According to an old proverb, “Necessity is the mother of invention,” as the saying goes. When you have to do more with less, nothing inspires you to be more innovative.
Determine which sectors and ideal clients you don’t already sell to but who might benefit from your products. Convert them into paying consumers. When the market mood improves, they’ll open their wallets even more for you.
Don’t allow them to succeed “Let the mindset of “this doesn’t happen in our industry” hold you back. Would we have cameras on our phones or be able to pay our electricity bills with mobile wallets if every company thought like this?
Prioritize Cash Flow
Most small businesses are unaware that cash flow is the most critical part of their operations. It allows you to run your business smoothly, invest in opportunities, and keep your suppliers happy, among other things.
Customers tighten their purse strings during slowdowns, making cash flow even more crucial. If you don’t make it a priority, your company will sink deeper into quicksand, with almost no way out because even banks have spending limits.
Here’s an illustration. During slow market periods, one of our clients restricts interactions with unprofitable customers, such as those who over-negotiate and insist on having their last-minute orders priority. Rather, the client concentrates on providing greater service to profitable clients. Customers who pay their outstanding debts within the credit period are also eligible for discounts.
On paper, such techniques may appear unproductive, but in practice, they are quite effective.
In a downturn, how can you drive sales?
Customers demand bargains during difficult times. Offer limited-time price reductions to entice as many people as possible. If you can get them in the door, you have a better chance of closing the deal. Eliminate other promotional offerings, such as mail-in offers and contests, to support the price cuts. During a recession, customers are less inclined to take advantage of these types of deals, according to Quelch. Another suggestion he makes is to boost certain of your customers’ credit lines. This will alleviate their financial hardship and increase their likelihood of sticking with you during difficult times.
During a recession, how do you attract customers?
Covid-19 has triggered a prolonged recession and thrown the United States into a financial catastrophe. According to experts, this crisis is worse than the Great Depression and will have long-term consequences for the American economy. All firms are affected by recessions, which provide enormous obstacles. However, there are a few marketing methods that firms may use to help them emerge stronger from the crisis.
1. Do not slash the marketing budget right away.
When faced with an economic crisis, most businesses would lower their marketing budget, which is precisely why not decreasing the marketing budget is a sensible marketing strategy. If all of your competitors are decreasing their marketing expenses but your company is fine-tuning and continuing its efforts, your company could see an increase in revenue and get a greater market share.
During a recession, what should be increased?
A recession is a time in which the economy grows at a negative rate. In a recession, real GDP falls, average incomes decline, and unemployment rises.
This graph depicts the growth of the US economy from 2001 to 2016. The profound recession of 2008-09 may be seen in the significant drop in real GDP.
Other things we are likely to see in a recession
1. Joblessness
In a downturn, businesses will produce less and, as a result, employ fewer people. In addition, during a recession, some businesses will go out of business, resulting in employment losses. For example, many people in the finance business lost their jobs as a result of the credit crunch in 2008/09. When demand for cars fell, car companies began to lay off staff as well.
2. Improvement in the saving ratio
- People tend to preserve money during a recession because their confidence is low. When people expect to be laid off (or are afraid of being laid off), they are less likely to spend and borrow, and saving becomes more appealing.
- Keynes observed that during the Great Depression, there was a paradox of thrift: when individuals saved more and consumed less, the recession worsened because consumption fell even more. Individually, individuals are doing the right thing, but because many people are saving more, consumer spending is being reduced even more, worsening the recession.
3. A lower rate of inflation
Inflation in the United States was high in 2008 due to rising oil prices. However, the recession of 2009 resulted in a substantial decline in inflation, and prices fell for a time (deflation)
Prices are under pressure due to a drop in aggregate demand and slower economic development. During a recession, stores are more inclined to offer discounts to clear out unsold inventory. As a result, we have a reduced inflation rate. Deflation occurred during the Great Depression of the 1930s, when prices plummeted.
4. Interest rates are falling.
- Interest rates tend to fall during recessions. Because inflation is low, central banks are attempting to stimulate the economy. In theory, lower interest rates should aid the economy’s recovery. Lower interest rates lower borrowing costs, which should boost investment and consumer expenditure.
5. Increases in government borrowing
In a recession, government borrowing will increase. This is due to two factors:
- Stabilizers that work automatically. The government will have to pay more on jobless compensation if unemployment rises. Because fewer individuals are working, however, they will pay less income tax. In addition, as business profitability declines, so do corporate tax receipts.
