Staying Relevant In A Recession: Today's Top 4 Market Segments

Product marketing 📈 Dec 18, 2020

Conntext: This article is a post of mine from the start of the year on Hackernoon.

Everything in business starts with the consumer. As time changes, the mental state & consumption habits of your target are also changing. What product/service could be an essential need today may become a treat tomorrow or an expandable in a week. Waves are always changing directions.

It’s hard to think about tomorrow

The beauty of life is that it always changes. And we don’t get a sneak peek of what the future looks like. There is a downturn in the market, but a recession seems more plausible each day. This comes with a new set of challenges for each of us. Today, I’ll focus on the marketing scene. Everyone responsible for these actions in their company knows the unsettled waters that are going to come.

Your current marketing tactics are short term focused

Marketers always forget that the rise in sales isn’t caused by their great advertising solely. Purchases depend on consumers having enough income, feeling confident about their future, believing in business and the economy, and embracing lifestyles and values that encourage consumption. Some marketers blinded by the good economy adopt the undesired consensus bias (egocentric) and fortify themselves with naive realism (ignorance) to keep their new tendency protected. Ignorance is bliss. Once again, we (re)learn that the economy is fragile. Marketers have to learn how to handle the crisis and how to recover from it. For some fortunate companies, the product-marketing fit has changed a bit. However, for the not so lucky, it just disappeared. Brands have faced existential threats before, and many have shown a remarkable ability to act decisively and often counter instinctively to triumph in times of adversity.

While you still handle the current health crisis, accept the new reality and plan for the recovery phase

Assume things are going to be worse than you think. The market has dramatically tilted.Cutting the budget in a downturn will only help to defend gains in the short term. The brand, your company, will emerge from the downturn weaker and significantly less profitable. (IPA research)Sometimes a shallowly handled essential step in the marketing process is the segmentation. This step is where you discover your audience, understand it, and try to be part of their universe. In the end, to sell them your goods. Segmentation has 3 cornerstones to be coherent and valuable:

  • Demographics analysis: age, gender, income, education, occupation, life stage, family
  • Psychographics analysis: lifestyle, interests, opinions, concerns, personality, values, attitudes
  • Behavioural analysis: benefits sought, buyer journey stage, usage, intent, occasion, user status

Marketers typically to ease up the process segment according to demographics (“between 20–40,” “new mother” or “middle income”) or general lifestyle traits (“traditionalist”, “health-conscious”, “tech-savvy” etc.).

Starting with a new segmentation is the first step.

In a recession, such superficial segmentations may be less relevant than at least one psychological segmentation, which considers consumers’ emotional reactions strictly to the economic environment. This can vary around demographics that could have different behaviors, but we all have the same emotional palette regarding other variables as humans. All big companies that grew thanks to their great marketing effort (lies, good economy to “blame”) smoothly will have to invest more in user research. Which hurts for a culture without the research mentality already embedded. The need for in-depth analysis is eternally there, it lets you focus on what you know rather than what you assume. Essential when it is about your target. A research of all the major past economic crises, made by 2 Harvard professors John Quelch & Katherine E. Jocz, distinguished 4 primary psychological segments that arise during this type of context.

This segmentation allows seeing beyond the ‘target/consumer’ and understands the human behind, without dehumanizing generalized life traits and straightforward stupid demographics.

This segment feels the most vulnerable and hardest hit financially. This group reduces all types of spending by eliminating, postponing, decreasing, or substituting purchases. Although lower-income consumers typically fall into this segment, anxious higher-income consumers can as well, particularly if health or income circumstances change for the worse.

Consumers in this segment tend to be resilient and optimistic about the long term. But less confident about the prospects for recovery in the near term or their ability to maintain their standard of living. Like slam-on-the-brakes consumers, they economize in all areas, though less aggressively. They constitute the largest segment and include the great majority of households unscathed by unemployment, representing a wide range of income levels. As news gets worse, pained-but-patient consumers increasingly migrate into the slam-on-the-brakes segment.

