6 ways to prepare your business now for the next financial downturn.
For many businesses, surviving during economic uncertainty can feel like a challenge beyond their control. In this post, we'll cover six key approaches to making sure that your business doesn't just survive an economic downturn but comes out stronger than ever.
Over the years there have been many research papers making the obvious points that during downturns, it is important to refocus on the changed expectations, needs and wants of your customers, to increase rather than decrease your marketing spend, and to aim not just to survive but to thrive, and to leapfrog your competition. Doing so will not only maintain sales but will increase brand awareness and brand affinity while your competitors pull back on spending. In other words, it is far easier to beat Usain Bolt in a 100m race if he has slowed down!
The temptation to pull back on spending when sales slow is great. Expenditure may well need to be cut in many areas, but try to preserve sales and marketing spending. Sales driving activities may well need to increase to counter revenue shortfalls.
Expensive marketing campaigns and activations are tempting targets for cost-cutting. It can be difficult to quantify soft measures such as sentiment, and it can often appear as though your business can tick over for a while even after spending on marketing has been cut. In fact, the opposite is true. Cutting from your marketing budget takes a very short-term view that misses the bigger opportunity to act while your competitors are not. Cutting also risks entering a vicious downward spiral where marketing cost reductions lead to further revenue losses which lead to more cost-cutting…
Below we ask six questions that are designed to get you thinking about how to maximise the opportunities presented by an economic downturn.
1. How well do you understand your business challenges?
It was Sherlock Holmes who put it best. "Data! Data! Data!" he cried impatiently, "I can't make bricks without clay". And so it is with marketing.
Instead of more sales for their own sake, it is important to gain insight into what roadblocks are interfering with your need for long-term sustainable growth, not just short-term gain. This approach will require research, which for smaller businesses may not always feel like a justifiable cost. It can seem as though you're ticking along just fine without it. But hard facts that deliver a deep understanding of the actual challenges your business is facing will enable smarter decisions, uncover new insights and reveal unique opportunities that you might have otherwise missed. Research need not be prohibitively expensive. Not everything needs to be tested; many assumptions can be made when conducting your research. A smaller number of carefully focused research questions can also help make research less costly.
Part of understanding your business challenges is doing a proper in-depth Marketing Assessment. It's a deceptively simple area that often gets missed by businesses big and small and it simply consists of four groups of SWOT questions.
Strengths - What assets do we have inside the business that gives us an edge? Are we taking full advantage of them?
Weaknesses - What disadvantages do we have inside the business that our competitors can take advantage of? How can we remove or minimise them?
Opportunities - What is happening outside the business that provides commercial opportunities for us? Why have we overlooked them?
Threats - What trends do we see outside the business that might harm our prospects?
2. How well do you really know your customers?
During a downturn, customer expectations shift depending on their wealth, the types of products or services your business is offering and the way those offerings fit into their life under newly changed circumstances. Knowing who your customers are now, and what their tensions, needs and wants are, will be vital to persuading new and existing customers to buy your products or services. In a 2009 article, the Harvard Business Review (HBR) outlined how four key customer audience groups respond to downturns.
Slam-on-the-brakes - As the name implies this group will pull back on all non-essential spending in their household and look for a value offer.
Pained-but-patient -This group represents the average household and is the largest group. They are also looking for value but to a lesser extent. If the downturn is prolonged, many will end up in the slam-on-the-breaks group.
Comfortably well-off - Represents the top 5% of income earners and they know they can see themselves through short and long-term economic downturns.
Live-for-today - This group is often urban and young and they react to downturns by delaying major purchases (except for consumer electronics), staying home longer and focusing on experiences over material goods.
Where your customers are placed within these four groups will change over time and perhaps quite dramatically during a severe downturn. Each of these groups prioritises purchase decisions by consciously and subconsciously sorting your 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 put off.
Expendables - are perceived as unnecessary or unjustifiable.
3. Have you defined clear objectives?
Setting out clearly defined objectives before any marketing campaigns or activations take place is critically important for a few reasons. Firstly, if your objectives aren't clear, you won't know if you've been successful in solving your long-term marketing challenges. Secondly, you won't be able to successfully measure the success or failure of any particular campaign or activation against pre-defined short-term goals. And lastly, setting a clear objective helps manage your various marketing departments, consultants and agency suppliers. They need a defined challenge to work on, and everyone must be clear on what you want your audience to think, feel and do as a result of the campaign, activation or brand work.
