In early October, the Conference Board said there was a 96 percent chance that the U.S. will experience a recession within the next 12 months. With the right approach, your business can struggle to thrive during and after a recession.
While it’s hard for any business to go through a recession, most do. More than once, and likely, many times. Authors John Quelch and Katherine Jost examine recessions since the 1970s.in an article published Harvard Business Reviewthey not only observe that every recession is different from others, they also suggest that there are ways to manipulate and market your company until some degree of economic normalcy is restored.
The author discusses the usual behavior of customers or clients during a recession.
“Certainly, during a recession, consumers set stricter priorities and reduce spending. If sales start to decline, businesses typically cut costs, lower prices and defer new investments. Marketing spending … is often cut across the board— But this indiscriminate cost-cutting is wrong.”
Rather than slashing marketing spend, consider cutting costs like surgery, which can save you some money, but don’t force all customers into one category; try to differentiate necessary marketing expenses from wasteful or unproductive expenses.
During periods of growth, business and personal spending is based on the disposable income of consumers and the overall profitability of the business. If there is confidence, the money will be spent on the purchase. Without confidence, spending will be cut.
Quelch and Jost classify customers/customers in four ways. Hit the brakes hard, pain but patience, comfortable off-kilter, and live for today categories. While most of their research has focused on individual consumers, business-to-business (B2B) marketing can easily fit into their four categories.
If you look at each of these categories, take a step back and think about the specific customers that might fit into each segment. Hopefully you’ll be surprised how helpful this approach can be in segmenting people or businesses that respond in these ways during a downturn. While most people adjust the services or products they buy during a recession, these categories can be viewed as varying degrees of those adjustments.
Slam the brakes: This group or category is most affected during recessions. “This group reduces all types of spending by eliminating, deferring, reducing or replacing purchases”.
Painful but patient: This segment “tends to be resilient and optimistic about the long term, but less confident about the prospects for recovery in the short term… They are saving in all areas, albeit less aggressively. They make up the largest segment…. With the news To make matters worse, painful but patient consumers are increasingly turning to the hard-braking segment.”
Comfortable and Affluent: This category is much more resistant to recessions. They represent B2B customers or consumers who are more recession-proof. They typically represent consumers in the highest income brackets and represent the best performing businesses.
Living in the moment: This segment is “predominantly responding to the recession by extending the timeline for bulk purchases.” They are most likely not to change their behavior unless a major event directly affects them.
In proposing solutions to address these different categories, Quelch and Jost suggest “slamming the brakes and painful but patient customers poking around to find the best price. All businesses will compete more and more on price.” They continue The suggestion “many marketers will need to increase the frequency and depth of temporary price promotions.” Further suggestions include “Companies can improve affordability by lowering the threshold for quantity discounts, extending credit to customers, or developing installment plans. Reduce items or portion sizes, then Pricing accordingly is another effective strategy. For service businesses such as cable and mobile phone companies, reducing upfront adoption costs for consumers and reducing fines can help…”
All in all, think about how beneficial it might be to do an analysis of some of your top customers to see which categories might be a good fit for them. If you place them successfully, you and your business may be able to avoid business losses by being proactive, helping you maintain or minimize the impact of their actions on your business during a recession.