How should we respond as the economy veers from shortages to inflation and likely recession? We are currently in an extraordinarily challenging business environment that features all three at once, and these forces transform the way people purchase goods and services.
These are not easy times for businesses, and I would not want to suggest that I know all the answers. This article draws upon Philip Kotler’s classic marketing textbook “Marketing Management: analysis, planning and control” to look at the implications of inflation and recession for product marketing, marketing budgets, propositions and campaigns. Marketing texts usually focus on consumer marketing, but as companies in B2B markets usually operate within the supply chain for consumer goods, the same forces apply to them too.
Effects of inflation on B2B markets
Inflation is a typical consequence of shortages. Last year we saw component shortages raise prices, this year there are energy shortages. Inflation also comes from high wage settlements and government policies that expand the money supply, i.e. Quantitative Easing. As I write this, all of these forces are hitting the UK economy and causing significant inflation, currently running close to 10%.
Inflation pushes costs up faster than incomes, and directly reduces the spending power of individual buyers and companies. People become more cautious, and are likely to defer large purchases, cut out non-essential purchases altogether and may decide to “trade down” or buy economy brands or solutions. Businesses are likely to respond by finding ways to save money. They may do more in house, scrutinise prices more carefully or may push for agreements with long-term fixed prices. Companies also take more time to pay invoices.
However, this cost-sensitivity doesn’t affect everyone equally. Individuals or businesses with greater financial strength are cushioned from the pain, so there may be segments of a market that can maintain their usual buying habits.
Inflation hits companies’ costs, profits and share prices, so product marketing, pricing and marketing campaigns may need to change.
Business responses to inflation
Product and pricing decisions are crucial during inflationary times because they impact a company’s profitability and market share in the longer term. If a business cannot raise their prices as costs rise, their profits will fall. This means that if inflation is serious they will need to address this.
Companies may be able to reduce overhead costs without raising prices if they can cut out less profitable lines and offer customers less choice. Alternatively, a business might introduce an economy range of goods and services. They could also un-bundle services, for example they could offer training separately. A third option might be to look for lower cost distribution, maybe moving to online channels instead of traditional distribution partners to try to maintain market share.
Most companies will need to pass the higher costs on to their customers if they can, or at least stop discounting. We may see “shrinkflation”, the classic move to smaller packages, and reductions in quality or features when costs are under pressure.
However, some companies may not be affected. Those with premium brands may still be able to sell at higher prices, and will not want to damage their brand by going “economy”.
Opportunities in inflation and marketing messages
As inflation brings cost pressures, businesses tend to cut their marketing budgets. This is never welcome and brings the risk that customers might leave in favour of other suppliers who maintain their visibility as usual. In reality, inflation increases marketing costs so marketing departments ideally need more funds, not less!
However, inflation can bring market opportunities. For example, corporate buyers looking for new ways to control costs might engage with suppliers they would not normally consider. For example, a business might trade down from a large PR agency to a smaller boutique agency. Therefore, a marketing campaign for an inflationary period might address larger customers who are trading down.
A marketing campaign can still succeed if the proposition fits the inflationary scenario. If the market is expecting price increases, “buy now and save” offers can work, or any kind of price offer aimed at customers looking for bargains. Alternatively, companies that cannot offer reductions may simply decide to explain their pricing policy to customers.
Business responses to recession
Unfortunately, the government policies designed to cool inflation are likely to trigger recession and unemployment, so a recession often follows a phase of inflation. A recession brings slower growth and fewer orders. A company’s response to a recession will depend on how long they believe the recession will last, how deep it will cut, and how many regions and customer groups it will affect.
Recessionary conditions are tough for businesses and confidence is low. As with inflation, consumers and B2B buyers will exercise more caution with purchases, look for cost savings, cut non-essential purchases and “make do”. People spend their money differently.
A recession is the toughest time to be a sales manager but, as with inflation, there are brighter spots. Those customers with deeper pockets will feel less impact. How much a recession will affect a business will depend upon the nature of its offering, i.e. whether its offer is essential or expendable. There are such things as recession-beating products, they are the goods and services that people will never stop buying. In consumer markets they could be everyday foods and pharmaceuticals. In B2B markets they might be data centre services, enterprise software or waste management services.
Marketing strategy for recession
During a recession, businesses find it difficult to maintain revenues because they sell less. They might streamline their portfolio to cut operating and marketing costs, or they might withdraw from less profitable ventures and look for more promising new ones. For example, UK companies have sometimes been able to succeed in a recession by entering new export markets with better potential for revenue and growth.
In a recession, weaker competitors may drop out of a market or be acquired. This leaves space for stronger players to acquire market share if they can maintain their marketing spend. Some companies may decide to target competitors’ customers with economy goods and services, while others may decide to offer enhanced service levels as a way to cement relationships and hold on to their customers.
Marketing decisions for recessionary times
Marketing departments, under pressure to do more with less, will be keen to show a return on marketing investment and to continue to enable sales and revenue. This is the best way to defend against budget cuts.
During the Covid pandemic, much of our marketing shifted to digital. Now may be the right time to review the digital platforms and prioritise them according to their effectiveness and ROI. This is because digital channels change quite fast, privacy legislation is evolving rapidly and the dynamics of these channels are always changing. For example, it’s now more expensive to reach customers through social media. In a recession it could make sense to focus on the top few channels and excel with those.
Many marketing managers will shift funds away from brand awareness to leads generation and conversion campaigns, although the best-known brands will still invest to retain trust in their name. A recession is clearly not the right time for a costly re-brand which may confuse customer perceptions.
Content marketers have always been adept at re-using content. This is even more important when funds are very tight, so they will be looking for more ways to recycle creative work and re-purpose it to use in different situations.
Marketing departments may also look for lower cost suppliers, bargain harder with existing providers, or find ways to do more in house.
B2B Marketing for inflation and recession – messages for tough times
Companies often respond to a recessionary business climate with aggressive price offers. In this case, their marketing messages should focus on competitiveness because it is not credible to offer premium quality and low cost both at once. Which to choose will depend upon the market’s perceptions of the company’s brand. For example Dell, a premium brand, weathered the 2009 downturn with messages aiming to build customer trust. Companies that are not premium brands might use a price-cutting campaign to attract customers away from competition and try to build market share.
During a recession, it is good if marketing messages can show empathy towards customers and acknowledge their state of mind. It can also be useful to focus a campaign around how the company’s product or service could save its customers money.
Finally, the “noise” level is higher than ever before. Everyone is bombarding the same individuals with messages so it is harder to grab attention. Keep in mind that people may only read the first 100-150 words of a message, and keep communications concise and clear.
Sources
Harvard Business Review
https://hbr.org/2009/04/how-to-market-in-a-downturn-2
Forbes
Philip Kotler “Marketing Management: analysis planning and control
Gartner
https://www.gartner.co.uk/en/marketing/research/recession-playbook-marketing-leaders
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