During economic downturns, it's common for consumers to reduce spending and become more price-conscious. This shift in behavior can cause changes in their preferences and buying habits, such as opting for lower-priced products or focusing on essential items instead of luxuries. These changes can have a significant impact on businesses and industries, especially since different consumer segments may be affected in unique ways.
To effectively respond to these changes and adjust your marketing strategy to suit recessionary consumer behavior, check out our comprehensive list of marketing strategies adapted to economic hardship. Read about how prominent DTCs responded to the 2008 recession and get valuable insights on navigating the upcoming recession.
Hands-on recessionary marketing strategies for DTC brands
During a recession, consumer behavior changes can significantly impact brands, including their marketing strategy. To adapt to these economic changes, e-commerce businesses can implement various strategies to target affected consumers. Studies have shown that rather than reducing marketing costs, amending marketing strategies to recessionary times is crucial for businesses to navigate this period successfully.
Our extensive list of marketing strategies tailored to economic hardships provides insights for companies looking to adapt their marketing strategies to suit recessionary consumer behavior.
Segmentation
DTCs can apply the concept of "Consumer Segments' Changing Behavior" by being aware of how consumers' preferences and spending habits may change during an economic downturn and adapting their marketing strategies to these new segments.
John A. Quelch's concept, as outlined in his article for the Harvard Business Review, suggests that consumers typically categorize products and services into four groups based on their perceived importance and value:
Essentials: Products or services that are necessary for survival or considered crucial to well-being.
Treats: Items that are considered indulgences and can be justified for immediate purchase.
Postponables: Products or services that are desired or needed but can be reasonably delayed in their purchase.
Expendables: Products or services that are perceived as unnecessary or unjustifiable.
Targeting consumers who prioritize necessities and offer products that align with these transitory needs can represent one benefit of segmentation. By understanding the specific needs and pain points of different segments of consumers, DTCs can create more effective marketing campaigns. They can also use this information to develop products or services that better meet the needs of these behavioral segments. Read more about how consumer behavior changes during economic recessions and how to tackle this.
Pricing Strategy
Adjusting the pricing strategy to appeal to price-sensitive consumers is a go-to strategy during recessions. This can include deals, discounts, or subscription models offering more value. Subscription models can bring major benefits such as recurring revenue, a steady cash flow, predictability, a higher customer lifetime value, and more control over the quality of goods and services.
The pricing strategy can include bundled products or services at a discounted price or loyalty programs that reward customers for repeat purchases. Additionally, DTCs can also provide financing options or layaway plans to make it easier for consumers to purchase their products.pcoming recession.
Product positioning
During economic downturns, brands should position their products as necessities rather than luxuries. For example, highlighting the benefits of their products in terms of cost-saving, convenience, or health and safety. This can help to shift consumer perception of the product from a luxury item to a necessary item that provides value in terms of cost savings, safety, or convenience.
For example, during the uncertain times of the past pandemic, consumers' buying behaviors have shifted towards essential items, with many opting for cheaper alternatives to save money. This has led to a 44% increase in sales for essential goods such as groceries, personal care items, and home cleaning products.
Also, during the COVID-19 pandemic, brands successfully repositioned their products as essential items by emphasizing their value in terms of health and safety. An example is cleaning and disinfecting products, which became more critical than ever before, and sales of hand sanitizers increased by over 400% in March 2020 compared to the previous year.
In contrast, sales for non-essential items such as luxury clothing and accessories have declined. However, some DTCs have successfully changed consumers' perceptions of their products and turned them into necessities. For example, the meal kit delivery service Blue Apron has emphasized the convenience of its service during the pandemic, resulting in a 21% increase in its customer base.
Similarly, online eyeglasses retailer Warby Parker has promoted their home try-on program's health and safety benefits of their home try-on program, resulting in a 27% increase in online sales. By highlighting their products' cost-saving, convenience, health, and safety benefits of their products, DTCs can successfully shift consumer perception of their products from luxury items to necessities, resulting in increased sales and customer loyalty during economic downturns.
Diversify product offerings
When faced with an economic downturn, e-commerce brands can diversify their product offerings to appeal to different segments of consumers. For example, they can offer a budget-friendly line of products for price-sensitive consumers or expand their product line to include items that are more relevant to consumers' needs.
For instance, offering a budget-friendly line of products for price-sensitive consumers can help increase sales and attract a wider customer base. In fact, according to a survey conducted by McKinsey, over 75% of US consumers have changed their shopping behavior to save money during the pandemic. The same goes with the past year’s inflation that has turned consumers' attention to generic and store brands in their attempt to cut spending. Offering a low-cost version for the same products might be a good starting point, as well as expanding their product line to include new items and tapping into a growing market of cost-efficient products.
Flexible payment options
Companies can offer flexible payment options such as financing or layaway plans to make it easier for consumers to purchase their products. This can help to increase sales by making it easier for consumers to afford the products and can also help to build customer loyalty by offering a convenient and flexible buying experience.
Offering a buy now, pay later option can increase your average order value (AOV) even during recessionary times. Reports suggest that the use of buy now, pay later services has increased during times of economic hardship as consumers seek out ways to stretch their budgets and manage their cash flow. Additionally, some studies have found that consumers who use the buy now pay later services are likelier to spend more overall than those who do not.
Supply chain and logistics
The pandemic has had a significant impact on global supply chains, revealing vulnerabilities and highlighting areas for improvement. According to a report by McKinsey & Company, 73% of companies experienced supply chain disruptions due to COVID-19, and 75% of them reported a negative impact on their businesses. One of the main issues was a lack of visibility into supplier risks and inventory levels, which made it difficult to respond quickly to disruptions.
