Successful marketing in a downturn / Data for Bluffers #16

06 June 2022

With the economy facing hard times and consumers changing their buying behaviour, how can marketing continue to support and drive the business forward?

This week Tom and Ed discuss a simple framework developed after the ’07/’08 recession on how data can do just that and show that marketing can be the savior during the tough times and not the first department to be trimmed.

Consumer segments changing behaviour
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Tom

Hello, and welcome to another edition of the Data for Bluffers podcast right now. I think you can’t escape the headlines about the tough economic headwinds that, that we’re kind of, well, I say going into, but we are in, and, you know, today as we record in the UK, the British retail consortium have released new figures today saying that the, uh, post pandemic spending bubble has now burst with retail sales in both April and May in decline. So I think this week wanted to try and unpick that bit and try and find some positives and really look at how we can, um, how we can use data in marketing to support the business during this period, and just important how we can be ready for the other side of it as usual this week, I’m joined with Ed. Ed, how are things?

Ed

Hi, Tom. I’m good.

Tom

Thank you. So as usual, I’m gonna start with the question and I think first one really is like broadly before we dive in. I, how should we consider, um, how should we consider, how should we approach marketing in, in a downturn?

Ed

Well, there has been a lot of research on, um, how to market during recessions and downturns. One really important factor, always bear in mind. However, is that no two downturns are the same. Yeah. A lot of, uh, marketers and a lot of businesses may feel that they’ve only just recovered from the downturn cause by the pandemic. Well, there are many reasons why the downturn, what we are kind of, as you say, heading into, or just starting now is very, very different, right? The pandemic was, you know, a quick, almost someone would say artificial government driven downturn in some extent,

Tom

As in high street shut, you literally have got nowhere to go and spend your money.

Ed

Exactly. Right. So, so people, people were prevented from spending in the way that they previously would. And then it was really up to marketers and businesses to a certain extent, give them a way to spend their money that, um, largely in the UK, people were still earning, right? So cuz we had a, an extensive furlough scheme. Um, and similarly in the us, we had, they had extensive, uh, support, uh, for certain areas, you know, disposable income in the us actually went up. So the money was still available. It was just a case of almost getting people, the opportunities to purchase things. And we saw that with, you know, for example, Amazon doing very well. At the same time, it was also about giving people, either ideas for how they might use your products. And also introducing a lot of the time, maybe marketing to new customers as well. Now what, what we can say about the recession, sorry, probably shouldn’t use the R word quite yet. The the downturn that we are looking at right now is that it won’t be as different from previous downturns as the pandemic

Tom

It’s in sort of 07/08. It will share similar trades with that than it will the pandemic

Ed

Exactly. We can lean a lot from 2007 / 2008 and the early nineties in the UK in particular, there is one big difference that is inflation. So in the UK, this has already been phrased long before people were talking about downturn. People are talking about cost of living crisis effectively saying that people are struggling to purchase essentials, at least spending much more money on essentials because of the increase in prices and the money they’re now spending on those essentials is not being spent on leisure activities on what we might call luxuries. What this means is that alongside people, having less money to spend people are, are buying less. And that, and that is very important to, to kind of clarify is actually what the BRC has come out with its figures today. Like that is headline spending is down for those two months.

Tom

Exactly. And, and they clarify in there that, because inflation’s so high, it really masks the volume of sales. As you know, I think it was 1.1% for me it’s down. Um, and that’s masked the fact that actually volume of sales is much greater than that. It’s just that every unit costs, you know, what, 11% more. So

Ed

Exactly

Tom

The ones that are being what costs more so that, that masks, but actually, yeah, people are just buying a lot less.

Ed

Yeah. And that’s, that’s partly because people are kind of planning for the future. They’re feeling uncertain. Yeah. They’re not wanting to spend all the money they have right now on non-essential items, but leaning on, on 2008, actually a very good, uh, report was produced at the time in the, uh, Harvard business review by, uh, John Welch. Uh who’s at the university of Miami and Katherine Josu, I think was in Harvard at the time, but is now at the American enterprise Institute, the report is, is how to market in a downturn. Right. Which is exactly the question you just asked me. So why not? Let’s lean on some experts for, for some opinions on this. And they, they were specifically talking or focusing on the 08/ 09 downturn. They in introduced the idea that different people change their behaviour in different ways in the recession. Yeah. And it could be sort of a personality trait that causes them to change their behaviour in different ways, but it could also be to do with their economic situ right. How exposed their job is, for example. Yeah. You know, whether they’ve lived through a particularly bad recession before and had the rope balled under them. Yeah. You know, I think it is notable that there will be people who are particularly sensitive to talks of a downturn right now because they had tough pandemics

Tom

Makes sense.

