With a probability of a worldwide recession and economic downturn, it’s important for marketing leaders to prepare for the potential impact on their businesses.
“81% of business leaders expect a recession, as per a CEO survey.”
Recession can be a challenging time for businesses, with reduced demand, difficulty accessing credit, and the need for cost-cutting measures. Marketing, as a major spending department in many organizations, is particularly vulnerable during these times.
“We’re all feeling the pressures of a possible recession, and almost every company will face challenges with revenue growth and marketing spend in 2023” Bryan Law, CMO, Zoominfo
In this article, we will explore the potential implications on marketing during a recession and provide strategies for navigating and protecting your brand during this difficult time. By implementing proactive measures, you can position your organization for sustainability or even growth in the midst of an economic downturn.
What Changes Can You Expect in Marketing During a Recession
Marketing teams may experience changes due to market sentiment and capital shifts during a recession. Here are the potential changes a marketing department should prepare for to stay ahead of the curve.
A Slump in Customer Demand
During economic downturns, consumers tend to be more cautious with their spending, which can decrease demand for goods and services.
Consumers may re-evaluate their priorities and shift their spending habits, including making fewer impulse purchases and looking for better deals and cheaper alternatives, leading to lower sales and revenue for the business. The value proposition they seek could change; the messaging that resonated earlier may not resonate now.
“The current economic downturn is definitely affecting customer preferences and demand. This is particularly evident in the consumer goods industry, where consumers are becoming more cautious about spending their money. Organizations need to be prepared for this change and adapt their marketing strategies accordingly.”Wolfe Bowart, CEO – Vivipins
Consumers may also become more price-sensitive, leading to a decrease in brand loyalty. Spending on non-essential items such as electronics, travel, and others is likely to decline, with research showing that demand for consumer electronics has already fallen significantly in recent months.
If you sell to other businesses, your clients may request to switch to lower plans or re-evaluate their current products and subscriptions to reduce non-essential expenses.
To sustain, you must adapt to changing consumer preferences and behavior.
Cut in Marketing Budgets
The rising cost of capital and “higher for longer” interest rates have made it difficult for organizations to access the funds they need. In response, many companies are cutting their expenses, including their marketing budgets. This trend is evident in the shrinking U.S. advertising marketplace, with Nielsen Ad Intel reporting a 7% decline in the second quarter of 2022 compared to the previous year.
A recent CMO survey found that 42.3% of companies are reducing their marketing spending due to inflationary pressures and do not expect an increase in marketing spending in the near future. The survey predicts that marketing spending will decrease by 15.38% over the next 12 months, primarily due to fears of a recession.
“As a digital marketer in the E-commerce industry, I am witnessing a decrease in marketing budgets across the board for my clients as they experience a decrease in sales due to the economic downturn”Camille Weston, CEO & Founder, Nona Rose
As a result, marketers must be more calculative and strategic with their budget allocation. Every expense and dollar will need to be carefully evaluated in order to make the most of the available resources.
Change in the Competition Landscape
As the market slows and customer demand dwindles, even your competitors will face a tough challenge. Those with cash reserves will be able to weather the storm, while others may be forced to shut their doors or be acquired by larger players. This could lead to consolidation in the industry and the emergence of larger, more dominant competitors. Cash-rich companies may be able to further lower their costs and gain a larger market share.
In this challenging environment, competition will intensify as the pool of customers shrinks (due to a slump in demand). Your unique selling proposition or competitive advantage may no longer matter as customers’ priorities shift and price becomes the primary battleground. All market players will be vulnerable, and it will be crucial to keep a close eye on how the competitive landscape is changing.
How to Successfully Market During a Recession
“Do more with less” should be your motto for marketing during a recession.
The key to successfully navigating this period is your ability to adapt to changes, pivot when required, and use data to your advantage.
Use a Data-driven Approach for Effective Decisions
Be more prudent and calculated with your marketing budget and allocation; spend every for maximum returns.
