Spending

Consumer spending during a recession

Understanding consumer psychology and changes in people’s spending habits can be key to creating a marketing strategy during a recession.

As inflation hits record highs and the Bank of England expects the UK to fall into the longest recession since records began, the outlook is expected to be incredibly challenging over the next two to three years. This can lead to businesses making less money, lower wages and higher unemployment, and as marketers, whose job it is to encourage consumers to buy our customers’ products and services, a recession makes it all the more difficult.

During these economic events, we must revise our strategies based on the data and information available to us. If we know how consumer spending habits are likely to change during a recession, how can we use this information to our advantage?

A report by John Quelch and Katherine Kocz has studied recessions since the 1970s to profile consumer behavior and consumption patterns. When we see consumers cut back on spending, it usually results in a lower marketing budget – but by not understanding consumer psychology and the difference in their basic needs during a recession, strategies aren’t tailored and existing demand isn’t increasing. is not exploited.

As we enter a recession, it’s important to remember that while purchases are driven by cost as a bottom line, they can also be influenced by factors such as confidence in a business, future impact and l adoption of lifestyle elements. This means that although he is a challenge to market in a recession, it’s not impossible, and the first thing to look at is the new customer segments that tend to emerge.

How to categorize consumers during a recession?

During a recession, consumers tend to fall into the following four categories:

Slam on breaks

Exactly as it sounds, these are people who cut all unnecessary spending during a recession. This category of consumers is feeling the impact of the recession most deeply and will reduce all spending by stopping, postponing or substituting purchases altogether. On average, this generally includes lower income households, but it can also include higher income households if circumstances change during this time.

Pained but patient

As the largest segment, the majority of households belong to pained but patient. These people tend to be optimistic about the future, but worry about the short term and the ability to maintain stable drinking habits. While there’s some reduction here, it’s on a much less dramatic level than those in slam on breaks. The segment covers a wide range of incomes and is generally unaffected by unemployment, but the longer a recession lasts, the more this category moves down. slam on breaks section.

Comfortably comfortable

Typically made up of the top 5% of the income bracket, people in this category feel safe to emerge from the recession with little or no change in their spending, alongside those with less wealth but who have investments or savings and feel comfortable with the situation.

live for today

These people tend to continue spending as usual and are not particularly worried about recession, saving or spending. They may extend deadlines for making big purchases, but since they are younger, generally renting and spending money on experiences, this will likely continue and only change if their employment status changes.

How do consumers rank products during a recession?

Demonstrating these four segments only tells half the story because we know how consumers will change their spending, but the other half is the product itself, so we also need to profile consumption by defining four categories :

  • Essential: things that are necessary for life and that are important for people’s well-being
  • Treats: little things where buying it now may be justified depending on the situation
  • Reportable: things that can be delayed where buying can be postponed until it becomes an essential or the recession ends
  • Consumables: things that are unnecessary, cannot be justified, and are unnecessary depending on the situation

Create a Recession Marketing Strategy

Where these categories really come into their own is when used with business intelligence to make marketing decisions. By understanding consumer psychology, they can be ranked, by percentage, in each of these segments. The product or service can also be categorized into a consumption level and based on this, brands can model where spending will continue, where it will slow down and where it will stop.

This means that with marketing budgets shrinking and costs cutting across the board, it provides a tangible area where marketing support is still needed and where it can be prioritized.

Green spaces

Green spaces represent a stable market, where a change is not likely to occur, so a change in strategy does not need to occur and business can proceed as planned. It also means that there are fewer opportunities in this market, so additional earnings usually come from messaging and creative.

The red areas

The red zone is where consumer spending will stop or drop significantly, so you need to think more carefully about the marketing budget spent here. This represents a declining market with reduced opportunity for brands, so while it may be tempting to stop spending there, it indicates that brands need to be more tactical here, invest smarter and focus on the benefits that are important to users in these segments.

The yellow areas

The yellow zone is the sweet spot, where people will continue and can be convinced to keep buying, so this is where the bulk of the strategy can come into play.

It’s a mixed market, where there are opportunities in some areas and not in others, depending on the profile. You can think smarter about how to capture people’s attention, what message you want to share, and what products and services can generate additional earnings even during a recession. Balancing your activity across these three areas can allow you to use your marketing dollars more tactically, ensuring you focus on areas where the most opportunity lies, while balancing remain visible for a future period – inevitably coming out of recession. Whether you use this framework or another, during a recession it is essential to profile your customers and examine their changing priorities and values ​​in order to align with them as much as possible.

If you want to talk to our experts about recession frameworks, consumer spending and how you can incorporate them into your marketing budgets, contact us now.

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<p>Photo by Mathieu Stern on Unsplash</p>
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