​​5 Marketing Predictions for the Looming Recession

Hosted 

By 

James Fratzke

Partner & Executive Strategist,

Head of Client Success

Published 

7.29.2022

Key Points

  • Marketing Budgets will decrease, hurting brand growth in the long term
  • New customer segments will emerge - winners will find and market to them
  • “Nice to have” industries will need to innovate to be relevant
  • Digital marketing will become more critical to brands success
  • Luxury brands will continue to outperform even with recession

Is a Recession Coming?

In a recent survey 70 percent of Americans say they believe a recession is imminent in 2022.Not all experts agree on the timing, or if it will happen at all. With that said there are some leading indicators:

  • Fallout from surging gas prices
  • Increased Federal Reserve interest rates
  • Rising Inflation
  • General slowing of the economy

Commerce Secretary, Gina Raimondo, observed in a recent interview with ABC News, “I don't think we should be talking ourselves into a recession.”

But hope is not a strategy! The best way to plan for the future is to often look to the past to understand how recessions have impacted businesses and how marketing teams can strategically and proactively plan to weather the storm. Let’s dig into what inferences and predictions we can make so your marketing department can plan for the future and fine tune your strategies.

Consumer Recession Psychology Will Impact Marketing

During a recession consumers understandably start to clamp down on their wallets. They’re forced to prioritize their purchasing decisions and reduce spending. The customers' psychology and shopping patterns are relatively predictable, and so are companies responses.

Once sales start to slow down brands often cut costs, drop prices, and lower R&D investment.

The next move in the playbook is to slash marketing budgets, but unfortunately, this is often done indiscriminately. This is a mistake. Balancing the short term with the long term and taking a measured approach will better position your brand during the downturn and the eventual recovery. Walmart, for example, continued to invest in data-driven marketing and product development during the 2008 recession with great success. 

Recessions and Marketing, What We’ve Learned

Every recession brings a new and a completely novel set of challenges for marketers. No recession is exactly the same. With that being said, a recession does not mean that your brand has to suffer, or that your marketing budgets and campaigns need to be slashed.

According to data compiled by the Harvard Business Review, past recessions have identified patterns in consumer behavior and brand strategies that worked or failed miserably.We’ve used this data, dating back to the 1970’s, to make a set of predictions that today's brands can learn from, and ultimately use to shore up your marketing strategies going into these uncertain times.

5 Marketing Predictions for the Looming Recession

1) Marketing Budgets Will Decrease, Hurting Brand Growth In The Long Term

Company budget cuts often affect marketing disproportionately. The data shows that most brands cut marketing budgets indiscriminately. This knee-jerk reaction could jeopardize your company's long term performance.

According to Gartner, marketing budgets dropped sharply in 2021 to 6.4% from 11% the year before. This was in large part due to the pandemic. Budgets jumped back up to 9.5% in 2022. Expect to see your marketing budget slashed again if a recession does take place. A decrease in marketing budgets will mean you have to do more with less.

In managing your marketing expenses, companies must separate necessary and wasteful spending. Building and maintaining a strong brand, as an example, is one of the best ways to reduce business risk in the long run.

One way we provide valuable insights around the best way to manage your marketing budgets is through our Digital Marketing Benchmark Audit. It can help you prioritize your team's time, resources and budget.

2) New Customer Segments Will Emerge, Winners Will Market To Them

Brands that invest in understanding consumer behavior will thrive. As the recession starts to materialize, new customer segments will start to develop. There will be a transition from traditional lifestyle and  demographic segments like “millennial moms” to physiological segments that take into account how customers are feeling about their spending power and economical position.

The Harvard Business Review outlines four new possible segments:

  • Slam-on-the-brakes: They feel most vulnerable and hardest hit financially.
  • Pained-but-patient: They tend to be resilient and optimistic about the long term but less confident about their ability to maintain their standard of living in the short term.
  • Comfortably well-off: They feel secure about their ability to ride out current and future bumps in the economy. Their pending habits will not change.
  • Live-for-today: They will carry on as usual and for the most part remain unconcerned about savings. 

Brands that seek to understand these new segments and update their strategies and product offerings to match their consumers' new psychology and habits can survive in the current downturn and prosper afterwards.

RELATED ARTICLE: Marketing strategies to recession proof your business.

3) “Nice To Have” Industries Will Be Hit The Hardest

Continued increases in gas prices and reduced consumer incomes will lead to a reduction in driving and overall spending. 

Businesses in the restaurant, entertainment and hospitality industries were already hard hit by the pandemic - and in a recession, they will continue to feel the biggest impact. As consumers feel the pinch and ask themselves “do I really need this?” the answer for some will be “no.”

In these situations we introduce our clients to the OODA loop strategic model. It stands for Observe, Orient, Decide, and Act, we cover the OODA loop more in this article. In short, it helps brands navigate uncertainty in an ever-shifting environment.

In a time of war, the goal is to surprise your opponent and win. In the context of your fight against the negative impacts of a recession, the goal is to transform your business in the midst of the emerging digital landscape and thrive. For “nice to have” industries we recommend brands innovate and be creative in their offerings to remain relevant during the downturn.

4) Digital Marketing Will Become Even More Critical To Brands Success

The march toward a completely digital path to purchase will continue, and brands that continue to invest in this area will win.

According to McKinsey & Company, millennials and high-income earners are leading the way when it comes to shopping online, but they are far from the only generation embracing the convenience of online shopping. Boomers, Gen X and the super tech savvy Gen Alpha are also responsible for the nearly 30% of consumers who shop online.

Increasing digital literacy across generations has led to using digital tools with confidence, including:

  • Restaurant delivery
  • Grocery delivery
  • Self-checkout in stores
  • Buy online, pickup in store

With the digitization of all phases of the buyer's path to purchase, digital marketing channels like email, organic search, paid ads, and social media, become natural extensions of the consumer's online experience. 

Brands that shift focus to digital marketing strategies will seamlessly connect their customers to their brand on any device across the digital ecosystem with targeted marketing campaigns that maximize their budgets and return on investment.

KEEP READING: Digital Marketing Audit and Benchmarking Your Brand's Performance

5) Luxury Brands Will Continue To Outperform Even With Recession

In 2020, aggregate luxury goods sales exceeded $250 Billion. This was in the middle of the pandemic. Like we mentioned above, one segment likely to emerge in a recession is the “comfortable well-off consumer”. 

These buyers will continue to spend on luxury goods from clothing and accessories, to new EV vehicles and the latest Apple iPhone.

Look for other brands to get into the luxury segment or invest even further. Take a brand like Disney as an example. Despite revenue losses when their parks closed during the pandemic, they continue to raise theme park admission, pricing out the casual fan. They also continue to invest in premium experiences like the new Disney Wish cruise ship, the $5,000 Star Wars hotel experiences, and their new resort style planned community Story Living by Disney planned for Palm Desert, California. 

Fratzke Can Help Your Marketing Team Plan For The Future

In a recession, marketing leaders need to be flexible. Strategies and tactics will need to adjust quickly. You must accept the new paradigm of living, feeling the pain of a slump, but be agile enough to react to a rapid upturn. Fratzke’s expert consultants can help you and your team develop a recession strategy and action plan, allowing you to make strategic decisions that will pay off in the long term.  

Want to learn more? Contact our team today.

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