Adopting a data-driven approach will assist in distributing your budget in the right channels and mediums and keeping you in control of your marketing budget.
“With potentially fewer dollars to put towards campaigns, adopting a data-driven marketing strategy will ensure that every effort is as impactful as possible.” Bryan Law, CMO – Zoominfo
Rigorous Media Planning
To manage your budget better, you can start by redirecting your spending from broadcast media to more measurable and predictive channels like online advertising or direct marketing. These channels offer a higher level of accuracy in tracking results and can be more effective in driving conversions.
In addition to shifting your focus to more measurable channels, consider slowing down on branding or traditional initiatives and leveraging your current brand value by running more performance-based campaigns.
“This downturn made our customers more cautious. Our organization is responding by reducing marketing spends and focusing on ROI metrics to make sure our campaigns are as effective as possible. We plan on investing in technology-driven solutions that can help us stay agile during uncertain times.” Deepanshu Bedi, Holistapet
Maximize your ROI and media planning by applying data-driven strategies. Analyze the success of past campaigns and marketing efforts to identify the most effective channels. Find answers to questions like – Which channels have achieved higher ROI? What audience set been the most successful? What messaging has resulted in maximum conversions?
Use predictive modeling to forecast the potential ROI of various scenarios and make informed decisions on your budget allocation that will lead to the best return on investment. Spend each dollar effectively with a more calculated approach to your marketing budget.
Optimize Spends on the Fly
Effective budget allocation is crucial for the success of any marketing campaign. By adopting a data-driven approach, you will make informed decisions about where to allocate your resources. However, the work doesn’t stop there. It’s important to continuously monitor your marketing performance and ensure you get the expected return on investment (ROI).
Keep an eye on the data and be alert for any low-performing channels or initiatives. If a particular channel or initiative isn’t producing the desired results, consider redirecting budget to a more successful approach. On the other hand, if certain channels are outperforming expectations, you may want to allocate more budget in order to drive even more conversions.
By being proactive and adjusting your budget allocation on the fly, you can maximize the effectiveness of each dollar you spend.
Find Cost-effective Ideas
By being strategic with your budget and optimizing it on the go, you can maximize your return on investment for your spending. However, with a reduced budget, it’s also important to consider marketing initiatives that are low-cost or even free. These can help sustain your brand during times of limited resources.
“As inflation impacts consumers and businesses, being able to pivot your marketing strategy is a necessity and this is why we will be leaning much more heavily on email and SMS marketing. When budgets tighten, it is critical that your marketing efforts produce the greatest ROI, so focusing on methods in which you can target the most engaged and motivated customers is crucial” Matt Miller, Founder and CEO of Embroker
To do this, analyze the consumer journey and identify which channels, communications, content, and touchpoints have the greatest impact on your ROI. Consider cost-effective options like SEO and email marketing; if they prove effective, consider expanding your efforts in these areas.
Additionally, make sure to make the most of the traffic coming to your website. Utilize funnel optimization strategies to drive the highest conversion rates possible from your visitors.
Be more Agile and Adaptable
As we navigate constantly changing circumstances, we must be open to trying new approaches and experimenting with different marketing ideas and tactics. This can be a chance to demonstrate creativity and resilience. Stay flexible and be willing to adapt to find what works best for your brand.
Re-define Your Messaging
“According to McKinsey, two-thirds of Americans are concerned about rising prices. That’s about four times more than are concerned about the stock market and unemployment.”
As your customers’ priorities shift and their values evolve, it is important to adjust your messaging to align with their current behavior and mindset. Messages centered on intangible values or emotions may not be as effective as they once were, while messages focused on price-sensitivity may be more impactful.
Instead of sticking to your current messaging, consider experimenting with different target groups, value propositions, and messaging to find what resonates with your customers’ current psyche. This may involve creating new customer segments based on psychological factors, such as the emotional reactions of consumers to the economic environment. For example, the “slam-on-the-brakes” segment, which feels the most financially vulnerable, may require a different narrative and messaging approach.