- Second, the government may try to utilize fiscal policy that is more expansionary. This entails lower tax rates and higher government spending. The objective is to repurpose unemployed resources by utilizing surplus private sector funds. Take, for example, Obama’s 2009 stimulus program. Look at Obama’s economics.
6. The stock market plummets
- Stock markets may collapse as a result of lower profit margins. There’s also the risk of companies going out of business.
- If stock markets foresaw a downturn, it’s possible that it’s already factored into share prices. In a recession, stock prices do not always fall.
- However, if the recession comes as a surprise, profit projections will be lowered, and stock values will decrease.
7. House prices are dropping.
In this scenario, property values in the United States decreased prior to the recession. The recession was triggered by a drop in house prices. It took them until the end of 2012 to get back on their feet.
In a recession, when unemployment is high, many people may be unable to pay their mortgages, resulting in property repossessions. This will result in a rise in housing supply and a decrease in demand. Because of the prior property boom, US house values plummeted dramatically during the 2008 recession. In truth, the housing/mortgage bubble bust in 2005/06 was a contributing reason to the recession.
8. Make an investment. As companies reduce risk-taking and uncertainty, investment will decline. Borrowing may also be more difficult if banks are low on cash (e.g. credit crunch of 2008). Due to variables such as the accelerator principle, investment is frequently more volatile than economic growth.
A simple AD/AS framework depicting the impact of a decrease in AD on real GDP and price levels.
Other possible effects
The effect of hysteresis. This means that a momentary increase in unemployment could lead to a long-term increase in structural unemployment. Manufacturing workers, for example, required longer to locate new positions in the service sector after losing their jobs during the 1981 recession. See the hysteresis effect for more information.
Exchange rate depreciation is number ten. Depreciation could result from a recession that hits one country more than others. Because interest rates decline, there is less demand for the currency (worse return)
Because of the credit crisis, the UK economy, which is heavily reliant on the finance industry, witnessed a severe fall in the value of the pound in 2008/09.
The Pound, on the other hand, was robust throughout the 1981 recession. In fact, the Pound’s strength contributed to the slump.
11. New businesses and creative destruction Some economists are more optimistic about recessions, claiming that they can force inefficient businesses out of business, allowing more inventive and efficient businesses to emerge.
- In a recession, however, good companies can go out of business owing to transient circumstances rather than a long-term lack of competitiveness.
12. Current account with a positive balance. If a country’s domestic consumption falls sharply, the current account deficit may improve. This is due to a decrease in import spending.
The UK’s current account improved through the recessions of 1981 and 1991. However, the recovery in the current account in 2009 was just temporary.
- It depends on what caused the recession in the first place. High oil prices, for example, contributed to the recession in the mid-1970s. As a result, in a recession, inflation was higher than usual.
- The high value of the Pound hurt the manufacturing (export) sector during the 1981 recession. Because the recession was driven by unusually high interest rates, which made mortgages expensive, homeowners carried a greater burden during the 1991/92 recession. The finance and banking sectors were the hardest hit during the 2008 financial crisis.
- It all depends on whether the recession is global or country-specific. The recession in the United Kingdom was worse than everywhere else in the globe between 1981 and 1991.
- It all relies on how governments and the central bank react. For example, in 1931, the United Kingdom attempted to balance its budget, which resulted in additional declines in aggregate demand.
In a down economy, how do you sell?
As competitors worried during the 1973 recession, IBM took an unprecedented step: it raised prices. After embracing the marketing tagline, Big Blue took this step “Nobody was ever fired for purchasing IBM.” “Most people believe that in difficult times, you must make a special offer or reduce costs,” Stevens adds. However, this devalues the goods as well as the salesperson’s reputation. Customers begin to assume they were overpaying at the regular price or that the product is so cheap because something is wrong with it when prices drop substantially, according to Stevens. Instead of lowering prices, try adding extra services to make buyers feel like they’re getting more bang for their buck, such as longer warranties or additional tech support.
How can a business owner boost sales amid a downturn?
