Recessions affect consumers in different ways depending on their financial situation. In most cases, however, economic downturns do some damage to consumers’ wallets. At the very least, signs of a slowing economy are leading to changes in spending patterns and priorities.
Now that consumer spending is good two-thirds of US economic activity, penny pinching worries business leaders. They know that recessions can shrink corporate budgets because cash flows become a trickle. Like affluent consumers, larger companies may not be hit as hard. Those most at risk are companies at the other end of the spectrum, including smaller companies without substantial financial reserves.
But just because consumers are cutting back doesn’t mean they’re not spending at all. Well-positioned brands and offers can still win over customers in difficult times. Yes, it is possible to grow a business during a recession. Keep reading to find out how.
1. Strengthen brand value
If people see their paychecks not keeping up with inflation, they may go into survival mode. Layoffs and reorganizations can elicit the same response. Anxiety and fear can surface, causing shifts in shopping behavior. Someone who used to refuse to go to the dollar store may suddenly change his mind.
It will be a survival game of the fittest, with more consumers strategizing rather than buying impulsively. Business leaders usually find it best to take a like-minded approach during recessions. Now is not the time to give up brand strategy in favor of piecemeal marketing ploys. Because what doesn’t change are consumers’ emotional bonds with strong brands.
Of course people are looking for lower prices. But they also look for quality and value when the road ahead seems rocky. Shoppers are more likely to turn to brands that comfort them and keep their promises. While conventional wisdom says recessions can erode brand loyalty, this doesn’t always happen when there’s enough perceived value.
It’s an approach workwear retailer Dungarees used to expand his business as technology changed shoppers’ habits. The company focused on positioning the brand as the destination for hard-working, price-conscious consumers. Whether people shopped in-store or online, Dungarees reinforced its brand promise of exceptional customer experience, quality products and value, as Dungarees CEO Mike McClung recently told me in an email: “As consumers begin to pay more attention to the time value of their hard-earned dollars and focus on longer-term budgets, higher-quality brands are starting to win the buying decisions Buying a pair of pants that last twice as long for $50 beats buying two cheaper pants for $35.
2. Prioritize loyal customers
The definition of growth is not limited to acquiring additional customers. Businesses can also expand by leveraging relationships with existing customers. Even in times of prosperity, the chance of converting current customers is significantly higher than new ones. Companies have a 60% to 70% chance of conversion with existing customers versus a 5% to 20% chance with brand new customers.
It goes back to trust and familiarity. People who know what a brand has to offer see it as less risky to choose it. When companies reward their behavior, it becomes more of a no-brainer. Take Starbucks as an example. The profit of the company fell 28% during the 2008 recession, which led to a refocus on customer-centric experiences. While the coffee giant’s focus at the time was on collecting feedback and streamlining operations, it’s taking a parallel approach this time around.
The company’s current focus is on making it easier for rewards members to keep buying. This can be in the form of a 50% discount on drinks for an extended weekend or additional rewards for repeat purchases. Either way, existing customers feel like they’re getting a personalized treat. By expanding customer relationships, companies can expand sales even when overall consumer spending is falling.
3. Become a brand partner
The likelihood of slower sales may be enough to entice business leaders to cut marketing budgets. However, it’s not always a good idea to cut corners in this category. Nielsen research shows 10% to 35% of brand equity is marketing. And brands that go radio-silent typically lose 2% in long-term revenue each quarter. It can also take three to five years to recoup those losses if companies recover their marketing spending levels when conditions improve.
In tough economic times, it’s a wiser tactic to reallocate advertising and promotional dollars to high-performing channels. Some of those channels may include brand partnerships and nonprofit sponsorships. Businesses can get more value from partnerships that build credibility and expand reach. Similarly, nonprofit sponsorships increase a company’s visibility while making consumers feel good about supporting the brand.
An example is Panera Bread’s Day-End Dough-Nation program, through which it partners with non-profit organizations across the country. Instead of throwing out unsold baked goods, Panera locations donate them to local organizations such as food banks and homeless shelters. “Some other companies sell their one-day products at a discount the next day,” Florida cafe manager Udo Freyhofer said in a statement. ‘We won’t. It makes me feel good to have fresh produce available to our customers while helping the needy in our community.”
The value of those donations was almost $100 million in 2021. The program is just one of the company’s community-based partnerships, but it plays an important role in brand identity and driving customer loyalty.
Grow in times of adversity
When consumers cut their budgets, business leaders can feel like the deck is stacked against them. How can they possibly grow sales if economic numbers show that spending is slowing? The fact is, recessions usually signal a shift in shoppers’ priorities rather than a complete shutdown. As long as brands can meet those needs in a cost-effective way, sustainable growth is possible.