How to Market in a Downturn

In every recession marketers find themselves in poorly charted waters because no two downturns are exactly alike. However, in studying the marketing successes and failures of dozens of companies as they’ve navigated recessions from the 1970s onward, we’ve identified patterns in consumers’ behavior and firms’ strategies that either propel or undermine performance. Companies need to […]

by

John Quelch

and

Katherine E. Jocz

by

John Quelch

and

Katherine E. Jocz

From the Magazine (April 2009)

Summary.

Reprint: R0904D

Because no two recessions are exactly alike, marketers find themselves in poorly charted waters every time one occurs. But guidance is available, say Quelch and Jocz, who have studied marketing successes (by Smucker, Procter & Gamble, Anheuser-Busch, and others) as well as failures throughout past recessions and identified patterns in consumer and company behavior that strongly affect performance. Understanding consumers’ changing psychology and habits, the authors argue, will enable firms to hone their strategies so they can both survive the current downturn and prosper afterward.

Consumers in a recession can be divided into four groups: The slam-on-the-brakes segment, which feels the hardest hit, reduces all types of spending. Pained-but-patient consumers, who constitute the largest segment, also economize in each area, though less aggressively. Comfortably well-off individuals consume at near-prerecession levels but become a little more selective (and less conspicuous) about their purchases. Live-for-today consumers pretty much carry on as usual, responding to the recession mainly by extending their timetables for making major purchases. People may switch segments if their economic situations change for the worse.

All groups prioritize consumption by sorting products and services into the following categories: essentials (central to survival or well-being), treats (justifiable), postponables (can be put off), and expendables (unnecessary or unjustifiable).

As firms manage their marketing investments, they must simultaneously assess their brands’ opportunities, allocate resources for the long term, and balance their budgets. Many make the mistake of cutting costs indiscriminately, which can jeopardize long-term performance. Instead, firms should streamline their product portfolios, improve the affordability of their offerings, and bolster customers’ trust.

The Idea in Brief

No two recessions are alike, so you’re in poorly charted waters every time. How should you market in this downturn? Resegment consumers according to their emotional responses to the recession:

Slam-on-the-brakes

consumers feel hardest hit and reduce all spending.

Pained-but-patients

economize, but less aggressively.

Comfortably well-offs

keep buying, but more selectively.

Live-for-todays

carry on as usual, though delaying major purchases.

Also identify how members within each segment categorize purchases:

Essentials

are necessary for survival.

Treats

are justifiable indulgences.

Postponables

are desired items that can be bought later.

Expendables

are unjustifiable.

Tune your marketing strategies accordingly. For example, for slam-on-the-brakes consumers buying treats: shrink packaging sizes, hold prices down, and advertise your products as “you deserve it” small indulgences.

The Idea in Practice

Additional suggestions for tailoring your marketing strategies to consumers’ recession psychology:

Manage Your Marketing Investments

To get the biggest returns from your marketing budgets:

Assess opportunities. Determine which of the four segments (slam-on-the-brakes, pained-but-patient, comfortably-well-off, live-for-today) your core customers belong to and into which consumption category (essentials, treats, postponables, expendables) they assign your products or services. Then tailor your marketing strategy accordingly.

Example:

Prospects are reasonably good for generic products and store brands sold to slam-on-the-brakes consumers who’ll forgo familiar brands in favor of lower prices.

Plan for the long term. Don’t panic and alter your brand’s fundamental value proposition. You may attract a few new customers. But you’ll confuse and alienate your loyal customers, weakening your position once recovery begins. Instead, keep investing in market research to discern what consumers will want when the recession eases.

Balance your communications budget. Invest in Internet advertising: It’s targeted and relatively cheap, and its returns are easily measured. But don’t ignore broadcast media: It’s vital for building and sustaining mass-market consumer brands.

Market Throughout a Recession

To pare costs and shore up sales while preserving your brands’ long-term health:

Fine-tune your product portfolios based on shifts in customers’ buying habits. For example, with durables purchases that can’t be postponed, pained-but-patient consumers will trade down to models that stress good value rather than enhanced features.

Improve affordability; for instance, by reducing thresholds for quantity discounts, reducing serving sizes (and pricing), and lowering consumers’ upfront adoption costs.

Bolster trust in your brand by reinforcing consumers’ emotional connection to the brand and demonstrating empathy for their plight.

Example:

Dell has crafted an array of messages customized to resonate with each segment; for instance, “Depend on Dell for simple solutions in tough times” and “Weak economy, powerful you.”

Position your brand for the inevitable recovery by preparing now for possible long-term shifts in consumers’ values, attitudes, and purchasing behaviors.

Example:

The shock of the current downturn and anger over the malfeasance that fueled it will likely accelerate preexisting consumer trends toward reduced materialism, commitment to sustainability, higher expectations of corporate social responsibility, and resentment of marketing that treats people as soulless, mechanical consumers. Customers will increasingly demand that businesses act in their—and society’s—best interests. And they’ll factor companies’ business practices into their brand choices.

In every recession marketers find themselves in poorly charted waters because no two downturns are exactly alike. However, in studying the marketing successes and failures of dozens of companies as they’ve navigated recessions from the 1970s onward, we’ve identified patterns in consumers’ behavior and firms’ strategies that either propel or undermine performance. Companies need to understand the evolving consumption patterns and fine-tune their strategies accordingly.

A version of this article appeared in the April 2009 issue of Harvard Business Review.

John Quelch is the Charles Edward Wilson Professor of Business Administration at Harvard Business School and holds a joint appointment at Harvard School of Public Health as a professor in health policy and management.
KJ

Katherine E. Jocz (kjocz@hbs.edu) is a research associate at Harvard Business School. They are the authors of Greater Good: How Good Marketing Makes for Better Democracy (Harvard Business Press, 2008).

How to Market in a Downturn

Manage Your Marketing Investments

Market Throughout a Recession

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