Recessions, regardless of industry or firm size, frequently result in large-scale layoffs and cost-cutting. In reality, despite the COVID-19 shutdown, the US is currently racing towards unprecedented unemployment levels. Ironically, according to HBS research on recessions, implementing a single-minded “cost-cutting exclusively” strategy is a formula for disaster. This is because such a strategy believes that once the recession is over, people, technology, and opportunity will be readily available to a company. When the economy returns to normal, a company that simply adopts a cost-cutting approach will struggle to rebuild competences and capacity. As a result, performance never returns to pre-recession levels.
It’s far better to prepare your company for a sharp increase in production during this downtime. So, where do you start? Begin with the customer. Which of your present customer-facing operations could be streamlined or digitized to deliver products and services more quickly, cheaply, and effectively? Is it possible to streamline proposals and phase out underperforming product lines? Can you afford to invest in technology, equipment, or training that will help you increase your performance quickly? This method will not only cut your costs, but it will also enable you to outperform your competitors by providing higher-quality products and services. You will have to let rid of certain personnel who are no longer needed during this process. These figures are, however, likely to be smaller than what you would have lost if you were simply lowering costs.
Be strategic when discount shopping for assets
During a recession, companies, buildings, equipment, and land all become less expensive to purchase. However, just because something is inexpensive does not guarantee it is a good investment. Retail establishments that are losing sales to ecommerce companies, for example, should not embark on a buying frenzy to acquire more low-cost store sites, even if the prices look to be a bargain. When the economy improves, such acquisitions will become a drain on cash and managerial focus, causing a drag on your company’s performance. Instead, these shops might put their effort and money into improving their technological stack and hiring digital skills. They’ll accelerate their transformation to an ecommerce-centric company strategy as a result of this.
Selectively increase R&D and marketing spend
Doubling down on all pre-recession R&D and marketing spending is not a wise plan, as stated above. Increased spending in these areas, on the other hand, can be fantastic development drivers if done carefully. Increase spending on projects that help you double down on your relevant competitive edge in the new world order when it comes to R&D. For example, if you are a furniture manufacturer and your customers have become both fashion and price sensitive as a result of the recession, now is a good time to invest your R&D budget in investigating new material types and manufacturing equipment that can help you deliver lower-cost, fashionably made furniture. Doubling down on R&D for premium materials, on the other hand, might not be such a good idea.
The same may be said about marketing budgets. Do not spend marketing dollars on something that isn’t related to solving client concerns in the context of the current economic crisis. If you’re spending money to solve client concerns, you should double down swiftly to increase market share. Hyundai’s Genesis, for example, was a runaway success during the financial crisis thanks to a creative marketing effort and a distinct positioning towards ‘affordable luxury’something that other vehicle manufacturers just couldn’t match at the time. In 2009, Hyundai earned the prestigious North American Car of the Year title, gaining record market share and increasing shipments in a market that was generally decreasing.
Why do sales promotions rise during a recession?
- During difficult times, brands can present an image of business stability to consumers.
- During a recession, the cost of advertising falls. Because of the cheaper rates, there is a “For brands, it’s a “buyer’s market.” Direct mail advertising, which might give better short-term sales growth, has been shown to increase during a recession, according to studies.
- When advertisers cut back on ad expenditure, the brand suffers “Consumers’ “share of mind” is at risk, with the risk of losing current and possibly future sales. A rise in “share of voice” usually translates to a rise in “share of market.” With an increase in market share comes an increase in profits.
Which marketing strategy is the most effective?
The goal of social media marketing is to provide people with valuable material that they want to share throughout their social networks, resulting in increased visibility and traffic. Shared material, videos, and photographs on social media can help with Search Engine Optimization (SEO) by increasing relevancy in search results on social media platforms like Facebook, Twitter, YouTube, and Instagram, as well as search engines like Google and Yahoo.
Fast Fact: 61% of businesses use social media to boost conversions, and 50% use it to learn more about their customers or markets.
Paid Media Advertising
Paid media is a method that businesses use to increase website traffic by paying for advertisements. Pay-per-click (PPC) links are one of the most common ways. Essentially, a business buys or sells a product “when keywords relating to their product or service are searched, sponsors” a link that displays as an ad in search engine results (this process is commonly known as search engine marketing, or SEM). When the ad is clicked, the corporation pays a tiny price to the search engine (or other third-party host site) for the visitor a literal “click fee.” “pay-per-click advertising.”
Fast Fact: When it comes to making a purchase, 65 percent of customers will click on a paid ad.
