We’re in uncharted waters with the impacts of the Coronavirus. Even the 2008 crash and its recession won’t serve as a guide as there has never been a time when the entire global economy has been mostly shut down. And there will likely be ongoing lockdowns around the world over the next twelve to eighteen months to deal with recurring waves of Coronavirus.
On top of these never seen before conditions, the world is still dealing with unprecedented levels of global debt amongst governments, businesses and households as a result of the 2008 crash and the fiscal and monetary policies brought in to try prop up banks and share prices. A lot of financial pundits and people like myself believe we are still facing a day of reckoning over this debt. Continues below...
Five things we can do to prepare
We need to prepare now for a possible shift in consumer purchasing habits and attitudes. We know that consumers only spend when they have disposable income and feel confident about the future – though in adland we only tend to credit an increase in sales to our clever ad campaigns.
Looking ahead, the repercussions of a prolonged shutdown will be unknown, but we can safely guess they will be far from positive with the potential to also spark a ‘black swan’ economic event. We can also be sure that with increased unemployment, falling wages and business closures, spending will be cutback by consumers. So, here are five actions you can take now, with expanded explanations following:
1. Look after your loyal customers 2. Realign and trim your marketing budget 3. Redefine your consumers 4. Remind consumers of the value of your product or service 5. Asses opportunities and get creative
1. Look after your loyal customers
During a deep recession it’s vital to remember that loyal customers are your primary source of ongoing income and future growth. Marketing to this group isn’t an option, it’s essential to keep revenues flowing. Don’t take out a downturn on your existing customers and beat them over the head with smaller quantities inside the packet or pared back services. Future strategic goals during a downturn are also likely to depend on which psychological state or ‘segments’ your customer base is going to fall into and how they prioritise or categorise your products or services. More about this later.
This is also the time to beef up your loyalty programme if you have one. Customers often feel these schemes are not that rewarding during the good times, so now is your opportunity to make it really mean something and hang onto your existing customers. Loyalty programs should reward not just big spenders but also people who purchase small amounts frequently.
2. Realign your marketing budget
Although it’s essential to reduce costs during a downturn, taking an axe to your marketing budget will further worsen your sales. No one will know about your offering and your brand can easily be forgotten. Better to take a pruning saw to your budget to surgically adjust and trim. Making huge cuts to your marketing budget is low hanging fruit though and is easier than cutting production costs, but it’s well documented that slashing your marketing budget only creates a short-term sugar rush, likely leaving you in a weaker position when the economy recovers.
Decide carefully what you’ve been wasting money on, and what is necessary. Maintaining a strong brand is one of the best ways to lower your business risk. You might also be able to capture market share from weaker rivals at a lower cost than during good times, as long as you maintain your share-of-voice.
Here are some starting points:
• Shift from 30-second to 15-second television spots.
• Go for cheaper radio advertising instead of television, especially if you need to repeat your message multiple times to get people to take action.
• Use channels that enable precise targeting of your consumers and better tracking of their response. For example, consider search-related advertising on Google instead of banner advertising.
• Remember that out-of-home poster and billboard sites have increased their effectiveness during the digital age, with captive eyeballs on train platforms, road side traffic jams and bus shelters.
• Adapt or extend an existing campaign rather than commission more expensive new ones. • Consider not engaging in long-term media commitments at the first sign of a downtown. Instead wait for media rates to be discounted. Businesses with bigger wallets will be able to lock in better rates for future campaigns.
• But remember though that broadcast media still remains important for building mass-market consumer brands. • As people are likely going to be glued to their phones and computers, influencers and demonstration videos are likely going to increase in power and persuasiveness.
3. Redefine your consumers
We usually define customers through traditional demographics like age, sex, lifestyle or income levels. But a psychological segmentation may be a more effective approach, particularly in a severe downtown. As the Harvard Business Review states "this route takes into account consumers emotional response to a new economic environment". I prefer their method – that we should define your customers as fitting into the following four groups:
Slam-on-the-brakes – this segment feels most vulnerable and hardest hit financially. This group reduces all types of spending by eliminating, postponing, decreasing, or substituting purchases.
Pained-but-patient – these consumers tend to be resilient and optimistic about the long term but less confident about the prospects for recovery in the near term or their ability to
maintain their standard of living. Like slam-on-the-brakes consumers, they economize
in all areas, though less aggressively. As news gets worse, pained-but-patient consumers increasingly migrate into the slam-on-the-brakes segment.
Comfortably well-off – this segment feels secure about their ability to ride out current and future bumps in the economy. They consume at near pre-recession levels, though now they tend to be a little more selective (and less conspicuous) about their purchases. The segment consists primarily of people in the top 5% income bracket.
Live-for-today – typically, urban and younger, they are more likely to rent than to own, and they spend on experiences rather than stuff (with the exception of consumer electronics). This segment carries on as usual and for the most part remains unconcerned about savings. They’re unlikely to change their consumption behaviour unless they become unemployed.
