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How Does Consumer Behavior Change During a Recession?

It seems to be human nature to fall into the trap of thinking “this time it will be different” and forget the lessons of the past. These top three ways that consumer behavior changes during a recession may seem obvious, but if you are a B2C business, it is important to keep them top of mind when you become aware of a coming downturn.

1. Consumers will often switch to a less-expensive brand in a recession.

A store brand, or an off brand, may appear to be a better value even if it provides less in the way of features. This can apply to foods, drinks, gasoline, clothing, and all manner of consumer goods.

To help mitigate this reaction, ensure your competitive advantage over the less-expensive product is clear to your target customer. New packaging released prior to the recession could both convey this message and strengthen your brand by making the product feel "fresher," carrying your brand further into the downturn.

2. Consumers will eventually slow down in their purchasing if the recession is long or steep enough.

A sense of uncertainty can lead households to avoid making big purchases such as automobiles or refrigerators unless they are necessary. Discretionary spending can be delayed, and, under the right conditions, often is. Companies should look at past downturns, see what sold best during those time periods, maximize profitability on those products, and then promote them to the segment of the population that is actively purchasing.

While some slowdown in consumer purchasing is inevitable, you can still maximize your profitability during this period. When you know a long or steep downturn is coming, you can build up your cash during the preceding period of growth and later use that cash to acquire competitors who were less prepared.

3. Consumers will be driven to deep discounts, which will result in a margin squeeze on the retailer and in the supply chain.

Discussing potential price promotions with retailers prior to the recession and locking them in for the period of the recession may be a way to proactively manage the squeeze on margins.

While the consumer will exhibit some negative reactions during a recessionary period, there are strategic levers you can pull to successfully navigate these tumultuous conditions. Knowing the downturn is coming three-plus years in advance should provide your business the runway needed to proactively maximize performance while others are reactively making course corrections during the storm.

 

Alan Beaulieu
President