While today’s potential economic downturn looks similar to others, it is different, and it doesn’t hold many of the traits of previous financial trauma; jobs are gaining, employment levels are high, supply chain issues continue to apply upward pressure on prices, and we’re coming out of a global pandemic which delayed travel and purchases creating an abundance of cash for many consumer segments.
This means that consumers will spend more in some areas and less in others: The spend more categories fall into three:
- Inflation Driven – essential goods that they must have like food, shelter, and gas.
- Pent-up Demand – includes goods and services people could not purchase during the pandemic. Consumer travel intent is up 36%, according to the BCG survey.
- No Sacrifice – People won’t give up brands and products like organic foods, pet supplies and supplements.
Areas where we will see decreased spending, are:
- Dip in Volume – consumers will likely reduce consumption of non-essentials (clothing, alcohol, live events) to compensate for the increased price of essentials.
- Deal Hunting – They will buy in bulk and look for more deals and promotions. They are reducing spending, not volume.
- Substituting – categories that allow consumers to switch to private labels, cost-fighting brands or alternate suppliers.
Making the best of a bad situation.
COVID has taught us a lot, but perhaps the most valuable lesson is expressed through the words of Dr. Bonnie Henry, “We’re in this together.” Economically, we must find ways to assist our beleaguered customers while maintaining sales and margins as best we can. We can draw on history and innovate to do better (than we would otherwise or than our competition) by looking at some of the following:
- Value matters. Any tactics that increase the frequency or volume of purchases will be a win for both sides.
- Loyalty matters. Take care of your customers, and let them know you care about them. This will be a period in which the likelihood of switching brands increases.
- Your brand matters. In tough times, brand support is often the first to be cut to support more immediate ROI expenditures. “Although it’s wise to contain costs, failing to support brands or examine core customers’ changing needs can jeopardize performance over the long term.” (Harvard Business Review)
- People matter. Local, environmentally or socially forward brands have lower price elasticity and will be less likely to be pushed from the essential category to the non-essential category.
Whether or not we are in (or headed into), a recession doesn’t matter. We have complex economic issues to deal with. In business, and often in life, people act on their perceptions and beliefs, not reality. So we must remain fluid, not tied to names or definitions, but anchored in a consumer-centric perception-based marketing strategy. Let’s not make this economic dip something larger.
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