This year has been unlike any other, a time when many of the basic facts of life we once took for granted are up in the air. Even the way we think about a recession is changing.
Yet many marketers still fall into the same mentality in a recession: don’t spend, cut back, conserve, play it safe. And we’re here to say that now is the time to throw that incorrect mindset out the window.
If anything, a recession is the time to hold the course and keep on pushing, not cut back. It can make all the difference between a successful recovery and business petering to a halt. Here’s why it’s good to market in a recession.
What is a Recession?
In macroeconomic terms, a recession is a period of significant general economic decline in a region, generally recognized by two consecutive quarters of declining economic activity in conjunction with monthly indicators such as GDP and unemployment.
However, the National Bureau of Economic Research (NBER), which officially declares recessions, says that recessions are no longer defined this way. The NBER defines recessions as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
And while there were warning signals in March, it’s official as of June: the NBER’s Business Cycle Dating Committee (a.k.a. the fat lady of economic opera) said U.S. economic expansion peaked in February after a record 128 months, and we’ve been tumbling into a recession ever since. It’s no coincidence that February is around the time the pandemic hit.
Keep in mind that this recession was declared in June, only three months after the backslide started. The standard definition of recession says the downturn must last more than a few months. However, the Committee stated that the downturn is so severe that it earned the title of recession even if recovery begins quickly.
Note that “recovery” and “the end of the recession” are two different things. Recessions officially end when economic bleeding stops, even though it may take years to fully recover.
Things That Happen During a Recession
While every recession has its own unique features, partially as an attribute of changing times, recessions all have a few things in common.
Stocks and Bonds Go Up as Rates Go Down
Predicting a recession is generally a fool’s errand, in that we don’t usually know we’re in one until it’s already six months underway. That’s because a recession is defined, among other things, as two consecutive quarters of economic decline, i.e. six months of decline.
Typically, the stock market drops about six months before a recession, though stock market drops and recessions do not automatically go hand-in-hand. In the last three recessions, for example, Vanguard funds actually rose significantly during all three recessions, despite the fact that the market dropped.
The U.S. Federal Reserve, the U.S. central bank, has the ability to influence interest rates by buying or selling debt instruments and tweaking the amount of credit on the market. During a recession, the Fed usually tries to coax interest rates downward, typically by buying bonds to inject a new quantity of equivalent reserves (i.e. fresh liquidity) into the banking system.
Unemployment Goes Up
However, the big kicker for the average person is unemployment. In other words, when the economy gets rough, people want to know that they’ll still be able to pay their bills.
Unfortunately, another common hallmark of a recession is rising unemployment, typically the result of a rash of business failures or businesses curtailing their activities to account for limited liquidity and reduced customer spending.
Either way, the net result is the same: higher unemployment. Recessions and unemployment are so closely tied that unemployment is tied into the official benchmarks for declaring a recession.
So…Are We in a Recession?
This brings us to the essential question of 2020: are we in a recession?
Officially, yes. Unofficially, it’s a bit complicated. Because in much the same way 2020 is unlike any other year that came before, the 2020 recession is unlike any other recession.
After all, based on the descriptions of a recession, a booming (almost bubbling) housing market, near-record stock levels, and robust consumer spending don’t really sound like a recession. That’s because they’re the opposite of what we would expect to see in most recessions.
On the other hand, the current U.S. unemployment rate is still quite high. It hit 10.2% going into August, higher than the U.S. has seen in nearly four decades, and although it recently fell to 8.4%, the economy is still feeling the shocks of the pandemic. Just not in the ways we would normally expect.
On one hand, day-to-day life remains disrupted to an unprecedented degree, with restaurants operating on a limited basis, stores forced to control crowd size, and many of the markers of summer life canceled for the year. On the other hand, productivity and sales are up in key areas.
So, are we in a recession?
The short answer is it’s complicated, and many officials can’t agree. The important point is that many consumers and businesses think we’re in a recession, or they’re worried we will be at any moment. And that has key impacts on business and consumer behavior.
Why It’s Good to Market in a Recession
Slowdown is the key hallmark of marketer behavior in a recession. In fact, many businesses opt to cut their marketing budget during a recession, especially advertising spend.
The logic is simple: consumers adopt a conservative spending attitude during a recession, or when they think a recession is coming. In other words, they tend to spend less money when they’re worried they may not have reliable income streams in the future. As such, marketer psychology shifts to reflect consumer psychology.
It seems like the right decision in the moment. The keyword is seems. In reality, you need to market in a recession as much as ever precisely because this is the testing ground for business survival. Here’s why it’s good to market in a recession–in fact, why it’s necessary to market in a recession.
