Whilst there certainly is no reason to be leaping for joy at the sight of a recession, businesses can bolster long-term success through various adaptations to their strategies at times of downturn.
There is evidently little faith in the British markets currently, exacerbated by the pessimism emitted by the media. Following the rise in interest rates, a plethora of headlines claimed that Britain was set to enter our ‘longest ever recession’.
Regardless of the likelihood of a recession hitting and how severe this will be, navigating a recession and even growing within it is entirely possible for businesses. Here’s how.
Changing your marketing strategy
Consumer spending is extremely price sensitive during recessions, and as a result, consumer trends drastically shift, and brand loyalty declines.
Brand loyalty is the primary component of generating high cash flows and steady sustainable organic growth, but consumers are less willing to indulge themselves within luxuries during periods of economic instability.
Therefore, businesses need to employ strategies that aim to maximise consumer engagement and retention whilst not going against their traditional brand ethos.
The rate of purchasing is fully dependent on this amalgamation of factors: disposable income, confidence about the future, and trust in the transparency and intentions of a business.
There will inevitably be a shift in consumer preference during times of recession, the extent of which is unknown and is dependent on how severely GDP declines.
Therefore, businesses need to utilise their intuition and acknowledge the facts. In a nutshell, they have to adapt. But how is this achieved in a sustainable, efficient way?
Pricing strategy and product re-positioning
Product re-positioning is integral in providing the foundation for long-term success. To this end, closely examine the shifting consumer trends and spending correlations that emerge amongst different demographics.
The youth typically flout lower rates of disposable income and thus, will be more prone to price sensitivity. Therefore, there may be a greater exodus from more premium-based products towards cheaper substitutes.
Premium brands should aim to provide cost-effective recession proof products that act as a ‘cheap alternative’ to their traditionally high-valued product range. This in turn should reduce the potential for a hindered brand image whilst increasing sales revenue and boosting respective market share.
Essentially, you should seek to demonstrate your company’s expertise through versatility in product range and an ability to empathise with the economic situation of consumers.
In terms of reforming your respective pricing strategy, attempt to exploit the psychological aspect of numerical figures. For instance, utilise the 99p effect which drives the illusion that your product is cheaper than in actuality. At a time where consumers are avidly searching for the cheapest products, by minimally lowering your price to a point where upon first glance they appear to have been reduced significantly, you could drive sales substantially whilst minimally affecting your profit margins.
A similar strategy involves initially selling a product at a higher price point, subsequently creating a sale for said product, thus enticing consumers to buy it at a seemingly discounted price.
Promotional drive
A successful and personalised promotional campaign may be critical in boosting consumer engagement and retention, portraying the consensus that your products aim to supplement and alleviate their current struggles. To this end:
Assert reassuring messaging to convey transparency and build an emotional connection between brand and consumers.
Reinforce this messaging by providing tangible services that aid the needs of consumers. For instance, various discounts/offers in the form of loyalty programs.
Demonstrate that acts of loyalty will be rewarded – identify all emerging consumer segments and create promotional campaigns that are specific to each one.
It is imperative that as a business your word is met with action: do not attempt to deceive your consumers with strategic implementation to bolster your profit margins. Your long-term success will become distorted due to a hindered brand image and a reduction in consumer engagement.
The optimal cost reduction and inefficiency stripping approach
Pursuing the widely perceived ‘status quo’ during a recession can act as a detriment to your business.
Typically, when a recession strikes businesses adopt a reactionary cost-cutting stance, where employees are viewed as the primary outlet to reducing significant costs.
In general, when more aggressive, hostile cost-cutting procedures are put into place they have a negative collateral effect, whereby staff morale is severely drained and the business’ image is adversely affected.
Acting erratically in such ways without looking at the big picture is detrimental, and doing nothing is equally damaging.
Generally, businesses should look to do more, not less. There are, however, areas in which cost-cutting measures need to be implemented, but as more of a calculated responsiveness-based measure.
The weakened pound
As GDP falls, the attractiveness of the British economy decreases, which causes the value of the pound to fall, making overseas purchases more expensive, affecting profit margins.
With the pound’s value being lower, those that source raw materials or outsource employment internationally will be affected, as these services have essentially appreciated in value.
Firms will be forced to increase their prices to counteract the increase of costs, reducing the spending power of consumers, leaving less money in their pockets, and thus having a collateral effect across all industries.
Therefore, businesses should establish ways to undercut competitors during this period, such as by:
Establishing new suppliers and trying not to hold stock
If you’re currently sourcing raw materials from abroad, try and find domestic sources for similar prices, or a nation with a substantially weaker currency than the pound. Moreover, attempt to operate a Just-in-Time (JIT) system where you hold no stock and products are shipped from the supplier to the consumer immediately. This will save substantial costs on warehouses.
Moving towards an ecommerce-based outlook
Digitisation is gradually becoming more of a necessity in the modern day, and digitally transforming in a recession can be particularly beneficial for businesses.77% of SME owners agree that having a digital presence helps with customer acquisition, and about 63% of them state that having a digital presence can help enhance the image of the business. Further, removing physical stores will be beneficial for your profit margins due to the eradication of rent and mortgage payments. Implementing various advertisement and SEO technology will immensely improve traffic diverted towards your site, far greater than that of hosting a physical store.
Removing underperforming products
Prompting consumers to provide direct feedback is essential in identifying products that are not performing well and those that are. Referencing the Pareto principle, and therefore asking ‘where do you generate 80% of your income with 20% effort?’ may be particularly useful in helping you consolidate upon simply what works and generating consistent results. Additionally, reviewing segmentation of the product is important – is it tailored towards the optimal demographic and is it fulfilling its purpose?
Carpe Diem or strategic risk prevention?
Simply put, adopt neither, but extract the necessary nuances from each. Firstly, aim to be transparent, and provide promises of job security. This should increase productivity levels due to a rise in employee engagement.
Moreover, you should assess your business’ current product portfolio, establish which products are part of your 80%, and utilise this empirical data in an intuitive way. If products are evidently not performing well in their market, it simply means that you are devoting time and resources to a failing investment. Secondly, review these products, and establish whether there is room to re-position them. Will they meet shifting consumer demands during the recession? If so, apply various promotional campaigns aimed to fulfil these shifting criteria.
Lastly, aim to instil a predominantly digitised outlook within your services. Try and opt for ecommerce over tangible transactions where possible.
Once these processes have been implemented, then various inefficiencies should be reviewed and subsequently stripped. In essence, build the required foundations to achieve increased consumer engagement and an increase in brand loyalty.
Crucially, in times of recession, do more instead of doing less, trade your way out of recession, reduce waste and look at this being a catalyst to transform your business into a better version of itself. Ultimately, this will help your business position itself as an assertive market leader once our nation exits the recession.
At Champions, we have a wealth of expertise in guiding businesses through times of economic uncertainty, whatever these may entail, and help outline a path to success. To find out more about our business auditing services and how we can help you, please get in touch.