Harvard Business Review
by John A. Quelch and Katherine E. Jocz
In this intriuging article the authors examine the reaction of consumers by their mindset. What a welcome change from the many analysts who only look at demographics and income level. It is mindset that is more important in understanding and predicting the action of people.
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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.
During recessions, of course, consumers set stricter priorities and reduce their spending. As sales start to drop, businesses typically cut costs, reduce prices, and postpone new investments. Marketing expenditures in areas from communications to research are often slashed across the board—but such indiscriminate cost cutting is a mistake.
Although it’s wise to contain costs, failing to support brands or examine core customers’ changing needs can jeopardize performance over the long term. Companies that put customer needs under the microscope, take a scalpel rather than a cleaver to the marketing budget, and nimbly adjust strategies, tactics, and product offerings in response to shifting demand are more likely than others to flourish both during and after a recession.
Understanding Recession Psychology
In frothy periods of national prosperity, marketers may forget that rising sales aren’t caused by clever advertising and appealing products alone. Purchases depend on consumers’ having disposable income, feeling confident about their future, trusting in business and the economy, and embracing lifestyles and values that encourage consumption.
But by all accounts, this recession is the severest since the Great Depression. The wave of bad economic news is eroding confidence and buying power, driving consumers to adjust their behavior in fundamental and perhaps permanent ways. They now realize that spending in much of Europe and the United States over the past two to three decades was built on a quicksand of debt and dwindling savings and home equity. Marketers abetted consumers in defining the good life in material terms and urging them to live beyond their means. In the ensuing meltdown, consumers face piles of bills, stagnant or falling incomes, and shrinking nest eggs. At the same time, a series of corporate scandals; failures in the financial, housing, and insurance sectors; and taxpayer bailouts of mismanaged businesses have fostered consumer distrust and skepticism of marketers’ messages. It’s no surprise that in January 2009 the Conference Board’s U.S. Consumer Confidence Index sank to the lowest level since tracking started in 1967.
Read the rest of this article at Harvard Business Review
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George Torok
Marketing Expert & Author
Personal Marketing
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