COVID-19 has wreaked havoc on the world. It started with a lockdown to prevent the virus from spreading, but has resulted in a worldwide recession. Even as countries attempt to re-open, new virus cases continue to grow, preventing a much-hoped-for economic recovery. In a recession, the economy shrinks, companies tighten their budgets, unemployment increases, and consumer income falls. Your company may be concerned. However, there are concrete strategies you can implement to help make your brand portfolio recession-proof.
How does a recession impact individual consumers?
Consumers have a habit of purchasing the brands they like, that are most readily available – satisfying. In general, there’s a tipping point where consumers are triggered to re-evaluate their choices for products or services. The exact point differs individually, but triggers can be a price increase, a move to online purchasing, or simply out-of-stock inventory.
The stronger a consumer’s habit, the stronger the trigger needs to be for them to switch away from habitual buying. Such decisions can be understood through SKIM’s Habitual Deliberate Loop framework.
During “normal” times, consumers spend most of their time on the habitual side of the loop. Shoppers know which brands they prefer, how often they purchase, where they shop, and how much they’re willing to pay. These decisions don’t involve much deliberation; they’ve become habits. A change of context is a prerequisite for a change in habitual behaviour. Decisions once made out of habit are subject to disruption.
Disruption leads to deliberate behaviour. Consumers re-evaluate choices they habitually make. Choosing a different product can be the outcome of such deliberation.
A recession is a trigger to disrupt habitual behaviour in itself. If a consumer is not financially impacted, they won’t be easily triggered to change their habits. Conversely, a consumer who experiences a significant drop in income may quickly start to change their behaviour.
In the face of the triggers caused by a recession, how should your brand respond? In order to create a robust and recession-proof brand portfolio, without taking unnecessary risks, consider the following tips:
1. Don’t worry too much about macroeconomic trends
Focus on the macro trends that matter to your category. For example, despite a recent trend toward overall reduced consumer spending, supermarkets, DIY stores and furniture shops experienced increased sales.
2. Understand how your category is specifically impacted
Ask questions in your industry to find out what is going on, and act accordingly. If consumers’ incomes are under pressure, their shopping habits will change.
Your brand may need to pivot if your consumers are suddenly relying on online ordering and delivery, or if they are becoming more price sensitive. For example, if a consumer is completing fewer shopping trips and buying only what they need, your marketing efforts will be impacted through lower exposure.
3. Uncover your category dynamics
Even if your consumers stay within a category, they may change their behaviour. Before you can work on your optimal portfolio, examine these dynamics.
Suppose that consumers maintain a stable demand for shampoo. In a recession, the volume of the total shampoo category may not be impacted, but there may be changes within the category, such as a shift to private label brands or bulk purchasing of premium brands to gain a lower price per volume.
4. Determine your optimal portfolio
Based on the changing market dynamics in a recession, what should you offer? Your whole marketing mix is at your disposal to adapt to changing circumstances. In a recession, you may be able to launch a bigger volume pack with a lower price per unit that can “lock in” your consumer to use your brand for longer. However, it might also make sense to go for a smaller pack for consumers shopping on out-of-pocket costs. If you have both groups in your market, which move would drive more volume? Specific to the current recession are changes in consumer behaviour during lockdowns. Consumers were buying much more online, for example. What does that mean for your category? Are people more or less price-sensitive in an online situation? Online buyers tend to buy bigger packs; are your products optimized for this change in preference?
5. Don’t run into the promotion pitfall
When you’re doing promotions, who are you targeting? Is there any indication that your main consumer base is moving away from you? Companies tend to do more promotions during a recession. If your consumer base is loyal, promotions may be like throwing money out the window.
Promotions can benefit you in the short run. But if consumers or retailers become accustomed to the new pricing, it may not be a successful long-term pricing strategy. In times of crisis, if your consumers are among the unemployed 15%, promotions may work. However, if your clientele is mainly within the remaining 85% who have retained their buying power, you may have a strategy flaw.
Facing the future
Recessions can be a daunting time for brands, but the challenge always remains the same: present a tempting offer for consumers. The million-dollar question is- how have the needs in your market changed, and are you responding appropriately.
