Mumbai: Bracing for a market downturn or recession is never a good feeling. When brands start feeling the pinch of slowing demand due to rising inflation, they are forced to take stock of the situation and realign their costs. When customers cut their spending, the first to feel the pinch are the retailers. They face the issue of higher unsold inventory and more staff with less work to do. Retailers are forced to lay off employees as part of a cost-cutting exercise to negotiate an economic downturn.
The next step, by default, is to cut down on marketing spending. However, is that the right way to negotiate a recession? While it is a given fact that brands spend more on marketing during good times and less when times are bad, reducing marketing costs drastically during a lean period is not a good idea. As we are well aware, markets move in cycles and what goes around comes around. A slump is usually followed by a period of growth and recovery. Brands that remain optimistic and manage their presence during lean periods are the first to get off the block and see results when the tide turns in their favour.
Although cutting costs is a prudent step, it is essential to support brands during a lean period. It makes more sense for brands to understand the changing needs of their customers and tweak strategies and product offerings to manage the shift in demand. It is important for brands to respond to the situation rather than go into a shell and maintain low visibility till the situation changes. That strategy can work for fly-by-night operators, but not for brands that are in it for the long haul.
Sales are not generated by smart marketing and attractive product offerings alone. When customer confidence is shaken because of a failing economy, fewer jobs, rising unemployment, and spiralling prices, it is difficult to get them to spend. When they start feeling good and have more disposable income in hand, the consumption cycle will resume.
While discretionary spending is put off during lean economic cycles, the demand for essentials remains roughly the same. In an economic downturn, consumers reevaluate their consumption priorities and focus more on needs than on wants.
The success of a brand depends on building and retaining a loyal customer base. Marketing is not an optional one-off cost. It is a continuous process that is necessary to enhance brand visibility and retain customer loyalty. Going off the radar completely by eliminating the marketing budget is not a recommended strategy.
Often businesses cut marketing costs disproportionately during lean economic periods in a bid to protect the bottom line. However, we cannot paint all marketing costs with the same brush. This is the time when brands will need to differentiate between essential and frivolous spending and manage the marketing budget prudently. If you look at strong brands, you will notice that they don’t cut back during a recession.
They continue with the good work of having a strong product portfolio and a visible brand presence among the target audience. They act during a downturn so that when the wheel turns and the pall of gloom lifts, they are ready to make the most of the consumer cheer.
It is smarter to reassess the marketing budget during a downturn and revise strategies after brainstorming. This should be based on a reevaluation of the product portfolio to see which ones are likely to fail and which ones have the potential to flourish during the lean period and subsequently. This will depend on how consumers perceive the brand’s offerings and whether they fall under the value or the premium segment.
This is the time when brands need to do some social listening to understand the revised needs of the target audience. Brands which reach out to their audience, engage with them and reassure them during a lean period are the ones more likely to retain customer loyalty when the sunny days return in the future.
Brands need to be more than fair-weather friends. They need to reassure customers during lean periods. Such brands gain the goodwill of their existing customers and in fact, end up widening their base. Brands and businesses are not built over a day. They need careful nurturing through the ups and downs of a market cycle to retain loyal customers. At the end of the day, the quality of product offerings and the connection that a brand builds with the target audience is what differentiates a super brand from any other.
While economic downturns are a matter of concern, marketers should keep the bigger picture in mind while making important decisions. The lean period should be used to reinforce the core brand proposition. In fact, this is the phase when good retail brands increase their marketing spending and capture market share from weaker competitors. After all, it is about the survival of the fittest. Those who use this time judiciously and rationally allocate their marketing budget can hope to benefit tremendously when the upcycle starts and the consumption cycle resumes.
The author of this article is Team Pumpkin co-founder and CBO Swati Nathani.
