Many financial gurus are forecasting that for at least the first half of the year, the economy will feel the effects of a recession. This, of course, will affect consumer spending in many areas.
In order to navigate through these tough times, businesses need to take a hard look at not only pricing strategies but also the ability to adapt their products, services and marketing to cater to these price-conscious consumers.
One key factor is the ability to understand consumer behaviour during an economic downturn. As one Harvard Business Review article encouraged businesses to think of their customers as falling into four groups:
The ‘slam-on-the-brakes’ segment. This group reduces all types of spending by eliminating, postponing, decreasing, or substituting purchases.
The largest group ‘pained-but-patient’ 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 economize in all areas, though less aggressively.
‘Comfortably well-off’ consumers feel secure about their ability to ride out current and future bumps in the economy. They consume at near-pre-recession levels, though now they tend to be a little more selective about their purchases. The segment consists primarily of people in the top five per cent income bracket.
The ‘live-for-today’ segment carries 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. They’re unlikely to change their consumption behaviour unless they become unemployed.
One other key group of customers to focus on is your most loyal. They are the ones that research suggests on average provide 60 – 70 per cent of sales. So it is essential that you take care of these people first.
Perhaps the biggest challenge during tough times is managing your marketing budget. Many businesses cut their expenses disproportionately. Research has again shown that businesses that maintain a presence during recessionary times fair far better when the marketplace improves.
In reaching out to these groups messaging style and tone will also be important. Think in terms of conveying messages that make an emotional connection and demonstrate empathy.
While times may be tough, they do afford every business with the opportunity to rethink, refocus, embrace change and seek out opportunities that can open the doors to greater business success.
Joe Smith is a communications consultant and an accomplished fine artist. He can be reached via email at joesmith@shaw.ca