Ed

Choose one very particular group in the UK self-employed people who were definitely receive less support. They’re going to be very wary. So it might not just be a personality thing. It’s also a, a function of, their situation. Now broadly, we can think about four groups of consumers and it’s worth pointing out that people may not act the same for each product, but for each product it’s worth thinking about your consumers that sit in these, across these four categories, there’s very few products sell to only one of them, the people that respond most to the downturn in the report, they, they call them, they slam on the brakes. Right? so they’re people who immediately feel the pinch coming because you know, you included in this group are people who lose their jobs early on. For example, now we don’t have a jobs recession in the UK at the moment, you know, employment is growing. But if that, if that were to come, that could, that could make this group sign much more significant, but people who get worried early on and immediately start changing their behaviour,

Tom

The slam on the breaks. Okay. I like that quite well named

Ed

Yes, exactly. In the next, most cautious you might call them. Yeah. We can talk about the, the pained but patient. So that’s, that’s people who will still adjust their behaviour and look and want to be spending less money, but are a little bit more kind of seeing how things come out, you know, they’re pained, but they’re not completely changing their behaviour straight away. Yeah.

Tom

I think interestingly, I read in that report that this is typically the largest group. So what, what would be really interesting? You know, what we are in now June, we’ve just seen April and May’s figures. If these are indeed the largest group, what the, the slowdown we’ve seen reported today will probably have largely been influenced by the slam on the brakes crew. I guess, for one of a better phrase, but if pain patient are a larger one and they waits, then we potentially will see that year on year change steepen as we go in as, as they start to, you know, maybe in a few months start to change their behaviour as well. So take a good, good one to watch out for, I guess, to, just to sort of validate, validate this study as well.

Ed

Yeah. They’re definitely, um, the largest group and it’s, it’s worth saying as well that the inflation aspect of this recession, I think, changes those group dynamics as well, in particular, many people in 2008, 2009 in the pain, but patient category were struggling because of they weren’t getting wage increases or they were worried that they were not gonna get a wage increase, worried about their jobs. Now you’ve gotta add onto that, that their essentials are getting more expensive. So it accelerates the rate at which they feel pain, you know, on, in those circumstances,

Tom

Slap slam or the brakes pain, but painful. And you said there were four, right? So,

Ed

Yeah. So we’ve got a couple more and these are, these are the two groups that change their behaviour, the least. So one group that does change it behaviour a bit, but not a huge amount are the, what you might call the comfortably. Well off now, they’re in general, they are people who are not financially really affected by the downturn. They’ve got savings. So they don’t really have the fear factor, but equally they aren’t seeing their incomes reduced and they aren’t seeing, you know, their hours or anything like that reduced. Now, these people are well off, but they do make some behavioural changes in a re recession, principally because of the economic environment around them. The negative feeling in the economy causes them to spend less money on in particular high value items, you know, and that that’s for all sorts of reasons that we’ve discussed many times on this podcast about the influence of the people around us.

Ed

And, you know, the fact that your friends aren’t talking about going on holiday to far long places. So maybe you don’t think about that as much. And then finally you have the people who change their behaviour, the least, at least for most of the time. And that’s what you might call the live for today category. So they’re people who don’t really change their behaviour, sort of don’t really look to the future. These are often like young people, um, who are in what you might call like early stage careers or young professionals, for example, whose wage or whose income tends to increase annually due to promotion and things like that. So they’re not, they’re not, uh, they’re not relying on wage base increases and sort of have a, uh, an attitude that, you know, they’ll spend their money now and , you know, deal with the problem when it comes to it at the end of the day. Um, they, they, you know, they often don’t have mortgages. So, you know, they’re rented accommodations, so their lives are quite flexible, so they can wait until they have to flex basically.

Tom

Until the cash runs out.

