With inflation rates at a 40-year high, the past year has caused many businesses to hit pause on traditional channels of spending. While the month of July saw inflation slowing overall, many businesses are still concerned about the overall trajectory of the economy. This is in part due to the burden that inflation is still placing on the average consumer. For example, food prices during the month of July continued to rise, with a 1.3% increase over June, putting these prices 12% higher than in 2021. Numbers such as these are leaving many business owners wary of what lies ahead.
Inflation is undoubtedly hitting the pocketbook of consumers hard. Many families are pulling back on spending, leaving small businesses to worry about revenue projections. However, while 2022 has brought with it a blend of supply chain issues, rising energy costs, and other global uncertainties that have contributed to inflation, the worst thing a business can do right now is to slam on its brakes, stilting the potential for growth.
In this guide, discover why investing in marketing is critical during economic downturns and how the success of your business relies on intelligent marketing strategies aimed at putting you ahead when the dust settles.
1. Slashing Marketing Budgets Can Cost You Revenue
If talking about a potential recession has you scrambling to slash your marketing budgets, think again. Analytic Partners recently released its latest ROI Genome Intelligence Report, the results of which demonstrated that brands that increased paid advertising during economic downturns actually saw a 17% rise in incremental sales. On the flip side of this data, brands that cut spending risked losing around 15% of their business to competitors.
Taking a knee-jerk reaction can damage your business in the long run. Fortunately, if you act wisely, you can use this period of time to outpace your competition.
The above study pointed out that brands that succeed during economic downturns are ones that build out recession-proof marketing strategies. The study discovered that by using multiple marketing channels, businesses could increase the positive impact of their marketing by 35%. Additionally, the brands that walked away successfully were ones that focused on brand messaging. During a recession, brand messaging was proven to outperform performance messaging by 80%.
Rounding out the study, Mike Menkes, SVP at Analytic Partners stated, “The best way to get through a possible recession and prosper on the other side of it is to think long term by investing in your brand and your relationships with customers.”
Practical Takeaways
- Rather than slashing your marketing budget, look for ways to spread your marketing spend across multiple channels. This can help you increase your reach and protect you against revenue loss.
- Invest in customer relationships and long-term loyalty. Customers will still need your services. Even if they are tightening their wallet, they will continue to return to the brands they know and trust. Whether it is launching a customer loyalty program or taking the time to communicate with existing customers, don’t neglect the power of long-term customer relationships.
2. Strengthening Value Propositions Is Critical
There is an old marketing saying that states:
“When times are good, you should advertise; when times are bad, you must advertise.”
There’s a lot of truth to this adage. Marketing is a critical tool for reaching new and existing customers, regardless of the economy. When facing a potential economic downturn, it becomes more critical than ever before to showcase your value to both old and new customers.
According to data looking at the recessions of 1981-82 and 1974-75, companies that continued to invest in advertising enjoyed more growth than brands that got rid of or limited their marketing budgets. During the recession period of 1981-82, brands that invested in marketing actually saw an incredible growth rate of 256%.
The key is to strengthen your value propositions. Yes, customers will cut back on spending as inflation rates increase and worries about the future of the economy heighten. However, there will still be key segments of your customer base who continue to spend. For this reason, when you market to customers, you need to be laser-focused on what value you are providing.
Practical Takeaways
- Hone in on your value propositions. Now is the time to communicate with your customers why your services continue to be of value and what sets you apart from the competition.
- Notice where your competition is letting off the gas. This can be the perfect opportunity to win over a new base of customers.
3. Rethinking Your Customer Segments Is Key
After the 2008 recession, Harvard Business Review (HBR) released a study focused on marketing during an economic downturn. In this study, HBR pointed out that one of the key strategies to marketing during a recession is to change how you view your customer segments.
