What is a recession, and how does it impact businesses?
The simplest definition of a recession is a prolonged economic downturn, which results in customers spending less money on products and services of all kinds. During a recession, consumers change their purchasing habits, focusing more on needs and less on wants because their money doesn't go as far.
As sales drop because customer priorities shift and they have stricter spending habits, businesses must reduce costs and prices while postponing new marketing investments like hiring new employees or developing a new product line.
In addition, since businesses must remain profitable during a recession, they might consider cutting costs in various departments, such as marketing.
It's common for businesses to reduce their marketing budgets during a recession, but that doesn't mean you should stop all marketing efforts. Your marketing efforts are responsible for bringing existing customers back and attracting new ones. Therefore, spending too little on marketing can actually lead to lost opportunities.
Instead, it's crucial to have a recession marketing plan that enables you to effectively target customers of all types without spending more than you need to.
While customers are being more cost-conscious and strategic with their purchases, you must be more strategic with your marketing budget and strategy.
Understanding the market
How does a recession affect marketing?
During a recession, economic growth comes to a halt. As a result, consumers face various challenges, from job loss to inflation, affecting their purchasing power.
As we've mentioned, consumers prioritize their expenses during a recession for various reasons. Therefore, your business might find it more challenging to attract new customers.
Both large and small businesses often have to reduce the quality of products and services as a cost-cutting measure. For instance, if your business sells shoes, you may source cheaper materials from different vendors to try to increase your profit margins.
But, unfortunately, this decision can also impact sales and your overall reputation.
Analyze consumer behavior changes during a recession
Unfortunately, businesses can't stop a recession, but they can monitor their customer's behavior during a recession to help them make more informed business decisions.
For instance, if your products are selling slower, keeping the same amount of inventory on hand doesn't make sense. Review all the data you have on your existing customers and their purchasing behavior.
You might find that even your most loyal customers are shopping less or that it's more challenging to retain clients during a recession.
Measure the impact of a recession on the market
After determining any changes in your customers' behavior during a recession, it's important to ask yourself why. There are many reasons why customers choose to spend less on items they deem as "wants" during a recession.
Additionally, the economic downturn alters the entire business landscape. Your business may not be selling as many products, which means your vendors are experiencing the same issues, and their cost-cutting measures can affect your business.
Let's take a look at the various impacts of a recession on the market:
One of the most common cost-cutting measures businesses employ during a recession is laying off their workers. Unfortunately, these individuals have less money to spend and may only focus on their highest-priority purchases.
A decline in income
Not everyone gets laid off during a recession, but there are declines in income between family members. Additionally, employment situations can change. For instance, a full-time worker may become a part-time worker because the business doesn't have as much for them to do during the regular workday. All this results in less money to spend on your products and services.
Decline in production from partners
Besides your customers, changes are happening throughout the entire business landscape, affecting your partners, vendors, and suppliers. For example, when your sales decline, you and similar businesses reduce spending on raw materials and other goods you purchase from your partners. Your partners may also reduce their production to mitigate risk during a recession, leaving you with fewer parts and materials to develop your own products. Therefore, you can expect more out-of-stock products during a recession because businesses are trying to cut costs anywhere they can, which includes on their warehouse shelves.
Decline in retail sales
If you work directly with retailers or are a retailer yourself, you can expect a decline in retail sales during a recession. This means having less cash flow to spend on the business, including raw goods, materials, and labor.
Utilize market research to gain insights during a recession
Mitigating your risk during a recession requires understanding the market at any given point. Market research can help you understand your customers' spending habits and behaviors, what they're looking for, why they purchase the products they do during a recession, and how to market to them effectively.
Market research can provide the information you need to make data-driven decisions that help your business stay competitive even during a recession. While customers reduce their spending during this time, they don't completely stop making purchases.
Instead, they buy less, switch to cheaper brands, or find new products. Market research can help you uncover reasons why you're losing customers.
For instance, if you sell toothpaste, you might find that your customers have switched to a more affordable brand, which tells you the cost of your product is an issue.