Ed

Yeah. And then they might act like someone who slam on the brakes. Right. Yeah. In the UK, that probably means, you know, ends up going back and living with mom and dad or something like that. so, so they might have dramatic cha behavioural change, but it’s, they’re waiting for it to come. And often for many people, it doesn’t come, they get through the whole period.

Tom

Yeah. But I think that’s a really, that’s a really interesting point that someone might exist in a slam on the brakes mode and, and they slam on the brakes and then actually realise that they maybe for their individual circumstance break a bit too hard. Right. So they may be back off a bit and become pain, but patient, but the other way around maybe a pain, but patient realised they probably should have reacted a bit quicker for their circumstance. And we’ve got four. Even if you categorise your, your customers or soaking with new customers, it doesn’t mean that’s a static exercise or a one time exercise. People will be moving between those segments as well throughout, throughout the downturn.

Ed

Oh, definitely the downturn. And we said at the beginning, compared to the pandemic that the downturn is, is kind of a slow moving beast. High inflation pushes pares up a bit every month, the same for consumer spending. It comes down a bit every month, but for individuals, downturns tend to happen in a series of jobs, right. They lose their job in the extreme sense or suddenly need to replace their boiler. And that puts a strain on their finances that wasn’t there before. And that’s when they take, take the jolt, if that makes sense

Tom

The other access of this, and I appreciate this is the worst medium to discuss a chart, but I think this is four by four. So it’s not that, uh, but earlier when you were talking about, you know, the price pressure on the essentials, you know, but I think the only thing I liked in this review is how they split those segments of what we would spend on into, into four, which I think is quite a nice way to frame how brands should almost be trying to position themselves or how they can think about how they can react.

Ed

Yeah. As you say, it’s not the, the best medium for discussing a chart, but the, the chart really, I guess, has two, a axis. And the one we’ve just spoken about is, is really behavioural change. So the amount of behavioural change in, in the group of people, and that kind of goes from low for the live to today’s that we discussed last. Yeah. And, and high to the slam on the brakes that we discussed first. And then the other, a axis to where it really think about is really is how essential the product is. Yeah. You know, some products are clearly essentials, right? Heating internet, things like that. Now they are products that people still tend to buy in recessions. Now what people do do with those, those products. And in particular, if you, if you’re someone who’s gonna change your behaviour a lot, is they adjust their brands that they’re buying. Yeah. So they try and switch over to say lower cost brands and also lower cost alternatives potentially as well

Tom

I was gonna say, and that, but that’s kind of in the, in the extreme behavioural changes, you know, those that the, in the slam and the breaks and the, the pain for patients, the ones that, that are looking at versus the, the kind of we offs or the lift for today group generally.

Ed

Yes. Um, because they’re thinking, because, because it’s being conscious about prices that causes the behavioural change. Right. You know, as, as humans, we tend to, we tend to be quite consistent in our choices. And we also don’t like to be seen to be inconsistent. Mm-hmm . So in particular, if, if, if you’ve got a brand which is open, uh, and obvious that someone is using, for example, then people are more likely to maintain that brand than they would for a lower cost brand. Mm-hmm . So a, a, an example might be, you are more likely to use, to stick with a brand that you say ate every lunchtime at work around other people than the milk that you have in your fridge, at home,

Tom

Your toilet roll, your butter at home. You might go down from Kleenex to whatever, because people can’t see your change of behaviour.

Ed

Exactly. So, yeah. So you haven’t established that consistency with other people. I think what’s slightly different in this downturn to the 08/09 downturn, is that the, and we’ve mentioned it before the effect of the, of inflation that actually gives people other trigger points to change their behaviour. If, if prices aren’t changing, then people see no reasons to change their behaviour. Right. However, with your can of Coke, you might have, you can explain to yourself, cuz no one will ever ask you the question or they may do, but it’s very rare, but you can kind of, you can explain to yourself that your can of Coke was good value at one pound, but bad value at one pound 50. And that’s something I think marketers do need to bear in mind in, in this, this downturn is that products which are seen as well as relatively robust a downturn might actually not be because of the inflation re effect, giving people what kind of opportunities to question their own purchases more,

