trust and revenue. Providing exceptional and high-quality products and services is the best way to build trust and stabilize your sales.
So even as the world faces the after-effects of the pandemic, these strategies should prepare you to face any challenges of the new recession.
Contact Us at ELK Marketing today and learn how we can help your business during a recession.
What happens to the market during a recession?
Consumer spending during recessions slows down and businesses may experience slow business growth and lower revenues. Some companies may close and employee layoffs are common.
What is a good strategy for marketing during a recession?
One good marketing strategy is to use social media and online content marketing. These are low risk and do not cost much to implement, but often produce high sales and conversion rates.
Should you advertise during a recession?
It’s still best to continue your online advertising strategy efforts in a recession. You could minimize the frequency of your ads to lower spending, or even choose cheaper ad options such as PPC online ads or social media ads such as TikTok or YouTube.
It’s more important to achieve brand stability and trust even in uncertain economic times, and most consumers will likely remember your brand even after the recession.