Lower Noise = More Room to Shine
As noted above, many marketers elect to decrease ad spending during a recession, figuring that consumers are spending less money. Yet many of them neglect what this means on a larger scale, given that their competitors are all doing the same thing.
When everyone in a brand category reduces ad spend, the net result is less advertising noise. Fewer companies are advertising, ergo there are fewer ads to see. And when you think about it, this actually makes a recession an excellent opportunity for brands to get noticed.
Think about it. If all your competitors are cutting back on ad spend, the competition to make the most of ad dollars isn’t nearly as harsh. This means you can actually get more out of your advertising dollars during a recession, since reduced ad noise allows you more opportunities to stand out from your competitors.
The unique situation of the pandemic also means you have an opportunity that past generations of marketers never did: meeting your customers where they are, thanks to the power of digital marketing. Now, you can get in front of your customers in their own homes, on their own devices, at precisely the moment when they’re looking for services like yours.
An Image of Corporate Stability
Unfortunately, recessions are times of deep uncertainty. This is why consumers and marketers alike adopt a conservative mindset–if you can try to reduce risk, the logic runs, then you can try to minimize the effects of instability in the long-term.
In reality, successful advertising during a recession is exactly what you need to project an image of corporate stability.
Recessions are a time of significant fear. Consumers are worried about losing their jobs, but they’re also worried about losing facets of a less anxious time. In this respect, your brand becomes a reminder of a time before the crisis, when consumers didn’t have to worry.
And by showing customers that you’re holding strong and continuing to offer great services during tough times, it reassures your customers that you’re here to stay, that you have their back, that normal life will come knocking again.
Lowered Cost of Advertising
Regardless of what you do, many of your competitors will adopt a conservative marketing mindset, cutting back on their marketing spend in the hopes that it will help them persist until the economy is more stable and consumers feel more secure.
This is actually fantastic news for you.
If less companies spend money on advertising, then advertising for your industry as a whole becomes less competitive, since advertisers have fewer buyers competing for the same space. For savvy marketers, this means you might not even have to cut back advertising in order to save money (if you play your cards right).
Remember, the key to a competitive edge is staying smarter than the competition.
Share of Mind
In marketing, share of mind or mindshare refers to the amount of consumer awareness or popularity surrounding a product, brand, or company. In practical terms, it can be measured in the amount of talk the public generates about you compared to your competitors.
And if you’ve been paying attention, you can probably guess why this is relevant in marketing during a recession.
If your competitors are cutting back on marketing, they’re quite literally limiting their participation in the conversation. That means it’s the perfect time for you to get noticed, since there aren’t as many competing voices.
This also relates to the image of corporate stability. If your customers think you’re stable during a recession and your competitors aren’t, they’re more likely to talk about you, and they’re more likely to keep talking about you once the recession is over since you were always on their minds.
Gathering Data to Understand Target Customer Behavior
Recessions are often thought of as a time to cut back, but that’s just not the case with marketing–any element of marketing. In fact, the flux that comes with a recession means that it’s the ideal time to learn something about your target customer’s behavior.
The reality of recessions is that consumer behavior changes in a recession, though the way consumer behavior changes isn’t always obvious. There are four general categories of recession mentalities:
- Slam-on-the-brakes
- Pained-but-patient
- Comfortably well-off
- Live for today
The slam-on-the-brakes segment is the most vulnerable–and they feel the most vulnerable. They’re the hardest-hit group financially, and as a consequence will respond to a recession by cutting back, postponing, decreasing, or substituting purchases. This is typically low-income consumers but can also be anxious higher-income consumers.
The pained-but-patient segment also feels the pinch and cuts back, but less aggressively. They’re generally optimistic about the long-term, though they don’t have as much confidence in near-term recovery. This segment migrates into slam-on-the-brakes as news worsens, but it also constitutes the largest category and broadest income swath of consumers.
The comfortably well-off segment continues to live almost at pre-recession levels, though they are more selective and less conspicuous. As a rule, they feel secure about their ability to ride out the economy, and for good reason–they’re typically the top 5% of household incomes.
The live-for-today segment responds by extending their timelines for major purchases but otherwise carry on more or less as usual. This group tends to be younger, urban, renters rather than owners, and tend to spend on experiences instead of stuff. They won’t dramatically change their behavior unless they become unemployed.
As you can see, these groups represent four dramatically different consumer mindsets. And in a recession, it’s critical to understand where your target audience lies in this distribution. That way, you can understand their purchasing behavior and market to them more effectively.
