COVID-19, also known as Coronavirus, has swept the world, claiming thousands of lives and wreaking havoc on the world economy. Unfortunately, the future remains uncertain as we struggle to manage the fallout.
For small business owners, this is a particularly trying time. Furloughs, layoffs, imposed restrictions on business operations, and social distancing have many fearing the worst. For many, life will never be the same.
A study from the Federal Reserve revealed that an estimated 200,000 businesses closed as a result of the COVID-19 pandemic. This number is in addition to the 600,000 average closures that occur each year. However, these figures were much lower than expected.
Though the Coronavirus pandemic continues to present unique challenges for business owners, some form of economic downturn has always been inevitable. Unfortunately, the organizations that are least prepared for a recession are at greater risk for failure.
Comparatively, 1.8 million small businesses closed down during the Great Recession that hit the United States in 2007-2009. But, a large segment of those businesses was unprepared because most assumed the good times would never end. Thus, when the topic of a recession came up in conversation, many business owners responded, “We’ll deal with it when it happens.”
Well, it happened.
But seek, and ye shall find. Recent history provides a blueprint for those of us who want to learn from the past. Of course, many variables change when marketing in a recession. Still, a proactive approach will increase the odds that your business survives and thrives.
A Special Comment on the Coronavirus Pandemic
The disruption society has experienced due to the pandemic cannot be overstated. This crisis has affected individuals and businesses on multiple levels—personal and financial. Even our mental and emotional health has suffered as a result.
I understand that many businesses must overcome circumstances brought on by the pandemic that go beyond their control. In addition, the Coronavirus poses additional problems for companies not covered in this article. But, the strategies presented here for marketing in a recession are just as relevant for the current business environment as for any other economic downturn—past, present, or future.
How Long Will a Recession Last?
While there is no way to know how long a recession will last, history provides some clues. The average length of an economic crisis (defined as a recession or depression) is 22 months. It is also worth noting that the average time spent in crisis has declined since the Great Depression of the 1930s. Government regulations installed since the Great Depression have helped tremendously.
Historical averages do not guarantee future performance, but we can confidently say that businesses should be prepared to navigate an economic crisis for roughly two years.
Now, let’s explore how marketing in a recession changes and specific strategies to companies adjust and thrive in an economic crisis.
Prepare for the Aftermath of a Recession in Advance
I live in the southeastern United States. Each year, with few exceptions, a hurricane threatens our coast. Unlike a pandemic or other natural disaster, we have time to prepare, despite the short notice. But hurricane shutters and two dozen cans of soup do nothing to reduce the massive damage inflicted by these monster storms.
While most people are concerned with surviving the hurricane, the aftermath is often worse than the storm itself. It is not uncommon for weeks or months to pass before life returns to normal.
The same is true for a recession. Therefore, we must not only survive the financial crisis but the period of recovery as well.
It is during this recovery period that people are most protective of their finances. They spend more time making buying decisions or put them off altogether. Many folks are concerned with paying the mortgage and keeping food on the table. Those who are more fortunate are still sensitive about how they spend discretionary income. It is not uncommon for them to cut back in one area to make room for another.
The business owners who understand this change in consumer behavior beforehand will have an advantage over many competitors. To succeed with marketing in a recession, the first step is to anticipate how your customers’ spending habits will change. You can start by talking with the customers you have now. Use the opportunity to bond with them while also discovering how to adjust your marketing messages.
Prepare for a Shift in Consumer Mindset During a Recession
In a time of economic downturn or crisis, emotions run high. People worry about the values of property, investment accounts, and interest rates. Every time they turn on the television or log onto the Internet, they are flooded with one negative forecast after another.
Eventually, this takes a mental and emotional, and even physical toll. People begin to think the worst and develop negative attitudes. Businesses come under even more scrutiny for the way they operate. Customers evaluate the quality of products and services to a greater degree. So, all of your advertisements, customer service processes, prices, and other business practices will be under a magnifying glass.
How will you respond?
Be ready for this change in thinking. You will show people you genuinely care about their problems by demonstrating more empathy and concern—especially in your marketing messages.
Don’t Cut the Marketing Budget Too Much
Most successful business owners know that marketing is a necessity, not a luxury. Yet, in times of financial hardship, it is tempting to cut the marketing budget. But the cons of reducing the dollars spent while marketing in a recession almost always outweigh the pros.
How much time elapses from the moment you establish brand awareness to conversion (a purchase)?
This period between brand awareness and conversion is known as the sales cycle. The sales cycle will vary from one industry to another (and often, from business to business).
While cutting the marketing budget may save some money in the near term, the effects of making cuts lag. As an example, let’s assume your sales cycle is 90 days. If you are doing less marketing in a recession, you can expect to gain fewer customers. However, unless you have done some in-depth analysis, you will not know the actual negative impact on customer acquisition for three months.
Even if you have estimated the negative impact, there is something else to consider. Earlier in this post, I wrote about changes in consumer mindsets during and after an economic crisis or downturn. This shift in thinking could significantly affect the results of your marketing effort as well.
During a recession, it will be more challenging to acquire each new customer. As a result, you will have to exert even more effort to promote your business than before. So, knowing this, does it still make sense to cut your marketing budget?
If you are forced to cut marketing expenses, think of other ways to get customers organically.
Discount Prices at Your Own Risk
Cutting prices is another tactic many business owners use to generate leads and sales during tough economic times. However, many organizations do not understand the actual impact discounting has on revenue.
