Business leader discussing strategy with team in conference room
Recessions impact consumers in different ways, depending on their financial circumstances. In most cases, though, economic downturns do some harm to consumers’ pocketbooks. At the very least, signs of a slowing economy lead to changes in spending habits and priorities.
With consumer spending making up two-thirds of U.S. economic activity, penny-pinching makes business leaders start to worry. They know recessions can shrink corporate budgets as cash flows turn into a trickle. Like well-off consumers, larger companies may not be as hard hit. Those most at risk are firms toward the other end of the spectrum, including smaller businesses without substantial financial reserves.
But just because consumers are cutting back doesn’t mean they aren’t spending at all. Well-positioned brands and offerings can still win over customers when times are tough. Yes, it’s possible to grow a business during a recession. Keep reading to find out how.
1. Reinforce Brand Value
When people see their paychecks aren’t keeping up with inflation, they can go into survival mode. Layoffs and reorganizations can prompt the same reaction. Anxiety and fear may surface, driving shifts in shopping behaviors. Someone who used to refuse to go to the dollar store might have a sudden change of heart.
It becomes a game of the survival of the fittest, with more consumers strategizing rather than buying impulsively. Business leaders usually find it best to adopt a like-minded approach during recessions. This isn’t the time to abandon brand strategy in favor of piecemeal marketing ploys. Because what doesn’t change is consumers’ emotional connections with strong brands.
Sure, people are looking for lower prices. But they’re also seeking quality and value when the road ahead seems rocky. Shoppers are more likely to reach for brands that comfort them and deliver on promises. While conventional wisdom says recessions can erode brand loyalty, it doesn’t always happen if there’s enough perceived value.
It’s an approach workwear retailer Dungarees used to expand its business as technology changed shoppers’ habits. The company focused on positioning the brand as the go-to destination for hard-working, budget-minded consumers. Whether people shopped in-store or online, Dungarees reinforced its brand promise of exceptional customer experience, quality products, and value, as Mike McClung, Dungarees CEO, recently told me in an email: “When consumers start paying closer attention to the time value of their hard-earned dollars and focus on longer-term budgets, brands of higher quality start to win the buying decisions. Buying one pair of pants that lasts twice as long for $50 wins over buying two cheaper pairs for $35.”
2. Prioritize Loyal Customers
The definition of growth isn’t limited to acquiring additional customers. Businesses can also expand by leveraging relationships with existing clientele. Even in times of prosperity, the probability of converting current customers is substantially higher than new ones. Companies stand a 60% to 70% chance of conversion with existing clients versus a 5% to 20% chance with brand-new customers.
It goes back to trust and familiarity. People who know what a brand offers see choosing it as less risky. When businesses reward their behaviors, it becomes more of a no-brainer. Take Starbucks as an example. The company’s profits fell 28% during the 2008 recession, prompting a refocus on customer-centric experiences. Although the coffee giant’s focus back then was gathering feedback and streamlining operations, it’s taking a parallel approach this time.
The company’s current emphasis is on making it easier for rewards members to keep buying. This may take the form of 50% discounts on drinks for an extended weekend or extra rewards for repeat purchases. Regardless, existing customers feel as though they’re getting a personalized treat. By growing client relationships, businesses can expand sales even when overall consumer spending is down.
3. Become a Brand Partner
The likelihood of slower sales can be enough to tempt business leaders to slash marketing budgets. However, cutting spending in this category isn’t always a good idea. Nielsen research shows 10% to 35% of brand equity is marketing. And brands that go radio silent typically lose 2% in long-term revenues every quarter. It can also take three to five years to recover those losses if companies restore marketing spend levels when conditions improve.
In challenging economic times, a wiser tactic is to reallocate advertising and promotion dollars to well-performing channels. Some of those channels can be brand partnerships and sponsorships of nonprofit organizations. Companies can get more returns from partnerships that build credibility and extend reach. In the same way, sponsorships of nonprofits boost a business’s visibility while giving consumers a feel-good reason to support the brand.
One example is Panera Bread’s Day-End Dough-Nation program, through which it partners with nonprofits nationwide. Instead of throwing away unsold baked goods, Panera locations donate them to local organizations such as food banks and homeless shelters. “Some other companies may sell their day-old products the next day at a discount,” Udo Freyhofer, Florida cafe manager, said in a statement. “We don’t. I feel good about having fresh items available for our customers while helping out those in need in our community.”
The value of those donations was nearly $100 million during 2021. The program is only one of the company’s community-oriented partnerships, but it is instrumental to the brand’s identity and encourages customer loyalty.
Growth in the Face of Adversity
When consumers slash their budgets, business leaders can feel like the deck is stacked against them. How can they possibly grow sales when economic figures show spending is slowing down? The fact is, recessions usually signal a shift in shoppers’ priorities instead of a complete shutdown. As long as brands can appeal to those needs in cost-effective ways, sustaining growth is possible.