What Marketing Leaders Should Do NOW to Prepare for a (Possible) Recession

0
121 views

Share on LinkedIn

B2B marketers have faced a parade of unprecedented challenges since COVID-19 reared its head in early 2020, and it now appears that 2023 will bring a new round of challenges. Faced with the highest level of inflation in four decades, the U.S. Federal Reserve has dramatically tightened monetary policy in an effort to cool an overheated economy.

The Fed's Open Market Committee has already raised the target federal funds interest rate 3 percentage points this year, and it's likely we'll see more interest rate hikes by the end of this year. The Fed is also reducing the size of its balance sheet, which effectively tightens financial conditions.

As a result of the Federal Reserve's restrictive monetary policy, fears that the U.S. economy is heading for a recession have increased substantially. Some economists fear that the Fed will tighten too much or keep the restrictive policy in effect for too long and thus fail to engineer a "soft landing" for the economy. Others believe that inflation will be so stubborn that the Fed will have no choice but to tighten monetary conditions so much that a recession becomes inevitable.

Growing fears of an economic downturn have dominated the business media for the past several months, and these concerns have also spawned a boatload of articles and blog posts about how companies should manage marketing in a recession. A Google search yesterday using the term marketing in a recession produced more than 4 million results even when I limited the search to the past three months.

Many of the recently published articles have emphasized the importance of continuing to market and advertise during a recession. This line of reasoning isn't new. In fact, multiple studies dating back to the early years of the last century have repeatedly shown that companies that maintain their spending on marketing and advertising during an economic downturn outperform those that slash their marketing and advertising budgets.

The results of these studies are compelling, but they are also counterintuitive. Most business leaders instinctively believe it's necessary to reduce spending in a recession. Smaller companies may have to reduce costs in order to conserve cash, and large, public companies often reduce expenses in an effort to preserve margins and earnings per share, both of which have a substantial impact on stock prices.

These are powerful motivations, and marketing leaders are unlikely to convince CEOs and other senior company leaders to maintain marketing budgets simply by citing the studies referred to above.

What Marketers Can Do Now

So, what should marketing leaders do now to prepare for the possibility of a recession? The first critical step is to conduct a thorough and objective assessment of how a recession would be likely to impact their company. This step is essential for two reasons.

First, recessions are not one-size-fits-all even at the macro level. They can differ substantially in both intensity and duration. For example, the "Great Recession of 2008-2009" is widely regarded as the worst economic downturn since the Great Depression of the 1930's. GDP fell as much as 2.6%, the national unemployment rate reached 10%, and the downturn lasted 18 months.

In contrast, the so-called "Dot-Com Recession of 2001" was relatively mild and short. GDP fell by 0.95%, the unemployment rate reached 5.5%, and it lasted only eight months.

No one can know, of course, what the next recession will be like. Many economists believe that if the U.S. economy goes into a recession later this year or in 2023, it's likely to be relatively mild.

Marketing leaders must also remember that a recession will not impact all types of businesses equally. This was dramatically illustrated during the COVID-19 recession of 2020. Public health measures instituted to combat the pandemic essentially cratered business conditions for companies in the travel and hospitality industry, while online retailers such as Amazon and other companies with strong ecommerce operations saw their revenue and profits grow explosively. The COVID-19 recession was unusual in several ways, but unequal impacts have been seen in virtually all recessions.

To assess how a recession could affect their company, marketing leaders must analyze how it is likely to impact their company's customers, and perhaps their customers' customers. This is a bottom-up analysis, but the specific approach will vary depending on the structure of the company's customer base.

If, for example, a company derives a significant percentage of its total revenue from a small number of large customers, marketing leaders should assess the impact of a recession on these customers individually. For smaller customers, the best approach is to group customers based on type of business and evaluate the potential impact of the recession on each of these customer groups or clusters.

The objective of this assessment is to enable marketing leaders to forecast how a potential recession would affect the demand for their company's products or services and thus their revenue. The critical point here is that this assessment needs to be done before company leaders make decisions about whether or how to change marketing strategy, tactics or spending during a recession.

Marketing during an economic downturn will never be easy. The best approach can require company leaders to go against their instincts and conventional business wisdom. Recessions can create substantial economic challenges for some companies, but recessions don't equally affect all types of businesses. For many companies, a recession is not the time to stop spending money on marketing, but it can be the time to change how marketing dollars are spent.

The best way to market during a recession will always be company specific, and the best way to discover the right approach to marketing for your company is to begin with a thorough and objective evaluation of how the recession is likely to impact your customers.

Image courtesy of www.creditdebitpro.com via Flickr (CC).

LEAVE A REPLY

Please enter your comment!
Please enter your name here