5 WAYS TO PREPARE YOUR COMPANY FOR THE NEXT DOWNTURN

written by Adam Ortman, Director of Innovation and Technology, Generator Media + Analytics

This article will be published by marketingprofs.com in December 2019

 

The warning signs of a recession are everywhere. Economic growth is down to 2.6% from 2.8% last year, according to the National Association of Business Economics. Treasury yields are down, freight shipments are slowing, and 60% of economists surveyed by the NABE expect a recession by the end of 2020.

 

Marketers would do well to heed these early warnings. Recession-proofing takes time and steady effort, and you will hit unforeseen speed bumps. With a head start, you can overcome these obstacles to ensure you have strong promotional offers, strategic product segmentation, and new creative ready in the wings when you need them.

 

This proactivity can also make you nimbler. “Set it and forget it” is an excellent strategy for your Crock-Pot, but it’s an outdated approach for marketing. In our “tradigital” media ecosystem, we need to build for agility. Many traditionally minded media companies — those that rely on ads for revenue — can’t shift quickly enough and might not make it through.

 

Tight Times Mean Tighter Budgets

 

To understand this need for a proactive recessionary plan, consider the effects of a recession on consumer behavior and brands’ media planning strategies.

 

As a recession rolls in, consumers make drastic changes to their spending habits. These include:

  • Limiting excessive purchases or finding substitutions.Consumers will ditch luxury products, go off-brand for daily needs, and drop some planned purchases entirely.
  • Shifting fitness or meal plans. Subscribers might decide they can plan their own meals or find cheaper alternatives online.
  • Trimming tech. Customers might cut the cord on their cable subscriptions or shift their mobile phone plans to be more data-heavy as a substitute for home internet.
  • Rethinking travel plans. Many will choose a staycation or camping trip over more lavish getaways.
  • Saving money. That rainy-day fund looks a lot more sensible in a downpour.

 

As consumer spending tightens, media budgets must eventually follow suit. After the 2008 crash, ad spending across all media fell by 13%. Marketers tend to shift toward cheaper digital mediums instead of large buys in TV or direct marketing.

 

Those same marketers will also look for lower-cost production alternatives — using an iPhone to capture 4K video rather than investing in a high-end production crew will do just fine, right? People will seek solutions that fit a tighter budget while being able to provide fresh ad creative consistently. In the meantime, budget-crunched clients will expect higher productivity for less.

 

Prepare for the Worst

 

Whatever the economic climate, planning and exercising foresight is critical to your success. These five tactics will ensure you’re ready for the ups and downs:

 

1. Understand shifting consumer behaviors.

 

Deepening your understanding of how a recession will affect the behavior of your target consumers enables you to respond to those changes more effectively.

 

Take the fitness industry, for example. Gym memberships are usually one of the first expenses consumers cut from their budgets. Knowing this — along with the reasons for these decisions — might encourage gyms to improve their member experiences or emphasize relationships with trainers.

 

2. Consider product/offering segmentations.

 

During a recession, consumers are looking for ways to save money. To stay relevant, think about new ways to offer your product that focus on lower price points. Service-based businesses such as gyms, car washes, or subscription-based programs will take a bigger hit in a downturn when customers explore at-home substitutes. How could you tweak your product or service to provide that lower-cost alternative?

 

As a practical example for brick-and-mortar fitness brands, for instance, you might offer a lower-cost online program that members can follow at home in place of in-person fitness classes. You could also provide short-term discounts to members who are unemployed due to the economic downturn, allowing you to keep them as consumers during a hard financial climate. In a recession, some money is better than no money.

 

3. Get creative with promotions.

 

Timely promotions are a great way to grab budget-conscious customers during a downturn. Starbucks got creative during the 2008 recession by offering a free pastry with any coffee purchase before 10:30 a.m. More than 1 million patrons showed up in Starbucks stores across the U.S. to take advantage of the deal.

 

Think about your opportunities. Finding a way to offer something free (think free shipping, thanks to Amazon) is a big draw, but even discounts of 5% to 10% can help you stand out without sacrificing your bottom line.

 

Don’t become overly dependent on these promotions, though. The long-term effect of ongoing discounts and freebies can deteriorate your brand. Pinpoint valuable short-term opportunities to generate sales without devaluing your offerings.

 

4. Fish with bait rather than a net.

 

During a downturn, you need to narrow your targets. Less expensive digital advertising channels are more precise and yield much more data that you can use for optimization and targeting, ultimately increasing the effectiveness of your campaigns.

 

Many of these tools have powerful CRM capabilities. For example, Google Ads’ Customer Match or Facebook can find “customer look-alikes” and increase the power of your media campaigns. At my company, we once used Google’s AI and machine learning to help a financial services client increase its sales by 18%. There are many tools at our disposal to ensure efficient and effective performance — even when budgets are tight.

 

5. Demonstrate empathy.

 

Remember that your customers feel the pains of a recession just as much as your brand does. Put yourself in their shoes so you can craft marketing messages that empathize with their challenges.

 

Consumers will be more discerning about their buying choices when money is tight. It’s perhaps not the ideal moment to lead with a $10,000 price tag as your main selling point. If you can’t avoid a high price, find ways to highlight your financing or rebate offers. Meet customers where they are, which will help you build credibility and ensure your brand remains relevant in a changing market.

 

If the economists are right, a recession might be right around the corner. This is no time to panic, though. With a little proactivity, your marketing plan can guide you safely through the storm while addressing your customers’ needs.

 

Adam Ortman is the director of innovation and technology at Generator Media + Analytics, a fully integrated media agency located in New York City. Find him on LinkedIn and Twitter.