Tom

You know, traditional downturn. If there’s, if the prices of the products they’re using, aren’t going up, then it’s just how they feel about whether they’re spending. But all of a sudden asking me pay more for this product I’ve bought for ages at the same price. All of a sudden, I’m gonna question it

Ed

Exactly. You, you, you, it gives you that kind of self justification for your, your change of decision. So the, the category above essentials in terms of sort of exp expandability is what we might call treats. So sticking with the, the food theme, you know, like, uh, ice creams while you’re out, for example, also leisure, certain like leisure and hospitality, eating lunch out once a week, for example, instead of taking your pack lunch, you know, that, and those, those are, are items that people tend to cut back on somewhat, you know, the slam on the brakes will almost completely stop. The only people who won’t really do that are the live for today. But again, I think, I think that goes with the caveat that inflation does make those people question themselves more and more. And also there are deep social influence ties that drive a lot of these behaviours, particularly in say leisure and hospitality.

Ed

You think about the number of times that you eat out of the pub because you happen to be going to the pub at the time when you need to eat. And now suddenly it’s like, well actually a lot of the people going don’t wanna do that. So you have one less drink and don’t have dinner and then go home, say you’ve gone to the pub after work. You go home at 18:30. So you can be home for dinner rather than staying till eight and eating dinner while you’re there, or even more, we’ll get some drinks in from the supermarket and drink at home. That was something that was really noticed during the 08/09 recession in the UK was that home drinking went up a lot brewers in that, in, in, in that industry had to kind of repitch themselves between being sort of pub centric, marketing and supermarket based marketing.

Tom

Okay, well that, that moves us on. So we’ve had essential ins what are the next

Ed

We’re really kind of going in into sort of more expensive items now what, um, the authors of the paper talk about postpone balls. So they’re things that are sort of like you need to do, but then you might be able to like brush bone,

Tom

A new pair of jeans. For example, my jeans haven’t yet blown out, but I want some new clothes, but actually I can probably get another couple of months out

Ed

Of them. Exactly things like we mentioned earlier, like cars, mobile phones, you got your annual phone update is like, wow, when someone’s offering you, you know, more than half off your contract every month to just keep the handset, it becomes very tempting to do that and say, you’ll go back to it. Another date it’s worth saying that, that, that is also likely to, um, be quite a prominent feature as inflation drives cost, living up, people are having to re budget. And I think for marketeers, what’s really important in this category is, is understanding how you keep people engaged and don’t forget about you, right? So that when we get to the other side of the recession, you can grow out of it

Tom

And I guess that principle is probably same for the fourth group.

Ed

Yeah. So the fourth group is what is referred to in the report as expendables items that people don’t need, what they want. And, and these are items that do suffer during recessions. People just don’t buy them the big ticket items we’ve already seen from the, um, BRC data today that the, the full in sales is dominated by big ticket items. Maybe you could argue that they’re, some of them are postpones, right? They talk about white goods, for example, which aren’t really Expendables, but are definitely postpones. You know, do you need new washing machine or are you gonna get someone in to try and fix it? That that’s sort of a classic postpone example, but also, yeah, Expendables big ticket holidays, one off purchases that you might spend less money on. And these suffer greatly during recessions, uh, and really all, all the groups that we’ve spoken about cut these types of purchases, but for comfort to be well off and, and live for day, the, the groups that don’t change their behaviour as much, the social impact of the recession reduces their, their propensity to purchase these things. Right. You know, they’re not thinking about big holidays because their friends aren’t talking about big holidays,

Tom

Which, and, and I guess the approach is the same. You know, if, if you fall into those categories, it’s about maintenance and being, you know, top of mind when it’s, when, you know, when, when the taps unleash, I guess

Ed

There’s sort of two aspects, right? There’s minimising losses during the downturn, and then also maximising your, or being in good shape to come out of it. I mean, a good example of what I would say is probably a bad marketing strategy during a downturn is like price slashing. It’s very hard to reverse those price cuts. So unless you are able to reduce costs at the same time, you are squeezing a profit.

Tom

And if there’s already an entrenched competitor in that price range, you know, their business, model’s already set up to operate in that lower cost space. So you, you make, you put yourself in a difficult operating position as well

Ed

In, in a recession. Every company wants to be a low value essential, right? But in growth, everyone wants to be a big ticket expendable because you can stretch your price, your price in elastic, you can stretch your price as much as you want.