It is important to be clear about all desired outcomes and wherever possible to make them tangible and measurable. Any agency or consultant worth their salt won't over-promise or make guarantees they cannot keep, so it's worth considering that not achieving a goal can be viewed as ok, so long as progress is made.
This can often be referred to as a Test & Learn approach, although this is often misinterpreted to mean 'let's run a campaign or take an action and see how it goes. If it doesn't work we've learned that it didn't work." This is a lazy misinterpretation of what's otherwise a useful technique. There are always multiple approaches, strategies, offers and messages that could be made, so solving marketing challenges by taking multiple actions or running smaller test campaigns at the same time will create an iterative process of improvement which, when applied over the long term, will yield sustained results.
4. Are you ready to make changes?
Many businesses are not prepared to act fast and to change when they need to. Unfortunately, nobody warns you when downturns are coming, and they tend to be fast, so being nimble and bold enough to take another look at the very foundations of the business and being prepared to shift them if necessary is key. Taking an in-depth look at the following list known as the 5P's Of Marketing will help assess which areas will need to be changed to better suit your customers’ new circumstances and their requirements of your brand.
Product - Is this still what your customers need or want? Should you be modifying the product or creating a new one to better suit their changing needs and wants? Do you need to create a second brand to handle a different or changed market segment? Are there ways to improve the product or service? Can you maintain the quality at a lower cost?
Price - Discounted prices may attract more customers during a downturn. However, cheapening the product can weaken premium brands appeal to wealthier customers. Are there other ways to deliver better value for customers who are looking for more affordable options?
Place - Driving added convenience for customers will help lift sales. This could be done by looking for new ways to reach your customers or added services like delivery and returns or value through relevant digital content and tools.
Promotions - Creating compelling offers and ensuring your brand is being heard instead of your competitor’s will not only raise your brand's awareness but sales as well. The ideas are limitless but could take the form of ideas like prize promotions, discounts, loyalty rewards, experiences etc. The aim is to get customers engaged with your brand and to share their experience with others with a view to driving sales.
People - They say a company is only as good as its people. Downturns are tumultuous periods of change for any business and this uncertainty can create unease and anxiety for your staff. Make sure you have the right people on deck, ready to handle the changing landscape of your business while reassuring and adding extra support to existing staff when and where possible. Don’t forget that staff and customers are not the only people whose perspectives need to be considered during downturns, but anyone whose activities affect your business results. The list may include suppliers, lenders such as banks, regulators, landlords, media, politicians and shareholders.
5. Have you thought about your messaging?
The challenge for all communications is making sure you send the right message to the right person in the right place and at the right time. Various messages can be tested for their sales effectiveness through A/B split testing online but as a general rule of thumb;
"If selling fire extinguishers, start with the fire."
- David Ogilvy
Understanding your customers and developing insights about them means being able to create messages that convince them your product or service will solve their problems. Leading with product benefits will fail to connect your brand solution to your customers’ problems or to engage with them sufficiently at an emotional level.
The other trap businesses fall into is trying to be too clever. Creative messaging that is based on customer insights and highlights how the product or service will solve their problems is great, but your messages must also be clearly understood. Effective communication requires direct, clear language and a strong call-to-action that motivates the customer to make the decision.
6. Is your brand creating the right impression?
For better or worse your brand is leaving an impression. Just as an applicant in a job interview needs to leave a good impression as well as demonstrating the required competency and experience, good products and services are necessary but not enough; your brand needs to look and sound right. It needs to reflect your customers’ values and, ideally, surpass their quality and service expectations. Each touchpoint from customer service to the web design needs to be consistent.
During a downturn, conducting a brand assessment to ensure that your brand is consistent and still reflects the needs and wants of your customers will be essential. Finding the right positioning amongst your competitors is a good place to start as it will help you find a clear point of difference that gives your customers a clear choice. Consider your brand assessment as an opportunity to take a top-down spring clean of everything from your documentation, processes and tone of voice to design.
These are six simple things to consider before the next downturn; consider working through them in order at your next planning meeting to help set the agenda for the next 12 months.
Doing so will mean you can act fast when the time is right and set your business up for success.
