How to Market During a Downturn – Part 2: Market Psychology in a Recession

Welcome to part 2 of our series on how to market during a downturn. In part 1, we looked and some examples of why you should increase your marketing budget during a recession and take advantage of your competitor’s silence.

Now, we will help you to better understand the market psychology behind a recession and the new types of customers that emerge as a result. With this knowledge, you will be able to effectively target these new customer segments and maximise your profitability during a downturn, as well as in the recovery period that follows (the downturn won’t last forever).

How to Segment Your Customers in a Downturn:

Economic uncertainty is like a dark cloud that hangs over everyone and becomes a major influence on their spending behaviour. With less assurances they will be financially secure in the future, most consumers will begin to take less risks and prioritise getting value for money over their personal tastes.

While you might have previously separated your customers into consumer segments such as “impulse buying”, “environmentally conscious” or “brand affinity”, the new psychology of the downturn demands you look at them in a different way.

This table from Harvard Business Review shows an example of how you can segment consumers during a recession:
Consumer's Segments' Changing Behavior

Dog

Now, based on the Harvard Business Review model shown above, think about where your existing customers fit into each category.

For example, if you ran a pet supply store, then your average dog-owning customer might see your products the following way during a recession:

  • Dog food – essential
  • Dog toys – treats
  • New doghouse – postponable
  • Buying another dog – expendable

Haircut

If you ran a service-based business like a hair salon, then the type of customer is going to be more relevant to how they value your services:

  • Haircut – might be considered essential for someone in an industry that requires they have short hair, but could be postponable for someone who isn’t
  • Colouring – might be a treat for most people, but could be essential for someone who needs to maintain a certain colour
  • Hair extensions – expendable for many during a downturn, but could be an affordable treat for someone with greater financial security

Family Law

Alternatively, if you were a lawyer you may have less to worry about during a recession since you are in an industry that is typically referred to as ‘recession proof’ by economists (lawyers are almost always essential to get certain outcomes). However, when people have less financial security, the relative importance your services might break down as follows:

  • Family law – The urgency for separating couples to get divorced is unlikely to be lessened by a recession and would likely make people want to hasten proceedings so that they can secure their assets and the future care of any children.
  • Criminal law – When people are facing criminal charges, they will try to buy the best representation possible, and less people will be able to afford your services unless you adjust prices. On the flipside, a severe recession can cause an uptick in low-income crime, and therefore a need for affordable criminal lawyers.
  • Corporate Law – Corporate law will be affected in that there will be less demand for mergers and acquisitions, but there will be an increase in demand for insolvency, restructuring and litigation.
  • Wills & Estates – If the impact of recession causes a higher rate of death, then it can be expected to have a higher rate of will disputes, for which the economic incentive of making a dispute is increased due to the downturn.
  • Conveyancing – Some people will hold off on buying a new house when there is economic uncertainty, but others will try to take advantage of lower prices and more options in lower-income housing due to evictions.

Cosmetic Dental

Lastly, certain health industry services can expect a change in how their work is valued, and the impact of a recession on their services of a dentist may look like this:

  • Check-up and clean – Less frequent appointments, as people already put off these visits in normal economic circumstances.
  • Cosmetic dental – People who are struggling financially due to the recession may choose to suffer with cosmetic problems until the economy bounces back.
  • Emergency dental – Those with severe pain from a toothache or another critical issue with their teeth and gums will not hold off on getting the issue resolved because of economic uncertainty.

You can see how the importance of products and services changes for customers during a downturn. The key to successfully engaging your customers during a downturn will be understanding this new perspective.

Start to create profiles of different customers in the downturn based on factors like their needs, age, as well as what type of communication they best respond to.

For dental clinics, here is what a customer profile during a downturn might look like:

Name: Samantha
Age: 25
Financial status: Part-time, or junior level full-time work, may experience salary/wage decrease or denied raise during recession, spends a lot of money on recreational lifestyle which may need to be limited.
Responds to: Social media and internet, TV commercials, radio commercials, emails, word of mouth at work or socialising with friends.
Relationship to business during downturn: Samantha does not routinely make dental appointments and needs to be reminded by family to do so, will look for cheapest and most convenient options to ‘get it out of the way’.
In event of a dental emergency (such as a severely painful toothache) she will want the quickest/closest possible solution RIGHT NOW.

Here’s another example of a recession customer profile, this time for family lawyers:

Name: Mary
Age: 35
Financial status: Housewife, ended career to raise children and depends on husband’s income.
Responds to: TV commercials, radio commercials, magazine ads, word of mouth with other mothers/extended family, social media, emails.
Relationship to business during downturn: Mary wants to get out of her marriage and won’t delay due to a downturn (responding to issues like infidelity or abuse are not postponed to wait for a better economic period), she will want reassurance and understanding from a professional who can guide her through the process and help protect the best interests of her children.

In the case of a hair salon:

Name: Susan
Age: 20
Financial status: Works in hospitality and has had hours reduced or lost their job due to recession, is holding off on non-essential purchases.
Responds to: Social media, internet browsing, in-app advertising, streaming/TV commercials, word of mouth with friends.
Relationship to business during downturn: Is a regular customer when wanting to dye their hair a new colour or get hair extensions but will hold off on those purchases when recession hits them hard and they lack secure income (may move back in with parents who don’t see value in those purchases).

Keep in mind; the downturn won’t last forever, so make sure you are also preparing for when these customer profiles return to their pre-downturn state.

Make sure you return for Part 3 where we’ll show you how to create a new strategy to target the customer profiles that you have just fleshed out.

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