Tom

And I think why, you know, appreciate we, we can’t show the, the matrix, but I think that four by four is, that’s why it’s a good way to frame this. You know, I think you, to recap that we’ve got, you know, slam on the breaks, um, who have the most extreme behavioural change and then through pain to patient come through well off and live for today. And the live for the day have the least behavioural changes, um, you know, combining that across, um, I guess where your product fits into people’s day to day needs from, you know, is it in essential where pretty much everyone’s gonna keep buying? Um, even the ones with the biggest behaviour change through, down through treats postpone and expandables, uh, expendable, sorry. Um, it really gives a nice framework to say, well, actually it’s not just about being a cheap, essential, you know, it’s about, really about understanding who’s your audience, um, understanding, you know, truthfully where, where do you sit and then making sure that you come up with a kind of plan that helps support the business through the next, whatever period is 12, 18 months, but also primes you to get out the blocks, the quickest, you know, because those that don’t have a clear visibility of, of how this might fit in, um, will also potentially stumble and trip as things start getting up.

Tom

You know, if they’ve, if they’ve kind of unsure where they fit in. And I think what, what we’re saying or what we’re talking about here, correct me if I’m wrong is, is to look at the data and understand where you fit in these different areas. And, and, and you might fit in, in multiple areas. You know, you might have coverage across different areas, but by really understanding, looking at the data, um, and, and, and keeping an eye on the data as we go into this, you know, how things will slow across your products or how things don’t slow across your products. Um, and, and, and, and the kind of trends or patterns that you see really help you just form a more robust strategy as opposed to just seeing what happens.

Ed

Yeah. I think when we, when, when we’re talking about this breakdown by, by product type, it’s, it is tempting to see if you can reposition yourself as a different product type, or we are talking about breakdown by customer type, and it is tempting to say like, okay, I won, wanna change my customers. And I think both of those are mistakes because you are setting yourself up to be in the position where you need to change again in the future. And if your brand is worth anything, it’s worth the value to the customers you already have. And you’re also effectively saying that we are gonna do a lot of brand work during the recession in the short term to move reposition that we are then gonna have to undo for that reason. I think it’s really important that as a brand, you think about, okay, how do I deal with the downturn in the position I’m in?

Tom

It’s a, it’s a great way to frame it. It’s a good tool to articulate and have the conversation inside the business as well. Those, those kind of those four by four, that we’ve talked about. The, the one thing that keeps coming in my head is, you know, businesses need to start looking, looking at their data going forward, right. To sort of monitor this, you know, are they, are they, are they witnessing sort of slam on the breaks behaviour? Um, or they are, they maybe witnessing the sort of behaviours we’ve discussed from the live for today’s, you know, so they, they’re gonna look at this behaviour going forward to try and understand where they are. But looking back, especially from a data point of view, we’ve had a really interesting couple of years, right. You know, we’re just off the back of, um, a spending bubble, you know, that, you know, people pandemic was as eased and people have, have relaxed and spending increased, um, which, you know, the, the BRC today said that’s ended. And then before this bubble, we’ve had this kind of weird 18, 24 months of pandemic behaviour, where we’ve had shops that are open shops that are closed people that are going out, people they’re not. So, you know, when, when businesses are, are trying to look at their historical data, if you like to give them some read into the future, how valuable is the, how valuable is the data that we’ve collected over the last 20 for 36 months? Or should we be just throwing that in the bin?

Ed

It’s definitely valuable, right? That data, I think the, the important factors are understanding where you are right now, really what’s, what’s important to sort of say or say on that is that the pandemic may have caused changes to your customers, to your types of customers, to the profile of your customers, that you haven’t quite picked up yet. If you’ve, if you, if you, as a company have only been looking at 10 year lag data, right. If you, if you’ve, uh, been looking at what your customer base was over the, the last 20 years and yet what you consider your customer base, you probably have very little idea about where your custom base is right now.