Traditionally, when marketing, customers are broken down into segments based on demographics. For example, you might create marketing strategies geared toward new parents or females over the age of 50. However, HBR argues that during an economic downturn, you need to think about your audience segments based on the psychology of how they will react to financial uncertainty.
From this study, HBR posits that customers can be broken down into four segments:
- Slam-on-the-brakes consumers: This customer base will cut back their spending to only the essentials. Expendables, postponables, and treats will be either eliminated or constrained dramatically.
- Pained-but-patient consumers: This consumer group will also look for ways to cut back on spending, but are less aggressive in their approach than slam-on-the-brakes customers. This is the largest segment of customers, and depending on their economic status throughout a period of downturn, they could eventually cut back more.
- Comfortable, well-off consumers: For this segment of customers, an economic downturn has less impact on their daily purchasing decisions. Businesses should ensure they do not lose this customer base.
- Live-for-today consumers: Similar to wealthier segments, live-for-today consumers change very little about how they are spending their money during recessions. These consumers are less worried about their long-term savings and are often of younger demographics.
(Note for Client: Add in this Harvard Business Graphic for visual reinforcement: https://hbr.org/resources/images/articleassets/hbr/0904/R0904DA.gif)
In some ways, the financial security of a customer will dictate which group they fall into. For example, those living in the top percentile of wealth will be more likely to fall into the comfortable, well-off segment than those living paycheck to paycheck who might be more likely to be slam-on-the-brakes consumers.
However, as you look at each segment, the key will be to tweak your messaging and value proposition to meet their current purchasing habits. For example, pained-but-patient customers might eliminate replacement purchases for postponables, but they will be more open to spending money on repairs. For an HVAC client, this could mean strategically marketing AC repair services to this demographic, rather than AC replacement services.
Practical Takeaways
- Take a look at your current marketing campaigns. How well will your messaging speak to these new customer segments? It might be time to revamp your ad copy and your current promotions. Think about your customer’s purchasing decisions through the lens of the four psychology-based customer segments.
- Refocus your efforts on the clients who will still spend money. For slam-on-the-brakes customers, no amount of marketing is likely to cause them to spend money on categories outside of essentials. For this reason, you can wind up wasting a lot of your time and resources attempting to convert these leads. Transition your efforts to the segments still spending.
4. Measuring and Adapting Will Help You Contain Your Budget
Rather than cutting your marketing budget during an economic downturn, it is far more important to measure and adapt in order to contain your budget. It is highly likely that the marketing methods that were working for you during economic peaks will not work the same way during a recession.
For this reason, you need to pay close attention to what tactics are delivering you the highest revenue leads. As you learn more about your customers’ spending behaviors, you can adjust your strategy. If you are not pulling weekly analytics on your marketing campaigns, now is the time to do so. By adjusting continually, you can weather the ebbs and flows of customer spending while coming out the other side ahead.
Practical Takeaways
- Continue to optimize your marketing campaigns. While there is never a good time to set it and forget, doing so during an economic downturn can become especially dangerous. From Google Ad campaigns to social media strategies, be sure that you are keeping a keen eye on what is working and keep adjusting campaign parameters to optimize every penny spent.
- Don’t be afraid to try new things. While your competition is sleeping, now is the time for you to be creative in your marketing approach. Through A/B testing and other methods, try new strategies and look for ways to capture your competition’s audience.
Work With J&L Marketing to Invest Smarter
During an economic downturn, the key is not to slash your marketing budgets, but rather to ensure that you are spending your marketing dollars wisely. Now is the time to ensure that your campaigns are operating efficiently and earning you leads.
If you invest in marketing while your competition pulls back, you can come out of a recession ahead. If you are interested in learning more about how to invest smarter during these uncertain economic times, talk to our team at J&L Marketing. We believe in helping small businesses accelerate their growth, regardless of what challenges the economy might face. We will work with you to analyze how you are spending your marketing budget and will help you build a data-backed strategy that will increase the number of leads you receive. Contact us today for a consultation.
