In 2009, John Quelch of Harvard Business School wrote a watershed article for the Harvard Business Review, describing how customer behaviour changes dramatically in a recession.
He explained how there are 4 different kinds of buyers – ‘slam-on-the-brakes’, ‘pained-but-patient’, ‘comfortably-well-off’ and ‘live-for-today’ – and outlined how they react in a recession and how their habits change. Brand switching, economizing, product switching, purchase postponement and many more go into overdrive during a downturn.
His major points in the original article were:
- All customers segment purchases into essentials, treats, postponables and expendables
- As priorities change, customers’ views of these categories shift, such as household services (cleaning, lawn care, snow removal), moving them from essentials into expendables for example
- Products and services as eating out, travel, shows & movies, clothes, cars, appliances, and consumer electronics can “quickly shift in consumers’ minds from essentials to treats, postponables, or even expendables, depending on the individual”.
- Customers often substitute purchases in one category for purchases in another, perhaps swapping eating out (a treat) for cooking at home (an essential).
- “Because most consumers become more price sensitive and less brand loyal during recessions, they can be expected to seek out favorite products and brands at reduced prices or settle for less-preferred alternatives”
Well, it’s now 5 years since that article was published. With light finally appearing at the end of the recessionary tunnel, I revisited his essay this week to see what lessons might be in there for business owners wanting to ensure they adopt the right strategy as the recession comes to an end, both to lure back old customers and keep the customers they have acquired during the recession, whilst continuing to acquire new ones.
John Quelch says:
“Survivors that make it through this recession by focusing their attention on consumer needs and core brands will be strongly positioned for sunnier days ahead. However, companies must understand how people’s behavior may change following the recession so they will be able to offer products and communicate messages aligned with the(ir) needs…”
The long and short of it is that customer insight and intimacy during this time of change is critical. The more information you can get on customers, at the point of service delivery, the better your chance of seeing how their tastes, habits, behaviours and priorities are changing.
“…it’s critical to track how customers are reassessing priorities, reallocating budgets, switching among brands and product categories, and redefining value… As the recession winds down, consumers will regain buying capacity but possibly will not return to their old purchasing patterns.”
It’s vital therefore that you get as much customer feedback as you possibly can during this important time.
Are your customers staying with you because they are economising, or are they genuinely happy with your service?
Are they simply staying with you until they feel a little better off financially?
And what about the customers you lost to cheaper competition during the recession?
Will they come back to you, or will they stay with the newer substitute products they have switched to?
You need to sense your customers’ feelings towards you as often as possible now that the brakes are coming off spending, to ensure you’re as fully aware of their changing needs as possible. Plus, if you are delighting them, they will tell all their contacts and friends, who will also be in a ‘poachable’ position.
Quelch points out that once people feel a few more dollars are available in their pocket, they start to look around to see what else is out there. It’s been nearly six years since the recession began in 2008, which is a long time for customers to economize. At a hint of more disposable income, habits start to change.
“Most consumers will be ready to try a variety of new products once the economy improves. Companies that wait until the economy is in full recovery to ramp up will be at the mercy of better-prepared competitors.”
Preparation is essential, and seeking regular customer feedback – as regular as weekly in some cases – could be the difference between a slow recovery for your business, or a massive competitive advantage and runaway success.
In summary, seek feedback at every opportunity over the coming months. Be absolutely sure which customers are happy and which are not, and map those against the 4 customer groups above – work out what’s changing out there. Fix any problems your customers may have straight away, and in the process you’ll get an even more loyal customer for life, who tells everyone how great your business is.
There are fast-changing and exciting times on the way in 2014, and it will be easier than ever for you to sway new customers to your offering if you stay close to your buyers, and get it absolutely right for them.