These consumers feel secure about their ability to ride out current and future bumps in the economy.They consume at almost same as before, though now they tend to be a little more selective (and less conspicuous) about their purchases. The segment consists primarily of people in the top 5% income bracket. It also includes those who are less wealthy but feel confident about the stability of their finances — the comfortably retired, for example, or investors who got out of the market early or had their money in low-risk investments such as CDs.

This segment carries on as usual and, for the most part, remains unconcerned about savings. The consumers in this group respond to the recession mainly by extending their timetables for making major purchases. Typically urban and younger, they are more likely to rent than to own, and they spend on experiences rather than stuff (except for consumer electronics). They’re unlikely to change their consumption behaviour unless they become unemployed.

Regardless of which group consumers belong to, they prioritise consumption by sorting products and services into four categories:

  • Essentials are necessary for survival or perceived as central to well-being.
  • Treats are indulgences whose immediate purchase is considered justifiable.
  • Postponable's are needed or desired items whose purchase can be reasonably put off.
  • Expendables are perceived as unnecessary or unjustifiable.
Everyone will reevaluate their consumption habits and priorities, as you can observe, this is already happening.

You may choose cheaper private labels, you will reduce how many times you order food or think twice when invited to go out. As your habits change, your needs will change too..

Be aware of the behavioural changes in your target. They may erase your product from their list, and you still wonder why they don’t buy you anymore.

This matrix has to be part of your future marketing meeting to decide on the new marketing strategy. It would be best if you still had the latest demographics & a map of the new behaviors & habits to have a more detailed view of your target. Your conversion funnels & their KPIs will suffer significant losses (very few will see boosts). It will look like this:

Gather the main learnings from it and misplace it. You will need a new funnel to optimize. After you come up with a brand-new strategy, think about the latest tactics for your psychological segments. Your target may need/choose a cheaper alternative product or a different general communication approach or bundle it with other products.

The same study reveals the broad marketing tactics used by brands during recessing for the newly identified segments.

This matrix could serve as a guideline and inspiration. You have to make the extra move for your business & brand, as there is no one-size-fits-all solution. Either your product/ service is a pain killer or vitamin, you have to understand how people’s behavior will change to begin to prepare.

Consumers’ attitudes and behaviour return to “normal” within a year or two in most recession cases.

Some of the behaviors may become permanent. (the need for good hygiene hopefully will stick further in time). Embrace the future don’t deny it.

Rethinking your spendings is likely your first reaction. How to do that properly?

Re-evaluate all your marketing channels, activities, and their cost-effectiveness. Focus on channels that deliver the most ROI. Gather all your past data & dive deeply into it. It is time for a completely new strategy, not just a small tweak.

If you work with communication agencies, it’s time to re-evaluate them also. Look for consultancy's ability, look for a symbiosis partner, you both have to stay alive.

A tight belt will force brands to focus: research, and adequately analyze the trade-offs of which tactics to follow. The shortage of resources sharpens your mind. As you will find out, marketing is not spending but an investment. Treat it like one—quality over quantity.

The crisis creates a mass burst of tech adoption.

App tools that never foresight such growth before. And people that never imagined they would use these sorts of tools previously. Or utopian concepts like universal basic income. (maybe dystopian) People and some companies worldwide rely on several tech companies to get them through this uncertain period to safety. This could backfire in the end, too much data gathered through the multiple tools used. Pay attention to the data you demand & be transparent as much you can down the road. The crisis represents an opportunity for tech companies to entwine themselves ever more deeply into customers’ lives. This could also be an opportunity (or learning) for some brands to embrace or create more tech solutions. Solutions that now could solve way more customer problems.

In conclusion, the steps to take:

  1. Gather all the available data around your target you have
  2. Gather fresh data about your target through research methods
  3. Adapt your target to the distinct psychological segments (reposition, market-fit)
  4. Build a new strategy
  5. Build the tactics
  6. Re-evaluate the channel mix plan with the new learnings you’ve got. Do a well-rounded trade-off analysis to keep only the high ROI category channels.

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