As a recession looms, the Bank of England’s economic outlook is bleak: high inflation rates, a shrinking economy and a decline in living standards. Inflation is expected to peak at 13.3% in October, the highest since September 1980, while the economy will contract until early 2024 and living standards will drop by 5% over the next two years. Economists describe the situation as ‘stagflation’ – a combination of high inflation, high unemployment and stagnant growth – something not seen in the UK since the 1970s.
For retailers, the prospect of a recession is tough. The rise in energy prices, combined with reduced consumer spending means margins will be tight, particularly for brick-and-mortar brands. Those retailers that were struggling before the pandemic will likely see their declines increase further.
While many could face the prospect of going out of business, they need to act now to survive and thrive. Customer loyalty is your lifeblood, so understanding changing spending habits and harnessing the right digital experience platforms (DXP) to measure and optimise your customer interactions will be critical. Here are my recommendations for retailers to survive and thrive in a downturn.
Focus on customer retention
Protecting your most loyal customers is an obvious priority in a downturn. Acquiring new customers can be five to 25 times more expensive than retaining existing ones, so focusing on customer retention makes economic sense. What’s more, increasing retention rates can increase profitability. For example, increaing customer retention by 5% can lead to a 25% to 95% increase in profit.
But keeping existing customers can be challenging during a recession as spending habits are radically different. Whether they’re B2B or B2C, customers are far more price sensitive and just focus on the essentials. They’re also more open to trying new brands which are more cost-effective.
To keep their loyalty, you need to create more personalised campaigns to show them the value that your products or services add to their lives. This also means being more sensitive and empathetic to engage your audience’s changed mindset.
But critical to achieving this is measuring the effectiveness of your campaigns. You can do this with a customer data platform (CDP). By combining data from various sources into a single centralised data hub that provides a single customer view, you can ensure you optimise every customer interaction.
Don’t cut marketing budgets
Marketing budgets are often the first to get cut as it’s difficult to measure brand awareness, but try and avoid this. If you reduce your marketing activity in the short term, you’ll pay in the long term. Recessions don’t last forever, and you want your brand to stay visible during a downturn.
According to the Harvard Business Review, companies that maintained their marketing and ad spend during downturns grew their market share. Take brands like Johnson & Johnson and Colgate-Palmolive, which have never stopped marketing and always fared well during recessions. So review your marketing budget with caution, and ensure you have the right data available to make any decisions.
Invest in the right digital products
You may be tempted to decrease your budget by cancelling subscriptions for some of your tools and platforms, or you might pause investing in a new part of your martech stack. However, both decisions are short-sighted and are not focused on the end goal – the end of the recession. To stay ahead of the competition and avoid getting caught short when the market goes back to normal, be prepared.
Take CDPs. They’re not only a differentiator for retailers, but also important during a recession when up-to-date intel on your customers is critical. Consumer habits can change, not just during a recession, but after too. You need the right tools in place to monitor these shifts now. Because without critical investments, there may not be an after.
On the flip side, ensure you review your digital stack and eliminate any redundant, inefficient systems that don’t support your objectives. Otherwise, this could lead to unnecessary overspending on tech which you cannot afford to do during a downturn.
Keep calm and carry on marketing
While times will be hard, there’s an opportunity to win the loyalty of more customers and strengthen your market position. Those that listen to their customers and create marketing campaigns using the right DXPs while carefully measuring the results, could emerge stronger with a brighter future, however those that don’t, risk their reputation and market share. So make any adjustments to your strategy and investment with caution, ensuring all decisions are grounded in data. Keep calm and carry on marketing.
