4 minute read
Marketing Challenges During Inflation and Overlooking Recession
Author: Prachi Khandelwal Indian Institute of Management (IIM), Lucknow
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Reeling from the after-effects of the Covid 19 crisis and the supply disruption across Europe due to the Russia-Ukraine war, India is currently undergoing inflation at a rate of 6.95 %, per the official data in March 2022. Coupled with the fact that due to the oncoming recession in the United States, the country's economy may be looking at a growth slowdown, if not a recession, companies in India need to be on the lookout for a decline in demand. In such turbulent times, one of the first instincts of companies is to start cutting costs to maintain the profit margin, with the marketing budget in front of a line of fire.
There are several reasons for such behaviour:
1. Unlike normal times when customers are open to spending after being influenced by a marketing campaign, marketers face growing pressure to prevent the demand from dwindling as customers may now be more conservative in their spending.
2. There may be an assumption that all companies will be displaying the same pattern of cutting their marketing spending; hence, it will not hurt the company.
3. Shareholders and investors grow increasingly concerned about the company's expenditures and develop a myopic view towards marketing.
4. There is an increase in customer acquisition costs due to customers taking more time to consider their purchases; hence, the sales cycle becomes longer.
5. Especially during a pandemic or recession, when emotions are high and consumer impression is crucial, no firm wants to upset or annoy their customers.
While the default strategy in such times is to increase the price and thereby shift the increased costs on inputs to the customer, it is not the only solution. In fact, by increasing prices, the company may lose out on loyal or prospective customers. Following are some of the approaches that marketers can adapt to shape their marketing strategies as per the current environment:
Understanding the Customer
As the economic condition changes, so do the behaviour exhibited by consumers. As per a survey conducted by Ipsos, a marketing firm in the USA, "80% of consumers expect to change their shopping habits if inflation persists". Thus, a company must constantly evaluate consumer psychology to understand what they are experiencing and accordingly anticipate their needs.
In such times, consumers are unaware of the subtle changes they make in their buying patterns, which may significantly impact company performance. This is where marketers come in and help us gain deeper insights into consumer behaviour. They may conduct qualitative research to understand the consumer psyche and get answers to questions that even the latter did not know.
1. Re-targeting
One of the first activities a company engages in as part of its marketing strategy is creating customer segments and targeting those whose needs they want to satisfy. Based on such segmentation, the company frames its marketing communications strategy – objectives, positioning, channel, and brand message. However, since consumer behaviour changes with time, companies need to have a much more focused targeting strategy. Since there will be added pressure to control the marketing budget, marketers cannot waste the limited company resources on customers who are no longer relevant.
2. Take Care of the Tone
Though companies need growing sales even during a recession, they can not run campaigns that are blatantly pushing for sales as a recession is a period where consumers are highly emotional. While it is imperative to maintain business performance, marketing communications should be sensitive to the ongoing struggles of the common man yet at the same time deliver the brand message and values.
3. Do not let those loyal customers go
During inflation and recession, companies are always trying to cut costs; one way to do so is by reducing the cost of customer acquisition. It is a known fact that it is easier and cheaper to retain an existing customer rather than acquire a new one. According to research by Harvard and Deloitte, customer retention techniques are a tried-and-true method employed by top organisations like Samsung and Honeywell to tackle the economic downturn successfully.
4. Think of the Long term
While it may be for a company tempting to pull back on marketing activities and be conservative concerning the same during turbulent times, companies should also consider the opportunities such times present. Many companies would end up scaling back to maintain their profits; hence, a company that maintains consistency in its marketing strategy – branding, communications, positioning - would gain brand equity and leverage the same when things return to normal. This is evident by research on the 1920s and 1921 recession conducted by Roland Vaile and Reavis Cox, businesses that continued to invest in advertising could outperform their rivals in terms of sales and growth.
Inflation and recession will definitely shape the market conditions for at least the next couple of years. The imperative comes on the marketing team to drive the business positively even during such times and maintain relations with their customers, who will remain with the company through thick and thin. While numerous challenges will be ahead, a strong, consistent, and innovative marketing strategy will help the company come out of these trying times as a winner.