Internet Marketing
Internet marketing, often known as online marketing, combines the use of the internet and email to promote and drive e-commerce sales. To maximize brand visibility and promote products and services, social media networks may be included. These efforts are frequently combined with traditional advertising channels such as radio, television, and print.
There’s a lot to be said for online reviews and opinions as well. Word-of-mouth advertising is free, natural, and extremely effective since individuals who have good things to say about your product or service have nothing to gain from it but to spread the word. A referral from a friend, coworker, or family member has built-in credibility, and it can generate dozens of prospects who are looking forward to having a pleasant experience with your company.
Fast Fact: By 2023, worldwide e-commerce is expected to grow at a 14 percent compound annual growth rate (CAGR) to $3,056.3 billion, with the increase mostly owing to contactless shopping practices stemming from the global epidemic (COVID-19)
Email Marketing
Email marketing is a powerful tool for nurturing and converting leads. However, whether or not your communication is caught in spam filters is not a game of chance. Email marketing, on the other hand, is a computer-assisted procedure that targets individual prospects and consumers in order to influence their purchasing decisions. Because open rates and click-through rates are used to determine the effectiveness of email marketing, strategy is important, especially when it’s part of a bigger internet marketing campaign.
Direct Selling
Direct selling accomplishes exactly what its name implies: it markets and sells things to people directly. Sales agents in this approach develop face-to-face connections with customers by showing and selling products outside of retail venues, usually in the customer’s house (e.g., Amway, Avon, Herbalife, and Mary Kay).
Fast Fact: The direct selling industry is worth $63 billion dollars right now.
Point-of-Purchase Marketing (POP)
POP marketing (Point-of-Purchase Marketing) sells to a captive audience of shoppers who are already in the store and ready to buy. Product displays, on-package coupons, shelf talkers touting product benefits, and other attention-getting “sizzle” can impact shelf purchases by making an offer simply too tempting and too obvious to pass up.
Fast Fact: In the U.S., annual impulse purchases average $17.78 billion, while Canadians dole out nearly half as much $8.8 billion each year.
Cobranding, Affinity, and Cause Marketing
Co-branding is a marketing strategy in which two or more companies collaborate to promote and sell a single product or service. Consumers are more likely to purchase and willing to pay more at retail when the brands give their collective credibility to boost perceptions of the product or service’s value. Co-branding, on the other hand, may deter private label manufacturers from duplicating the product or service. Affinity marketing, on the other hand, is a collaboration between a corporation (supply) and an organization that brings together people who share like interests, such as a coffee shop that sells goods from a local bakery.
There are plenty of co-branding alliances out there, but a few recent instances stand out, like the daring GoPro and Red Bull, the elegant BMW and Louis Vuitton, and the fashion-forward Alexander Wang and H&M.
Cause marketing, on the other hand, leverages and improves brand reputation. Cause marketing is a partnership between a for-profit company and a non-profit organization that aims to promote and benefit social and other charity causes. Cause marketing should not be confused with corporate giving, which refers to an organization’s specific tax-deductible donations. Cause marketing interactions are “feel good” and reassure customers that you share their goal to improve the world.
Customers perceive co-branding as a value endorsement from a company they already trust, potentially creating a valuable halo effect.
Conversational Marketing
Conversational marketing is exactly what it sounds like: a conversation. Real-time connection with prospects and customers via a chatbot or live chat puts the relevant information in front of them at the right moment, allowing them to self-serve and get questions answered right away. The user experience is substantially improved by personalized, relevant engagement. Conversational marketing is particularly beneficial for B2C organizations because it scales customer service and reduces the amount of time consumers spend in the sales funnel. Because relationships are formed more quickly, conversions occur more quickly.
Do items become less expensive during a recession?
Lower aggregate demand during a recession means that businesses reduce production and sell fewer units. Prices do eventually decline, but the process can take a long time, resulting in a long-term recession as a result of the negative demand shock.
Do prices rise during a downturn?
- We must first grasp the business cycle in order to comprehend the state of the economy and how recessions affect investors.
- The business cycle describes the swings in economic activity that a country’s economy goes through throughout time.
- The economy is strong and growing at the top of the business cycle, and company stock values are frequently at all-time highs.
- Income and employment fall during the recession phase of the business cycle, and stock prices fall as companies fight to maintain profitability.
- When stock prices rise after a big decrease, it indicates that the economy has entered the trough phase of the business cycle.