In times of economic prosperity, it can be easy to be lulled into a false sense of security. When markets continue to surge and inflation seems like a relic of a bygone era, we can forget that economies are cyclical by nature and that the next recession is out there on the horizon, just waiting to catch wayward business owners on their heels.
The truth is, it’s only a matter of time before the next recession is upon us. Is your brand ready?
Recessions represent valuable opportunities for brands that are positioned to capitalize on them. By understanding your customers’ changing needs during a recession and fulfilling them in unique ways, you can pick up market share, increase profit margins, and be situated for explosive growth once the market recovers. All it takes is a little foresight and planning.
Here are 5 ways to prepare your brand for the next recession, and ensure you not only survive the downturn, you come out the other end better than your competition.
1. Don’t Cut Back on Marketing
For most business leaders, their first instinct in the face of a looming recession is to slash their marketing budget. Many assume that marketing is low-hanging fruit when it comes to identifying expendable line items. It turns out this defensive impulse is a short-sighted tactic that can end up hurting your bottom line in the long run.
In Field and Binet’s seminal 2008 study on marketing effectiveness, the industry experts found that while cutting your marketing budget in the face of an economic downturn might help protect short-term profits, your brand is certain to be weaker and less profitable once the recession ends. It’s the brands that double down on marketing spend to gain a larger share of voice over their competitors that are best positioned to realize long-term profitability throughout the recession and beyond.
Cutting your marketing budget means cutting off valuable connections with the very audiences that might otherwise help you weather an economic downturn. Brands without a marketplace presence are those left most exposed during a recession.
The fact is that as an expenditure, marketing gets more powerful and more efficient every day. Digital campaigns enable you to micro-target your brand’s most valuable audiences, even on a tight budget. The ability to influence purchasing behavior by delivering hyper-relevant messaging directly to individual consumers makes marketing one of the last things you should consider cutting back on when leaner times are on the horizon.
2. Reassess Your Brand Positioning
A coming recession is the perfect time to take a step back and reassess your brand to make sure you are optimally positioned for the challenges ahead. Recessions realign customer behavior, after all, forcing consumers to reconsider their priorities when it comes to spending money. Understanding exactly how these behavior shifts will affect your industry (and ultimately your business) is key to making the most of an economic downturn.
Step one in any reassessment of positioning should be a brand audit. It’s imperative to know where your brand stands with regards to the competitive landscape before you can plan for the future. Understanding how your competition is positioned will help you identify opportunities to differentiate your brand in the minds of your customers, particularly with regards to their changing needs in the face of a recession.
Both consumers and businesses struggle during a recession. The key is to find ways to address the unique needs of those who are suffering by offering distinct value they can leverage to pull themselves through the hard times. Identify the things your customers are most likely to cut back on during a recession and present more valuable alternatives.
The areas where consumers are likely to cut aren’t always the most obvious. During the Great Recession, counterintuitive luxuries like wellness, localism, and personalization thrived. By repositioning luxury offerings as an investment in personal comforts in the face of mounting budget sacrifices, smart brands were able to counter social pressures to cut nonessential indulgences.
3. Focus on Your Unique Value
Often the best positioning strategy is to focus on what you do best. For brands and consumers alike, making the most of a recession is all about understanding value. As a brand, what value do you provide to your customers? It’s critical that you not only understand your unique value propositions, but that you can articulate them in a way that your audiences understand.
The shadow of a looming recession is an ideal time to do customer research to better understand the value you provide to those you serve. Do your customers see your brand as an affordable luxury? Do you offer services that enable your customers to reduce costs in other areas? Answers to these questions will give you the tools you need to tell the most compelling story about your offerings within a recessionary environment.
Any customer lifetime value analysis will tell you: your best customers are very expensive to replace. Rather than risk losing them to the pressures of an economic downturn, offer them value that will increase their loyalty. Price-cutting is never the best solution and can even lead to a competitive domino effect. Alternative approaches to bolstering customer relationships include enhanced loyalty programs, premium education or experiential offerings, and increased access to your brand.
The best way to emphasize your value is often simply to get hyper-focused on your core competencies. The more specialized your offerings, the harder you are to replace. Brands that target niche industries with niche products and services are better suited to withstand a recession because their customers don’t have the luxury of looking elsewhere to fulfill their needs.
4. Explore New Audiences
One of the best ways to minimize revenue loss during a recession is to look for new opportunities in previously unconsidered market segments and reposition your offerings accordingly. This is particularly true if your traditional target audience is set to be hit hard by the economic downturn.
One place to look is industries that have historically proven to be recession-proof. Healthcare and government are both sectors where demand is not strictly tied to the vagrancies of a waning market. While those non-profits that rely primarily on donations will typically see a hit to their revenue streams during a recession, those that are funded by grants from the government or longstanding foundations represent another potential target audience that is likely to withstand long-term economic dips.
In addition to exploring new audiences domestically, look overseas to countries or regions where the recession is less likely to have as sizable effect. Repositioning your offerings for an international market can require a bit of research and logistical ingenuity, but it can be well worth the investment if the alternative is being tethered to a domestic market whose prospects are unpredictable at best.
A recession can also be the best time to launch a new brand or venture altogether. The competition is measurably less intense, and consumers are more likely to respond to unique value offered by an alternative to the brands they normally buy. Offset risk by targeting smaller, niche audiences during the downturn and then use the foundation to grow the business post-recession.
5. Capitalize on Opportunities
Opportunities abound during a recession; you just have to know where to look—and have the cash on hand to capitalize on them when you find them. It’s Business 101: the best way to survive a recession is to make sure you’re prepared for it by socking away a portion of the profits you make when times are good.
Provided you have the capital to do so, slow years are optimal times to innovate. Experiment with new delivery mechanisms, service options, or packaging alternatives. Deploy quick-fail initiatives in test markets to gauge what audiences will respond to. Put time into projects you’ve been wanting to do but have been too busy to undertake.
Recessions are also great times to look for acquisition targets who may not have planned as well as you did. Otherwise strong brands laden with insufficient cash, poor debt structure, inflexible pricing, or general mismanagement are prime targets for stronger brands looking to expand during the downturn. New technologies and patents that would be unaffordable during expansion years are also often available during a recession.
If acquisition opportunities are unavailable in your segment, consider simply expanding your market share with other shrewd business maneuvers. Brands like Lego, Netflix, and Hyundai that grew during the Great Recession only consolidated those gains in the years that followed.
Recessions bring changes to the marketplace that no brand can predict. In the last recession, digital sales actually increased significantly and new competitors to legacy brands came out of the woodwork. These changes have continued to shape their respective markets as e-commerce drives exponential evolution and direct-to-consumer brands offer alternatives to established companies in many different industries. The brands that emerged ready to compete in this new market landscape are those that recognized the unique opportunities that arose during the recession.
Making sure your brand is prepared for the inevitable recession on the horizon means being smart about where you cut your budget, being open to change, understanding the true value you provide to your customers, and being willing to explore new markets you might not otherwise consider. The most important thing is to be smart about business decisions when times are good, so that you’re better prepared than the competition to capitalize on the downturn.