Many companies relied heavily on single-source suppliers or offshore manufacturing, which increased their vulnerability to disruptions. To improve supply chain resilience, brands should explore options such as diversifying their supplier base, increasing inventory levels, and investing in digital technologies to improve visibility and agility.
Given these post-pandemic learnings, DTC brands can work on building stronger relationships with local suppliers or invest in technology to improve their logistics and delivery capabilities. This can help to increase the efficiency and speed of their supply chain and logistics processes, making it easier for them to get products to market quickly and at a lower cost.
Partnerships and collaborations
To expand their reach and attract new segments of consumers, brands can also initiate partnerships and collaborations with other companies. Partnering with other companies in the same industry or in complementary industries can provide the opportunity to share marketing costs and resources and reach new customers.
Also, e-commerce brands can leverage the reputation of the partner company to gain credibility and trust with new segments of consumers. Partnerships can also help DTCs to access new distribution channels and expand their reach in the market.
Five examples of DTCs and their recession-proof marketing strategies
Understanding how to overcome economic downturns and even thrive during such times can be done by looking at successful DTCs that navigated the past recession and gracefully recovered by adapting their marketing strategies to the changing consumer behaviors. Also, the type of products and services offered played a major role as consumer spending on non-essential items such as luxury goods decreased, but spending on necessities such as food and personal care products remained stable.
Bonobos, a DTC clothing brand, was founded in 2007, just before the 2008 recession. According to its co-founders, Stanford MBA students Andy Dunn and Brian Spaly, the company navigated the recession by focusing on its online sales and customer service, as well as its unique business model. Bonobos allows customers to try on clothes in showrooms before ordering them online. This approach helped the company to stand out from its competitors and attract customers who were looking for a more personalized shopping experience. This has grown Bonobos into a 100-million-dollar company in just shy of 10 years – success that’s been built on a strong, unique proposition, outstanding service, and customer convenience. All before the eCommerce trends developed into a DTC industry with sales of $151.20 billion in 2022 in the US.
Warby Parker, a DTC eyewear company that launched in 2010, just as the recession was ending, differentiated itself by offering stylish, affordable eyewear. Contrary to most advice, the company reduced its marketing budget and focused on building its e-commerce platform, which helped to drive sales and reach more customers. Warby Parker introduced a "Home Try-On" program, which allowed customers to try on glasses in the comfort of their own homes before making a purchase. Another differentiator was the "Buy a Pair, Give a Pair" program. which donated a pair of glasses to someone in need for every pair purchased. This combination of fashion and social responsibility resonated with consumers, and Warby Parker experienced rapid growth during the recession.
Although Everlane was founded in 2010, a few years after the 2008 recession, the clothing brand was impacted by the recession too. The DTC implemented some differentiators that helped it stand out, such as its transparent pricing. Everlane's business model is based on transparent pricing, which means that the company reveals the cost of making each product. This approach helped the company to differentiate from its competitors and attract customers who were looking for value and transparency. Adding a strong focus on sustainable and ethical production helped the company attract customers looking for products that were made in a responsible way. In the quest to capitalize on the e-commerce trends that derived after the 2008 recession, Everlane heavily relied on digital marketing, which helped to reach a large audience and build its brand.
Birchbox, a beauty products subscription company, was founded in 2010, just after the 2008 recession. The DTC brand almost pioneered a new business model that revolutionized the e-commerce industry in the early 2010s. The New York-based company was valued in October 2014 at $485 million. The subscription box was initially a huge success, especially since its co-founders saw an unexplored opportunity: handing out samples and tracking the conversion to buying full-sized items. Birchbox presented itself to beauty brands as a way to track return on sample costs and provide them data about purchasing behavior. The company applied strategies such as affordable pricing introducing new luxury brands to their consumers, and personalization. But, the beauty box curators managed to successfully navigate the recessionary aftertimes mainly by deploying the subscription model, generating recurring revenue, and predicting future sales, two very important factors in the success of any DTC.
Dollar Shave Club is probably one of the most successful DTC stories ever told: it was sold for 1 billion to FMCG giant Unilever in 2016. The Dollar Shave Club is another subscription razor company founded in 2011 that successfully navigated the aftermath of the 2008 recession by implementing marketing strategies adapted to the economic downturn. The DTC company increased its online presence by investing in digital marketing and social media advertising. Dollar Shave Club also deployed its pricing strategy to include cognitive biases such as the decoy effect applied to their pricing plans. The strong brand behind Dollar Shave Club is based on creating a consistent and compelling brand message, mixing humor in their marketing to stand out in a crowded and established market.
Track the results of your marketing strategies with Admetrics
DTC brands can use data to understand how different consumer segments are affected by the recession and adapt their strategies accordingly. This involves analyzing sales, customer feedback and conducting market research to gain valuable insights into consumer behavior and preferences.
For e-commerce brands, Admetrics Data Studio provides a powerful tool to test marketing strategies. The marketing analytics platform offers a wide range of features, including aggregating over 100 metrics, a Bayesian statistics engine, and a privacy-compliant ad-tracking solution that works across different browsers and devices.
With a prolonged free trial, brands can explore and test all these functionalities. By making data-driven decisions based on insights gained from analyzing marketing performance, you can enhance your strategies and achieve better results.
Start your free trial today and get data-driven insights to elevate your marketing performance.
