With the U.S. economy in a recession and much of the world expected to follow, marketers must respond to changes in demand and preferences.
It is clear that promotions and discounts will rule until the economy improves, but there are opportunities for smart marketers to avoid the rush to the bottom and use other strategies in addition to discounts.
1. Discounts Do Not Equal Value
In uncertain times, customers spend more carefully, but that may not always mean paying the absolute lowest price. The perception of “value” – that the customer will receive a high quality product or service at an attractive price – can be just as important. If you are spending your money more wisely, why waste it on poor quality product that is “cheap.” Marketers should be careful to promote value, even while they are discounting, either directly or in more subtle ways, such as Target’s “Expect More, Pay Less” campaign.
2. Security Is Important
Security and safety are other important components of customer value perceptions. As an example, banks spent the good times promoting free checking and low-cost loans. Obviously, the credit problems have necessarily changed that approach, but in the wider sense, such ‘discount’ offers would also turn off customers looking for a safe place to put their money. Similarly, why would a consumer purchase a product from a company that might not be around to help with warranty or service afterward? Marketers need to reassure customers that their brand will be around.
3. Not All of Your Customers Want the Same Thing
During good times, companies spend a great deal of effort on finding and responding to various segments in their customer base. During lean times, the snap reaction is often to treat everyone as a deal seeker. It is fair to expect that more of your customers will be looking for lower prices – or at least better value – but there will still be real differences in needs and perceptions between customers. Now is the time when understanding these differences through analysis and research can have a significant effect on business performance, and marketers should be using these tools actively.
4. Recognize that New Customers May be Different
Some companies are benefitting from the turmoil. Some banks have seen record new deposits, while discount retailers, such as Wal-Mart have done well compared to others. Many of these new customers are different from the base. Such companies have a longer term opportunity to build their overall customer base, but if they rely solely on a discount message, most of these customers will evaporate when the storm is over.
5. Care About Your Brand
If your brand has always been about low price, now is a great time to fulfill on your brand promise. Most companies’ brand promise has rested in other areas: innovation, service, selection and so on. For such companies, switching solely to discounting would erode brand equity, perhaps to a point where recovery will be impossible. While promotions may have to claim the foreground, marketers can still shore up other brand attributes; for example, by showing how innovation has helped the company deliver value consistently, or how the quality of its products offer a better value.
6. Look for the Mid-Term Opportunity
In the near term, we can expect companies to promote aggressively. If the downturn is more prolonged, as more companies come under financial pressure, we can expect companies to spend less on promotion. Some may go almost entirely silent. For those with the resources and planning to focus beyond today’s acute pain, a real opportunity exists to grow market share as the cycle hits its trough. Those companies will be ready to respond – and will have kept enough of their powder dry – to maintain or even increase their marketing when competitors begin to falter. Past downturns have always had winners, and in a few months time, we will begin to see which companies succeed during this cycle.
There is no doubt that consumer and business customers will be seeking value in response to the pain and uncertainty in the economy. But smart marketers with the resources and vision to consider other steps will survive by doing more than rushing to the lowest common denominator.
David King is chief executive officer of Fulcrum.
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