Money is tight, and prices are up. A recession is looming, and many marketers are left wondering what that means for business.
It’s an important question, one that must be tackled from all angles (the contributing factors, impact on consumer engagement, brand prioritization, etc.) while also being approached with care. Recessions are a sensitive time for all involved, and their effect on marketing is huge.
Joel Lutiffya, founder of Brown Dog Advertising, a business growth marketing agency specializing in complex solutions, spoke to us about what a possible recession would mean for marketers and their ability to communicate with consumers.
Here’s what he had to say:
What is a recession?
To best know how to proceed in a changing economy, it’s important to have a good idea of exactly what you’re up against. While recessions are generally thought to have a mass impact on all society members, there are some factors that are specific to the field of marketing.
“Economists widely accept that a recession is two consecutive quarters of weak or negative GDP. But from a marketer's perspective, a recession can be defined as a sustained period when the spending power of consumers is diminished by the dollar's value dropping domestically, causing less spending and a decrease of money circulating throughout the economy,” Lutiffya said.
Recessions aren’t usually seen as favorable periods. They’re usually sparked by a downturn in economic activity and result in unpleasant consequences for both marketers and consumers. Lutiffya says recessions can happen due to unprecedented occurrences and familiar disturbances in the marketplace.
“A variety of factors can cause recessions. For example, looking at recent events due to COVID-19, the decrease in foreign production and long delays in importing products and distribution wreaked havoc on the supply chain leading to high inflation,” said Lutiffya. “However, more traditional causes of a recession tend to be cyclical, like the rise of interest rates leading to decreased spending and investment or economic uncertainty causing companies to conduct mass layoffs and hoard cash to ride out the storm.”
The impact on marketers
B2C marketers aren’t without cause for concern during times of economic uncertainty. As with any other time period, the actions of marketers are in direct relation to those of consumers. Simply put, what affects consumers directly affects marketers — and recessions are a painstakingly clear example of this.
A recession can have several impacts on marketers’ success. As people become more conservative with their spending, consumer interest in brand interactions drops. Recessions also reduce consistent consumer cash flow, as people are more likely to delay or forego major purchases, stash money in savings accounts or take advantage of a discounted stock market.
Marketers can also expect imbalances in supply and demand as businesses cut back on production in response to lower demand levels. As a result, marketers may need to find ways to reduce costs or increase revenues while remaining aggressive with messaging to stay successful during a recession.
One way, Lutiffya says, is by being sensitive to the adjustments consumers are making in response to economic changes. Elements of brand messaging must align with where consumers currently are in the journey. If not, marketers risk alienating themselves and not resonating with their customers.
“With a constantly changing economy, marketers must be agile in communicating with consumers. Usually, when the economy is strong, brands focus on messages that highlight their success and boast about their achievements compared to competitors. But when the economy takes a downward turn, it's smarter for brands to shift their message to emphasize more practical considerations about their product or service, such as value and savings,” said Lutiffya.
This also isn’t a time to sit back and wait for things to blow over. Consumers still have needs regardless of product availability or how they’re priced. They’ll be looking for marketers who can help them navigate through trying times and make it to the other side unscathed, making this the best time to communicate with them.
“Marketers must be careful how they approach their communication strategy during a recession. When competitors get scared and decrease spending on promotion, that's the best time to take advantage and ramp up messaging efforts. Brands should consider offering discounts or value bundles for new customers and increasing targeted campaign spending to get in front of their audience while the competition is taking a back seat, waiting for the economy to improve,” Lutiffya said.
Given the heightened focus on money during a recession, figuring out how to price products and services can be a tricky business for brands. On the one hand, customers are typically more price-sensitive during economic downturns, so there is a risk of alienating them if prices are raised. But on the other hand, brands must maintain their margins to stay profitable. As a result, many brands opt for a mix of strategies to navigate the recessionary landscape.
“Some brands go the loss leader strategy route and cut prices on certain items while raising prices on others. Others may engage in aggressive promotions or loyalty programs to drive sales. Ultimately, the goal is to find a pricing strategy that meets the customer's budget and the business' ability to make a profit. By striking the right balance, brands can weather the storm and come ahead when the economy eventually recovers,” said Luttifya.
What do consumers value during a recession?
Knowing what consumers value most during a down economy can be difficult. Every customer is different, and as such, they will assign different levels of importance to various products and services at different times in their lives. Having a good idea of who your base demographics are and what they need can give better insight into what will be important to them during a recession.
“A twenty-something without kids or significant financial obligations is more likely to prioritize spending on their social life outside work and home over an individual in their thirties or forties with small children at home. So, the younger person in this example would likely be at a local bar or restaurant on any given night. In contrast, the comparison can be found at home cooking and spending the evening binging a show on a streaming platform, abandoning traditional cable or satellite,” said Lutiffya.
However, some general principles can help explain how people decide what to value. There are three main factors Lutiffya says you should focus on: need, scarcity and personal preference.
“People naturally place a higher value on things that they need to survive, such as food and water [as well as those that] are rare or in short supply. This is why diamonds are so valuable: they are rare and have a limited supply. Consumers [also] tend to splurge, knowing their money is being spent on an experience they'll never forget or [that] doesn't happen often,” said Lutiffya.
While value ultimately comes down to a matter of individual taste, marketers should focus on creating value around their brand. This means emphasizing the value of your product or service and looking for ways to differentiate your brand from competitors.
“This is a time to get creative with messaging and double down on efforts. Your product or service may be considered a luxury item to most [during a recession]. Still, having a unique and compelling brand identity can make your product or service more attractive to consumers. By taking advantage of these opportunities, their brand will continue to survive, if not thrive, during a recession.”
Understanding how a recession can impact your work, planning for any necessary changes and creating content that best serves your audience during an otherwise chaotic time, can make all the difference in your success.
