No two downturns are the same. But in studying the marketing successes and failures of dozens of companies in recessions since the 1970s, Harvard Business School professor John Quelch and research associate Katherine Jocz have picked up some lessons on consumption patterns that might help you in coming months.
It starts with the fact that consumers sort products and services into four categories: essentials, which are necessary for survival; treats, indulgences whose immediate purchase is considered justifiable; postponables, needed or desired items whose purchase can be reasonably put off; and expendables, items that are unnecessary or unjustifiable.
With that in mind, you must supplement your normal segmentation of customers by dividing them into four, fit-for-a-recession groups the academics present in Harvard Business Review, taking into account emotional reactions to the economic environment:
SLAM ON THE BRAKES
This group feels most vulnerable and hardest hit financially, and reduces all types of spending by eliminating, postponing, decreasing, or substituting purchases. Although this segment is more likely to include lower-income consumers, some higher-income folks can adopt this frosty mentality, particularly if health or income circumstances worsen. Even essentials will be jettisoned for lower-cost products or private-brand substitutes - and they simply won't consider treats or expendables, and will postpone what can be postponed unless forced to make an emergency replacement.
PAINED BUT PATIENT
These consumers 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. This is generally the largest of the four segments. Like those who slam on the brakes, these consumers seek to economize in all areas, but less aggressively. They will stock up on good deals of their essentials, or seek cheaper, less-preferred alternatives. They will cut back somewhat on frequency and quantity of treats, and emphasize value. They will postpone major purchases where they can, repairing rather than replacing; value and low-ownership costs will be uppermost in their minds for postponables, and they will give up extra features. Expendables will be deeply curtailed.
COMFORTABLY WELL OFF
These consumers, the top 5 per cent in income, feel secure about their ability to ride out current and future bumps in the economy, and so they consume at close to their prerecession levels. There is no change in their pattern of purchases of essentials, although they will be slightly more selective in purchasing luxury treats. They will still buy postponable items, but seek better quality for the price or negotiate harder. It's rare that they view anything as expendable, but may reduce some conspicuous consumption.
LIVE FOR TODAY
Typically urban and younger, this group carries on as usual, not worrying about savings. They not only continue to buy their favourite brands of essentials but also stick to their favourite treats. With postponables, they may buy if there is a good deal, although if there isn't they could extend their timetable for purchase and wait. They are reluctant to consider any customary purchase as expendable, although they may not expand their consumption to new types of purchases.
