Preparing your business for a recession

As inflation rises above 13%, the UK is expected to enter into a recession in the final months of the year, one which the Bank of England warns will be the longest since the global financial crisis in 2007. In its sixth consecutive increase, the Bank then raised interest rates by 50 basis points to 1.75%, the single largest rise since 1995.

In its Monetary Policy Summary for August, the Bank said GDP growth is “slowing”, worsened by the latest gas price rises, which has led “to another significant deterioration in the outlook for activity” in the UK and Europe. Households’ post-tax income will “fall sharply in 2022 and 2023, while consumption growth turns negative” the report said.

Retail footfall has always been a good barometer for the financial state of the nation. It slumped in July below pre-pandemic levels with total UK footfall decreasing by 14.2%, compared with the same period in March 2019. This was, however, heavily impacted by the heatwave, as consumers stayed at home.

Even so, British consumers’ confidence remains stuck at a record low this month in the face of surging inflation and higher interest rates. Market research firm GfK said its consumer morale index held at -41 in July, matching June's 48-year low and below levels that have previously preceded recessions. Joe Staton, client strategy director at GfK, said a two-point rise in hopes for personal finances over the next 12 months might reflect optimism after Prime Minister Boris Johnson said he would resign.

Get prepared

So, what can businesses, brands and marketers do to prepare and protect themselves in a recession? Here are six key points for consideration:

1. RETAIN TALENT

In a recent Gartner study, 58% of CMOs said their teams lack the capabilities required to deliver their brand strategy. Internal resources are suffering, not for the lack of skill set, but for lack of personnel. The Great Resignation is still here and, according to Bloomberg’s latest employment data, shows no signs of slowing down. In H1 2022, millions of workers voluntarily left their jobs. Gartner confirms 2022 continues to experience a historic surge in talent demand, even with a recession on the horizon. Protect, reward and nurture your talent to ensure you have the best people on hand to help navigate a tricky recession period. As a brand’s internal capacity fluctuates, an external marketing partner can offer strategic solutions at-scale with creative content production as campaign needs ebb and flow.

2. UNDERSTAND YOUR CUSTOMERS’ CHANGING NEEDS

What are consumers looking for? A recession rapidly changes consumer mindset and needs. Confidence crashes, financial pressure rises, and consumers typically shift their focus towards core values, such as stability, trust and quality. In previous recessions consumers stopped dining out and instead shifted their spending to essentials and ‘everyday’ luxuries, increasing their spending on retail food purchases overall. Typically, we have seen ‘a move away from the middle’ with consumers switching away from mid-tier brands and seeking out bargains or moments of indulgence and luxury. With inflation at a record high, more people are looking for value, so consider how you are adding value to your customers and rewarding loyalty. This is not about a race to the bottom and discounting though.

3. BE AGILE

Be prepared to change and adapt. The businesses that do well in a recession will be the ones that prepare now and pivot by thinking differently, moving quickly and working efficiently. When you need to move and respond fast there is no room for misinterpretation. With your partners and agencies ensure they are in complete alignment with a brand’s culture, strategy and core values. You also need to trust them to be able to think differently and challenge the status quo. A different trading environment and customer mindset needs a different approach and creative execution. Recessions are often a time for brands to stand up and stand out from the crowd.

4. GET TECH'D UP

A crisis naturally accelerates the need for innovation; we witnessed this during the pandemic with businesses’ increased use of digital, virtual, and cloud technologies. We saw the rise and fall of brands based on their ability (or inability) to be agile and adapt to rapid change in technology and marketing technology needs. In the same way, a recession will accelerate brands’ necessity to embrace technology to meet the increased demands of competitors. As the trading environment becomes more competitive, consumers will make decisions based on service and experience, as well as price and product.

5. SPEND WISELY...BUT KEEP SPENDING

Well, as an agency we would say that, wouldn’t we, but hear us out. While the knee-jerk reaction during a bear market is to sell and cash out (or in a marketer’s world, cut budgets and expenses), we really should be doing the opposite. Think of it like this: if we can assume most marketers will follow suit with trends of the past, they’ll pull back their efforts when the recession hits. That’ll leave your company to swoop in and take over a larger market share. While your competitors are disappearing from your target consumer’s eye, you could increase your business’s presence and revenue. But that said, now is not the time to place big bets with your marketing spend, but rather keep diversified. If all your eggs are in one channel, you’re increasing the risk of financial failure should that singular avenue take a dive. Now is a great time to place small bets on emerging ad technologies to test and trial.

6. PRIORITISE FIRST-PARTY DATA

Consumer behaviours are affected during a recession, and not necessarily in the same way every time. Smart first-party data is crucial to keeping up with changing behaviours so your campaigns remain relevant and timely. When it comes to marketing, data-driven efforts are king. But acquiring third-party data has become increasingly difficult – especially after iOS14.5. If you’re not careful, third-party can drive up expenses without adding value to your campaigns. Now more than ever, businesses need to establish self-sustainability by capitalising on their first-party data and using the strong intent data they already have in-house to drive sales.

So these are some guiding principles rather than exact instructions (sorry) and the reason for that is no-one has traded your business in todays conditions with your unique client and audience. Anyone that tells you they know all the answers is lying. But the ability to adapt, listen to your customers changing needs and keep testing and learning will stand you in good stead. If you would like to speak to one of the Everything Connected team about how to prepare your brand, connect your audiences and supercharge your growth - LETS CONNECT