How To Prosper In A Recession
(By Gil Gerretsen) The recent wave of bad economic and political news is increasingly eroding consumer confidence and buying power, driving people to adjust their behavior in fundamental and perhaps permanent ways. Such cycles of economic realignment come and go.
In my opinion, growth cycles and down cycles perform an important economic function. Growth cycles foster new business opportunities and innovation. Downturns force businesses to become efficient and effective, forcing weak operators out of the picture. So, how should a wise business leader respond during a down cycle?
During downturns, folks often feel like they are in uncharted waters because no two are ever the same. Further, they happen far enough apart that the lessons from the prior cycle may not be available to the current group of leadership. However, for those who study business history, there are indeed some behaviors and strategies that can help you prosper while those around you struggle.
When a downward economic realignment begins, consumers are often forced to change their priorities and spending. Then, as revenues start to decline, businesses typically cut costs, reduce prices, and delay new investments. In many cases, I’ve seen marketing expenditures slashed across the board. However, history shows that such indiscriminate cost cutting is a mistake.
Although it is certainly prudent to manage and contain costs, you must carefully examine your customer’s evolving needs and make wise adjustments accordingly. Take a scalpel to your marketing (and other) expenditures rather than a cleaver. Nimbly adjust your offers and tactics to optimize return on investment.
During growth cycles when consumers have more disposable income that facilitate bigger lifestyles and consumption, there is a trend among marketers to become more frivolous with their spending. They don’t test as much. They don’t watch ROI as much. They are able to absorb mistakes more easily. During a downturn, however, those luxuries are no longer available.
One of the best ways of responding to your marketplace during a downturn is to change your way of thinking about them. During growth cycles, marketers often tend to think of their customers in demographic terms. Social media methods have reinforced that approach. When a downturn arrives, it becomes wiser to think in psychographic terms. Consider and respond to your customers’ emotional reactions to the new economic environment.
As you look forward, you’ll likely find four psychographic patterns that can guide your priorities and messaging:
1) Slam on the brakes people. Typically highly-anxious or lower-income people, they radically reduce, eliminate, postpone, or substitute purchases.
2) Patient people. Typically optimistic about the long term, they are less confident about their ability to maintain their standard of living in the short term. They economize in all areas, but do so less aggressively. If the news continues to get worse, however, they continue towards increasing levels of belt tightening.
3) Comfortable people. This group has enough economic security to feel safer about their ability to ride out economic bumps. Their spending doesn’t change very much, but they may be more selective and less conspicuous about their purchases.
4) YOLO people. The “you only live once” group of people generally remain unconcerned about what lays ahead and carry on as usual. They tend to be economically nimble and respond mainly by delaying major purchases. Their focus tends to be on experiences rather than things and are unlikely to change their mindset unless they lose their sources of income.
As you look at your customers, seek to discern their psychographic profile and how you can serve them best. The more you understand their emotional perspective, the more you will move toward prosperity while your competitors struggle.
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