As a founder or CEO, you’re certainly getting inundated with advice, articles, and “how-to” tips for preparing for an economic downturn. You will be asked or required to re-evaluate your business and generate updated financial models and forecasts, to pull back on any future-looking operations and to immediately cut or flatten spending, especially anything deemed “discretionary”. During a recession or economic slowdown––and I have experienced a few––companies turn inward, decrease operational costs, and often start by sending marketing and sales resources out the door.
However, a looming recession is also a non-obvious, massive opportunity to re-evaluate your customer value proposition, customer journey, and brand relevance. Having a resonant and top-of-mind brand is one of the most powerful tools to hedge against difficult business conditions. Research shows that when a brand is a powerful “short cut” to a consumer’s attention and share of mind, it is easier for those companies to gain market share in a softening market––even more so than in a strong market. When the downward spiral begins, the brand you’ve built––before the market softened––is the most important customer asset. Make sure it counts for something.
The customer is always right
The advantages of customer loyalty are also more pronounced in a downturn. Loyal customers cost less to serve. They typically concentrate their spending with companies they trust and their referrals to friends can lay the foundation for growth when the economy rebounds. Human nature tells us that when people are anxious or fearful, they seek safety and value trust. Having a highly trusted brand provides a safe haven and gives customers confidence in times of overwhelming uncertainty.
When companies turn inward and compress spending, they risk severing ties with their most loyal customers and turning off the very channels that spur the product innovation connected with customer needs. During booming times companies can focus on and are rewarded for product innovation and risk. When a recession kicks in, we must shift our orientation towards the customer and how we can best serve them, and product innovation takes a temporary back seat to customer relationships.
During good times, even the most successful businesses pivot––some multiple times. When the economy shifts, your business should be even more prepared to adapt to structural and customer-driven changes. If you’ve studied a customer lifetime value analysis, you know that your most profitable customers are also the most expensive to replace. Rather than risk losing them, offer more value, continue to spark their loyalty, and make them part of the conversation. Focus on building a brand that is flexible and responsive to the customer’s sentiment, and needs, informed by the nature of the market in real time.
In a recent report by Deloitte that looks at data from the two most recent recessions––periods when the classic cost-reduction playbook was hailed as the gold standard, the firm cites the number 1 action consumer companies should take when faced with a looming recession is to “determine why you matter”. I’d add that this work isn’t only for consumer companies. It’s for every type of company. This is the core work we do with our portfolio companies and in our brand studio at West. Having a clear understanding of your purpose and defining what your company offers your customers is foundational to delivering trusted value.
We should also acknowledge that you should always have a downturn scenario plan and if you can get ahead of it, try to deepen your cash reserves. When the market has a downturn, if you’ve built a strong balance sheet, you’ll be able to make more intelligent decisions while keeping your team and sanity intact. This is a best practice of the smartest companies in every market segment.
Invest in smart growth
Driving your brand to “top of mind” should not be conflated with an increase in growth marketing spend or engaging a large scale (i.e. costly) advertising campaign that plasters your brand across the NYC Subway with minimal traceable ROI. This is about doing the foundational work to create a defensible and unique brand and customer value proposition. This work involves understanding the end-to-end customer journey from awareness all the way through to customer advocacy. It is also about understanding and placing a high ROI on your performance marketing spend.
Ultimately, when things get tough, having “vendors” is very different from having “partners.” If you are a “partner” to your customers, you demonstrate that you have a shared commitment to their future and well being. Surround yourself with extraordinary people who truly share your vision for the future. If we’re all in a foxhole, I want to be in there with people I trust.
Invest in your customers. Build trusted relationships. Invest in your brand.
– Joanna Rees, Managing Partner at West