The Harvard Business Review goes on to say that regardless of which group consumers belong to, they will re-prioritise consumption by sorting products and services into four categories
Essentials – are necessary for survival or perceived as central to well-being.
Treats – are indulgences whose immediate purchase is considered justifiable.
Postponables – are needed or desired items whose purchase can be reasonably put off.
Expendables – are perceived as unnecessary or unjustifiable.
Your customers will no doubt start to shift some purchases into other categories if a recession manifests and starts to bite. Entertainment, new clothes, new cars, appliances, and consumer electronics will quickly shift from essentials to treats, postponables, or even expendables.
During this lockdown, I’ve already put on hold some DIY/reno plans, buying a new bike and a few clothes as I wait to see what this crisis has in store for us economically. I haven’t gone for cheaper food items yet, but I’ve noticed a dramatic jump in prices at the supermarket already. How long will I continue buying my favourite items if each trolley is costing me 35% more as local and global distribution continues to be impacted? And as we become more price sensitive, we become less brand loyal seeking out discounts or alternative products.
Decide which of the above categories your products and services will align under and then decide which ones to allocate marketing budget to. It’ll be vital to continue with market research to understand your consumers shifting habits and attitudes.
4. Remind customers of the value of your product or service
During boom times, campaigns that speak to value usually inspire a big yawn in all but the most value conscious. But be prepared to see a return of this type of marketing and advertising in a big way.
You must remind your customers of the value of your particular product or service regardless of its price tag. As we know value isn’t just about the price, it’s also about the quality, durability and usefulness of your product to the consumer. You need to start emphasising those qualities again if you aren’t already. Don’t panic and alter your brand’s core positioning and proposition. And don’t realign your premium brands to fit a cheaper segment. Instead re-emphasise your product’s value, otherwise you could confuse and destroy trust in your loyal customers. And you’ll probably also go up against tough competition from brands who are already geared to a low-cost strategy and who have better knowledge of budget brand consumers. Your best option is to stabilise your sales by reminding consumers of how your brand matters and can add value to their lives, and then consider a new budget product line extension. More about this below.
5. Assess opportunities and get creative
Decide which product or service lines have poor chances of survival in tough times, which can continue at a stable pace and which have the potential to do very well. A deep recession can give you the cover you need to exorcise products from your range that won’t make it, and do so early before this process is forced on you. At the same time, this could be an opportunity to innovate
For essential items ‘pained-but-patient’ customers are likely to shift down to products that offer good value instead of going for the bells and whistles. So consider a line extension and add a budget product or service to your stable whilst leaving your premium offerings alone. Think Mercedes B-Class hatchback vs AMG, or Toyota vs Lexus. If you’re an educational or training entity, what skills are going to be valuable in a new economic paradigm? Will we need so many, er, marketers and lawyers, or will we need more repair service people, electricians and skilled labourers? Tailor your courses to these skills and perhaps offer more fast-track courses.
If applicable, also make sure your products can be ordered online and offer payment plans via schemes like Oxipay or Afterpay, instead of only allowing consumers to purchase all at once.
Consider a couple of historical product and marketing innovation examples; during the Great Depression MGM studios invented the ‘double feature’ in response to declining movie attendance – for the same price moviegoers got to see two full-length films. Soap sales plummeted during the depression, so Procter & Gamble sponsored operas on the relatively new medium of radio. The strategy was so successful that other brands copied P&G to the point that commentators began to cynically to refer to them as ‘soap operas’.
At the start of the digital revolution and during the 2008 crash, our 'future gazers' in advertising screamed at us that traditional bricks and mortar businesses will be a thing of the past. They were only partially wrong. It was exactly at this time that Apple opened more of their stores around the world and ramped up TV advertising along with online sales, all of which helped propel it from a niche brand for designers to one of the most valuable brands in the world.
Retail theatre
Apple stores were designed to look like cathedrals, where customers would worship the god of beautiful design, interact with products and experience new innovations. The outtake has been that ‘retail theatre’ – where a store doesn’t just stock shelves, but provides unique experiences – is likely to help retail brands endure by getting people off the internet and in-store. The Apple experience also confirmed that businesses who combine online ordering with traditional bricks and mortar stores have greater chance at success.
‘Ah but what about Amazon?’ I can hear you say. Well, Amazon never made one cent in profit until they got into the large scale cloud server business, which is how they finally made a profit and it remains that way today. Conclusion Buckle up, even if the Coronavirus disappeared tomorrow, the economic and social repercussions of four to six weeks of global lockdown is going to impact you, me and everyone we know for some time yet. If it carries on, which most scientists and politicians think it will, something big is going to break somewhere potentially creating an economic pandemic.
You’ll have to be nimble and adaptable. Our world could more likely resemble that of our grandparents for a while yet – fewer holidays, not eating out as much, making do, repairing, growing your own and relying on community. This may not be a bad thing after all, but you need to be ready to realign your brand and products, so start making a plan now. Let’s hope you don’t need to employ it, but it’s better to be prepared. Good luck and see you on the other side.
Written with thanks and references to John Quelch and Katherine Jocz at the Harvard Business Review