“One thing I know with certainty is that customers are starting to shift to lower-priced services. I’ve seen significant changes in our service income that has proven this. People are beginning to move and try more affordable services and like what they see.” Matt Shirley, CEO, Splinter Economics
If your company offers multiple products, it may be beneficial to prioritize those that are positioned as more affordable and offer good value for money. By aligning your messaging and product offerings with your customers’ current needs and concerns, you can better connect with and serve them better in this changing landscape.
Keep Track of Competitor Pricing
Some of your competitors may be tempting price-sensitive consumers by lowering their prices to gain a larger market share. It’s understandable to consider adjusting your pricing in response to this, but it’s important to consider a few key factors before making any changes.
Consider your target market – are you aiming for budget-conscious consumers or luxury buyers? Is your product’s competitive edge still relevant in times of economic downturn? And consider the current state of the economy – how soon is it expected to bounce back? If your brand identity is not based on premium products and you don’t have a valid point of differentiation in the current circumstances, then it may be worth considering a change in pricing.
However, making a change to your pricing should not be well thought through. Avoid getting caught up in a price war just because your competitors are doing it. Instead, thoughtfully consider all of the factors at play and make a calculated decision that is best for your business.
Launch a Fighter-brand
If your brand identity is centered around premium quality and exclusivity, it may be more effective to launch a separate, more competitive brand rather than compromising your brand position by altering your messaging or event pricing to appeal to price-sensitive consumers. This alternative brand, backed by minimal advertising, can serve as a cost-effective option to help sustain your business during challenging economic periods.
For example, during the 1991-1992 recession, Anheuser-Busch introduced the Natural Pilsner brand, priced lower than their flagship Budweiser product, to appeal to more budget-conscious consumers. Anheuser-Busch maintained the prestige and exclusivity of the Budweiser brand while offering a more affordable option for consumers.
Prioritize Customer Retention
During recessions, it’s common for businesses to lose some customers as they reassess their priorities. In these times, it’s important to prioritize customer retention as a key strategy to ensure you don’t lose valuable customers, especially to competitors. Customer retention is more cost-effective than acquiring new customers and helps build long-term loyalty and stability for your business.
“One thing I’ve personally observed during this recession is that new customers are less likely to try out untested goods or services, so the emphasis should be on keeping current customers happy. Spending can be decreased without cutting the marketing budget if the emphasis is shifted to current clients. Keeping customers happy will only help the company in the long run because they generate free word-of-mouth advertising for your company. Retaining customers, in my opinion, may be the key to your company’s survival and success during the Downturn.” Aaron Barsalou, CEO – PsyclarityHealth
To prioritize customer retention, businesses can focus on delivering excellent customer service, offering special deals and promotions to loyal customers, and regularly seeking feedback to understand and address customer needs and concerns. If you notice that many of your customers are struggling to continue using your product, consider launching a special program like free credits to help weather the storm. Not only will this help retain your customers, it will also create a strong group of loyal customers that can provide long-term benefits for your business.
It’s Not All Gloomy
The good news is that most recessions are relatively short-lived, with 75% ending within a year and 30% lasting only two quarters. While the primary goal of marketing during a recession is to simply survive and maintain your market share, there is an opportunity to come out ahead if you can strategize and drive growth.
History has shown that some brands have even experienced explosive growth during a recession. Take the example of Post and Kellogg’s in the ready-to-eat cereal category during the 1920s and 1930s. While Post cut back on advertising, Kellogg’s doubled its spend and saw a 30% increase in profits, ultimately becoming the category leader.
With today’s advanced technology and access to data and insights, it’s possible to make proactive marketing decisions that can help your business successfully weather the economic storm and potentially even achieve higher ROI and significant growth.