To illustrate, let’s assume you acquire 50 new customers over 30 days and that gross revenue per customer is $1,500. If the total cost of goods and services (COGS) is $1,050, the net profit is $450.
Using these figures, your gross revenue from 50 new customers is $75,000, COGS is $52,500, and net profit is $22,500 per month.
Expressed as an equation:
50 new customers x $1,500 gross revenue = $75,000 – $52,500 (COGS) = $22,500 (net profit)
Now, let’s say you reduce prices by 10% to get more customers. Your gross revenue is now $1,350 ($1,500 – 10% = $1,350).
What impact would this have on net profit?
Remember, your COGS (cost of goods and services) remains constant at $1,050 per customer, so your net profit is now $15,000 per month.
Expressed as an equation: 50 new customers x $1,350 = $67,500 – $52,500 COGS ($250 x 30) = $15,000
You are now making $7,500 less per month than you did before. Although you reduced prices by 10%, the decrease in net profit is 33.3%.
Again, here are the results expressed as an equation:
$22,500 (gross revenue at original price) – $15,000 (gross revenue at discounted price) = $7,500 / $22,500 = 33.33%
But the situation could be even worse. Why?
Remember, the way people think will change. It will be more challenging to acquire each new customer. Your sales cycle may also get longer, and your conversion rate could decrease because making sales will be more difficult. The costs of promoting on websites, social media, advertising, and networking may increase, depending on the platform.
Each one of these factors decreases profit and increases expenses.
Many small business owners lower their prices in an attempt to offset the challenges of customer acquisition. The thinking is that lower prices will offset consumer spending concerns and increase their propensity to buy. While this may seem logical, it makes no sense to do this without having hard-core data to support it.
It is not uncommon for small businesses to cut their marketing budget and slash prices only to suffer devastating consequences. Resist these anxiety-driven responses and think twice before making changes that could damage your business’s financial health even more.
A Strong Brand Will Be More Valuable in a Recession
If your business does not have a brand strategy, now is the time to create one. A brand strategy allows you to differentiate and position your offer with the target market that needs and wants it most.
A brand strategy also enables you to assess your business’s goals and discover how to strengthen your position in the marketplace. The clarity a brand strategy gives your business will help you prioritize decisions related to products, prices, and marketing campaigns.
READ THIS if you are new to branding: What Is Branding and Why Is It Important?
Evaluate Your Current Brand Position
A recession forces change. Now is the time to re-evaluate everything you have been doing and adjust for the future. For example, you may discover it is time to change the customer segment you have been targeting. Perhaps the people you are currently serving are no longer best suited for your business going forward.
You may also consider modifying your products and services to better meet the needs of current customers and new segments you choose to pursue. The same applies to your marketing, service, and sales processes.
Make transitions gradually but without delay. Waiting too long could leave you lagging behind the competition but making adjustments too quickly could cause confusion and increase the margin for error.
Your Brand Promise
Your brand promise is a summary of what your customers can expect to get from your company every time they interact with it. Though they are different, the brand promise is sometimes called a Unique Value Proposition (UVP).
A brand promise incorporates elements of a UVP but also includes other unstated features. It is comprised of the tangible benefits and experiential feelings customers receive from your product or service.
Take a look at the promise you are making to customers and make sure it aligns with any directional changes in your business’s branding and marketing.
“Loyalty is put to the test in times of crisis.”
Relationships with customers have always been meaningful but even more so in a recession. Focus on creating more opportunities to build relationships, not only with current customers but new ones. When times get tough, loyalty gets tested. You want to make every effort to cultivate customer retention. The best way to do that is to deepen the personal relationship with them.
Take a hands-on approach to everything you do. For example, reduce the amount of automation you have been using, increase the number of personal contacts, and make more effort to ensure customer satisfaction.
Manage Customer Expectations Diligently
People will be more sensitive about spending money in a harsh financial environment and will expect even more from the companies they do business with.
Quality is always essential, but during periods of financial difficulty, it will separate the businesses that prosper from those that barely survive or fail. Managing your customers’ expectations is one aspect of providing quality.
Don’t make assumptions. Find out what they want from your products or services. Discover what they like or don’t like about your competitors’ offers. If possible, take advantage of people who choose not to buy from you by finding out why they stopped short or chose a competitor.
Opportunities Abound in a Recession—If You Look for Them
When crisis strikes, most of us enter survival mode. As a result, we tend to accept less because everyone else is suffering too. And while it is true that there are limits to what you can control, opportunities are there when you look for them.
You will have to determine what that means for your business, but here are just a few examples of potential opportunities in a recession:
- Create additional revenue by developing new products and services or additions to current ones
- New customer segments you have not yet targeted
- Adjustments to current processes and systems
- Changes to shipping, manufacturing, and storage that result in cost savings. (Warning: never cut costs at the expense of quality!)
- Complete projects that have been delayed
- Plan for a return to normal—what will that look like for your business?
- New strategies and tactics for marketing and promoting your business
- Evaluate contracts with vendors and suppliers—is it time for a change?
- Analyze data—take note of trends, what works and what doesn’t?
Marketing in a recession is challenging, but you will persevere and prosper by:
- strengthening your brand and developing a brand strategy
- deepening customer relationships
- assessing and adjusting your sales and service processes
- delivering premium quality service
If you would like to talk more about marketing in a recession, creating organic marketing opportunities, or strengthening your small business brand, contact me at firstname.lastname@example.org.
Until next time,
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