You know, there’s your customer base right now is, is, are the people that are gonna get you through the recession. I guess that’s one way of thinking about it. So, so what you wanna do is know about those people, you know, know how likely they are to lose their jobs, for example, um, know how, uh, how likely they are to fill the squeeze, know what levels of disposable income they might have access to, uh, you know, so, so how, how likely are they to start cutting, cutting back soon? I think, I think these are all, all sorts of things, which you can learn from data that is available, you know, like the, um, uh, the BRC, um, data, right. That, you know, that details the, the spending on different products. So you can relate that back to your own product, that there’s other data, which would detail, you know, spending based on income.

Right. So how, how, how is spending affecting each of the income categories? Um, and, and in that situation, we, you, if you know the profile of your customer, you can then use the wider data to understand what they’re, how they’re, you know, experiencing the recession and what that’s gonna do for you. I think also the other thing is, is to have a, I, I mean, I know I bang on about it a bit, have a process for understanding what’s happening month to month, right. That, that process can’t be an annual review. right. You need to have processes for understanding, okay, what’s happening month to month, if we’ve lost, uh, you know, if you’ve lost sales that month, you know, was it across the board or was it a particular group of your customers, uh, or was it a particular product range, you know, um, or product category, for example, say you’re an online retailer, was it? And this is to take an example of what happens often during recessions, you know, identify was it men’s clothing, the, the, the saw the losses before women’s clothing, right? So that, that, cause that’s something that happens in every recession, men stop buying clothes long before women

Tom

Or in my, in my case, never start.

Ed

But that, but that’s, you know, they, they have potentially have less interest, like just culturally men tend to consider clothes as more sort of practical, less of a, a luxury item, but in return, like they don’t consider it a treat. So it’s an essential, but it’s an essential that these postpone, so for men, clothes are postponable, whereas for women clothes, you know, this is a mass generalisation, for women, clothes can be a treat much more often, right? Also it is about, you know, at the same time, it’s about understanding how people are using your clothes, right? And this is actually something that, where the pandemic is probably changed quite a lot, because previously it’s the case that at the beginning of a recession work wear suffers more than casual wear because work wear is a postpone and casual wear is a sort of treat.

Tom

And you’re more influenced by your peers with all the bits we’ve discussed before.

Ed

Yeah, exactly. Now we’ve got this blending of work and casual wear retailers don’t know the use of their clothes as much. I mean, I know lots of people who buy very similar items of clothing, some of which are for work, some of which are for casual, but they’re very, like, they’re very strict distinctions. If that makes sense, right. They’ll wear for take one example, they’ll wear Unilog chinos to work cause they get trashed every day and they’ll have a more expensive chinos that they wear out. So you can’t just rely on product category in that sense to know how your customers are using your work, your clothing.

Tom

Okay. That’s really interesting. I, I think what I’ve really enjoyed here, you know, is never nice going into, um, to these, these kind of economic headwinds, but actually there’s almost a framework here to look at, um, who your customers are and where your products sit and, you know, with a little bit of analysis of, of your existing data, you can always give yourself, um, a much better strategy of how you’re gonna plan the next 18 months, you know, for, for during, and also the recovery. I think it, it, it, it kind of makes it, I wouldn’t say formula. I don’t think anything in this world is, is in, especially in sort of in this marketing world, is that this formulaic, but it gives a little more, a lot more structure and, and a, and a language framework to discuss, you know, with, with colleagues about how you’re gonna approach the challenge, which I think is, is fascinating.

Ed

The one, one thing we haven’t touched on, which, which I do think is I important just to consider is that your product, as we go through a downturn can definitely change where it is in terms of the, uh, you know, the essential to expendable scale. Yeah. And I think that’s, that’s something else to, to sort of that people should bear in mind and in particular, that affects which channels work for your marketing. So we we’ve talked a lot about sort of brand and positioning, and I think it’s also worth saying that there is, there are impacts on, on channel that come with that. Right. You know, your display ads are much more effective at selling treats than they are selling postpone balls or Expendables.

Tom

Okay. So let’s, uh, let’s wrap it there. So, um, yeah. Thank you for tuning in hope you hope you found it useful, uh, as ever, uh, you know, we are in the game of networks and word of mouth and social proof. So if, if you’re listen and you think there’s someone that, you know, that would, um, would benefit from this, you know, share it, um, like subscribe and yeah, we should see you in two weeks time, uh, say goodbye,

Ed

Goodbye Tom

Friends in conversation | Herdify

Sign up to the Herdify newsletter