After all, marketing to a comfortably well-off crowd when you actually have a pained-but-patient crowd is likely to foster resentment, especially as the recession wears on, news get worse, and consumers increasingly feel the pinch.
How to Market in a Recession
With that in mind, let’s get down to business. Or rather, the business of staying in business during a recession (hint: it relies heavily on marketing).
Consumers reliably fall into one of the four categories (slam-on-the-brakes, pained-but-patient, comfortably well-off, or live-for-today). Regardless of their category, consumers group products and services into four categories:
- Essentials
- Treats
- Postponables
- Expendables
Essentials are necessary for day-to-day survival and are perceived as central to wellbeing. Treats, on the other hand, are indulgences that are not strictly necessary but whose purchase may be immediately justifiable, insofar as they’re one-off treats that can be afforded once in a while.
Postponables are needed or desired items whose purchase can reasonably be put off, even if they are necessary. Expendables, however, are the no-fly zone, considered unnecessary or unjustifiable.
People tend to group food and shelter into the essentials category, and most people would also group transportation and medical care in that category. Beyond that, however, categorization varies widely between consumers based on a number of factors ranging from income level to perceived stability, even age (i.e. a young buyer without savings versus an older consumer).
Beyond the live-for-today segment, almost all consumers will re-evaluate their buying priorities in a recession. As such, while it is important to continue marketing to consumers, you cannot continue to market to them in the way you once did.
Here are a few tips to market successfully during a downturn.
Research Your Customers
First and foremost, you have to research your customers.
Because consumer behavior is in flux during a recession, a recession makes it more important than ever to understand your consumers. You have to know what they’re willing to buy, when they’re willing to buy it, and why they’re willing to spend money on it over something else. You also have to know what might convince them to buy.
The only way to do that is by knowing your customer. Or rather, knowing how your customers redefine value in a moment of crisis. This is also the moment to pay extra attention to your most loyal customers–consumers tend to cling to trusted brands and shed all the rest.
Focus on Family Values
As the old adage goes, it takes a village. In a recession, we tend to retreat to our village. So if you want to reach a consumer, you have to play to the village.
Remember, this is a time when consumers feel deeply insecure about the future. In order to counteract this, they cling to what feels safe, what they can rely on. For this reason, the appeals you used during times of plenty won’t work anymore.
For example, marketing adventures and tough individualism won’t work when consumers are reaching for their figurative tribe. Instead, provide them with marketing premised on comfort and security–to be cliche, hearth-and-home family scenes replace images of the daring adventurer striking off on their lonesome.
After all, consumers may not be able to spend on new things, but they can rely on their family and friends. Your job is to play into that psychology, to offer them the sense of comfort, security, and stability they crave until the recession is finally over.
Adjust Your Product Portfolios
To that end, you will need to adjust your portfolios in a recession–and adjust how you present your products during a recession.
Remember, consumers are much more money-conscious when they’re no longer secure in their money, which means everyone now categorizes every purchase. They’re looking for utility and function, not luxury, and they’re more likely to trade down if they can get away with it.
For this reason, specialized products lose popularity in a recession in favor of multi-purpose products. Consumers don’t want gimmicks–they want products with reliability, performance, and durability.
This doesn’t mean you should avoid introducing new products. It just means you have to change your language, showing consumers this is something they can count on when so many other facets of life are upended.
Adjust Pricing Tactics
This also means that you will need to adjust your pricing in conjunction with changing consumer behavior and changing marketing language.
This doesn’t necessarily mean that you need to price down, though many businesses take that route. It does mean that you’ll need to be more strategic about offering customers good deals, and you’ll need to justify pricing if you do elect to keep your prices where they are.
This also comes down to knowing who your target audience is. If you have a slam-on-the-brakes crowd, you’ll likely need to price down and be more aggressive in offering temporary price promotions, showing consumers how you’re driving value.
On the other hand, if you have a comfortably well-off crowd, they’re likely to keep their spending as-is, but they’re going to be less conspicuous about it, and your marketing needs to reflect this mentality.
The Marketing Partner You Need to Stay Lean
We know that these are difficult times. We also know that now is the time to stay strong and keep on marketing, because consumers will reward you for the effort.
That’s why we’re here to help you get a handle on your marketing efforts, through thick and thin. We know that performing a campaign isn’t easy, even during smooth economic sailing. And like you, we take a customer-centric approach, ensuring that you get a solution that’s tailored to your needs so that you can continue to thrive, even when the going gets tough.
Get in touch today to let us know how we can help your marketing team adapt to tough times–and set the stage for a comeback when tough times are over.