How brands can stay strong in a recession


Branding during a downturn can seem counter-intuitive, but it actually presents a great opportunity. During a recession, customers adjust their habits, by reducing or postponing their spending, or by doing something else instead. As they change their behavior and preferences, the values of branding lie in both maintaining engagement to retain current customers and grasping an additional market share. Follow this article to learn how brands can apply an agile and flexible approach to navigate a dynamic customer landscape and stay strong in a recession.

Invest in Your Brand

In today's financial turbulence and uncertainty, it is easy to think that you should reduce your investment to save your budget. However, underinvesting during this time might result in a loss of opportunities. Firstly, consumers don’t necessarily spend less. A consumers’ update from McKinsey shows that more than 60% of Gen Z and 70% of high-income millennials are intent on splurging. Although customers do decrease their net spending on non-essentials, there are still areas where they anticipate spending more, typically categories restricted by Covid-19, such as traveling and dining. Secondly, the market remains resilient. Research from Boston Consulting Group reveals that, despite high-interest rates, the ongoing recession appears to have a higher level of employment and stronger consumer confidence than the last recession. On the other hand, drastic cuts in branding can have serious consequences. A study from E.Y. has shown that many companies struggled to come back after underinvesting during the last recession. When your conservative competitors are hesitating or pulling back, this might just be great timing for you to increase your reach and improve your long-term strategy. It is a question of brand awareness and recognition of when consumers are ready to spend again. When the time comes, you will increase your market share. To conclude, brands can utilize economic uncertainty as an opportunity to build long-term brand equity and market shares.

Look Beyond Demographics

Real life is far more complicated than drawing one single conclusion that consumers reduce spending when faced with economic uncertainty. Consumer behavior is multifaceted. The inner psychological process plays an influential role in a consumer's buying decision. According to their psychological reaction to the recession, customers can be split into four categories. These categories mentioned below are psychologically based, compared to other segments like demographics or lifestyle. The first group, “slam-on-the-brakes”, is made up of those who feel vulnerable and are most affected by the recession. Although the lower-income group typically constitutes this segment, the anxious higher-income group can also be part of it. They respond by eliminating, reducing, postponing, or substituting their purchases. Segment two, the “pained-but-patient” group, makes up the largest consumer group. They are equally influenced by the recession, and they also adjust their spending to cope with the current situation. They are, nonetheless, fairly resilient and optimistic about the future. The "comfortably well-off" are those who are secure and confident in their financial abilities. In general, they do not alter their consumer habits. The final category is the "live-for-today" group. It is often made up of the younger generation, who continue to spend as usual. In general, these categories are more helpful during economic downturns, because they pinpoint precisely whether and how your customers’ behaviors change and provide valuable insight for your brand strategy.

Tailor Your Brand Strategy

In addition to knowing your customer, take time to think about whether your brand needs to maximize revenue or focus on profitability. This step is necessary because it will affect the strategy you choose. It is usually determined by the category into which your brand fits. Your brand can either be "Essentials" (essential for survival), "Treats" (indulgent and reasonable immediate purchases), "Postponables" (things whose purchase can easily be postponed), or "Expendables" (unnecessary and unjustifiable items). Typically, brands in the "Essentials" and "Treats" category strive to maximize revenue, whereas brands in the "Postponables" and "Expendables" category prioritize profitability. However, there is no universal law, so always base decisions on what is applicable to you. To maximize revenue, you can then use methods like advertising and sales promotions to capture market share. Some brands focus on promoting hedonistic factors to gain more loyalty and engagement. Aēsop is a good example of this, as it has gained a lot of attention even during times of recession thanks to its combination of urbanity, hedonism, and luxury. The recent acquisition of Aēsop by L’Oréal suggests that L'Oréal is expanding its offerings to help insulate itself against an increasingly tough market. To increase profitability, you should target your most profitable customers. Once you've identified this group, take effective initiatives to increase their loyalty and willingness to pay. For example, luxury brands have been raising their retail prices during economic downturns, despite the risk of pricing out some customers. This move increases the unattainability of their product and the exclusivity of their customers, not only fostering loyalty but also increasing customers' willingness to pay. Your strategy is built on several fundamental factors, such as business maturity, brand associations, and brand position. Bear these factors in mind when you update your brand strategy. Regardless of the strategy you choose, the core remains the same – increasing the differentiation of your brand from your competitors.

Foster Your Loyalty

One way to differentiate your brand is to develop customer loyalty. Compared to other channels like advertising, loyalty programs require a smaller budget and have a more linear and immediate effect. Moreover, loyalty helps your brand thrive with both current and potential customers. For current customers, loyalty increases their willingness to pay and creates a higher barrier to switching to another brand. For potential customers, loyalty programs incentivize them to experience your brand. A study from McKinsey shows that 64% of your loyal customers are willing to purchase more from you and 50% of them are likely to recommend you to their friends and network. This is even more relevant to B2B companies because they have a smaller but valuable customer base. Investing in customer loyalty initiatives is therefore crucial in a recession. If this is something you have not done before, start by implementing some cost-saving initiatives such as sign-up initiatives and group purchase initiatives. They can help you get off to a fast start and easily capture your loyal customers. For B2B companies, consider creating loyalty programs such as membership clubs, tiered progression systems, rewards, or referral programs. A great example is IBM's VIP rewards, which adopt a challenge-based gamified approach to reward customer activities and encourage members to expand their knowledge of IBM services. Remember that a successful loyalty program needs to be personalized and engaging. After launching your program, collect data to gain valuable feedback from your customers. If you've implemented loyalty initiatives in the past, evaluate them now and compare their effectiveness during times of recession and times of boom. Ask yourself questions like: What kind of loyalty initiatives does my brand have? Are they point-based, tiered, paid, or value-based? Which type has been the most effective? By answering these questions, you can gain valuable insights into the strengths and weaknesses of your loyalty initiatives. In general, bear in mind that your loyalty program needs to be personalized and engaging. In times of recession, it's important to use a reassuring tone to communicate with your customers, showing empathy, inspiring confidence, and strengthening the emotional connection with them. By building trust through loyalty programs, you can establish a long-lasting relationship with your customers, which will make a meaningful difference for your brand not just now, but in the future as well.

And So …

Even though times are tough, it is critical and meaningful for brands to closely monitor performance, reshape their strategies and increase their equity. The question remains: how can brands tailor their strategies to seize the opportunity during the economic downturn? Get in touch with one of our strategists if you’d like a helping hand.

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