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The importance of understanding the psychology of your clients in an economic downturn

Build business strategies around your clients' mindset
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Build business strategies around your clients' mindset
Siobhan Stirling - Sharp Minds Communications for Capital Space by Siobhan Stirling - Sharp Minds Communications for Capital Space
Owner/Director - Sharp Minds Communications Ltd

Consumer confidence is one of the keys to the economy, but of course there is no such thing as one approach to any given situation. Understanding how your customers might be responding to the unprecedented challenges created by the coronavirus pandemic can help you create successful strategies to engage with them, both during the current economic downturn and when the economy picks up again.

The challenges created by the coronavirus pandemic and the necessary social distancing measures are equally real for all of us, but how we react to them will vary. This presents a problem for business owners: getting your messaging right in this difficult time is going to be a fine balancing act. But, while we are all unique, our behavioural responses generally fall into recognisable patterns. Understanding the psychology of your customers will help you develop marketing strategies that will resonate most successfully with them, either to retain their trade or to keep successful dialogue going with them, so you are the brand they turn to when they feel more confident again.

There are many different schools of thought on customer profiling, but one of the most relevant in the current situation was expounded by Quelch and Jocz in their paper How To Market in a Downturn, published in The Harvard Business Review. They split customers into four categories of typical behaviour in an economic downturn:

Slam on the brakes

As the name suggests, this category of customers is likely to stop all but essential spending. They will typically be in the sectors and levels that are hardest hit financially; in more normal recessions this might mean they are typically the most vulnerable workers, and in the current situation we can expect this to include many in the gig economy. But the impact of the coronavirus pandemic on entire industries – airlines and hospitality being obvious examples – means this definition might be extended to workers who in previous downturns might have been more secure. Government measures to try and protect jobs might alleviate the pressure on some of these consumers, but that will in turn be affected by how long the pandemic and the associated emergency measures last.

Pained but patient

These consumers are relatively optimistic about the long-term, but they lack confidence in their short-term position or their ability to maintain their standard of living. In previous recessions, this has typically been the largest sector of consumers, but there is fluidity between ‘pained but patient’ and ‘slam on the brakes’, with more consumers switching to end all but essential spending the longer a downturn continues.

Comfortably well-off

Often more affluent and with savings, the comfortably well-off feel more confident that they will be able to ride through short-term economic downturns. However, the social distancing required to slow down the spread of the coronavirus means that even this sector will be spending less as they simply have fewer opportunities to purchase.

Live for today

Perhaps not surprisingly, those in the ‘live for today’ subsector are generally younger and more likely to live in cities and bigger towns. Many of them have yet to adopt savings habits, so they are more inclined to carry on spending as normal; however Quelch and Jocz identify that they often respond to economic uncertainty by pushing back major purchases. They may not decide to cut back on takeaways, especially when they can no longer go out for a meal, but they may opt to postpone buying a new high-tech TV.

What your customers’ ‘recession’ profiles mean for your business strategies

Identifying your customers’ recession profiles is the first step in developing effective marketing strategies for the changed realities of the economy. Your product/service offering will also have to be factored into your strategies:

  • If you produce essential items, you may be able to deliver quick wins even among ‘slam on the brakes’ consumers, especially if you message the value for money that you offer
  • If you produce affordable treats, emphasising the mental/health benefits of your offering, potentially coupled with short-term price-cutting strategies or offering more affordable/smaller purchasing options, could help you secure orders from ‘pained but patient’ consumers struggling with cabin fever and social isolation. For example, a woman who is feeling deprived from her regular visits to her beauty salon might well be tempted to spend on some DIY pampering.
  • If you produce high-end luxury items, your marketing strategy may be more about ongoing engagement to build an interested fanbase for when confidence returns, coupled with some flexible payment options to secure some immediate orders to manage your cashflow in the interim.

Understanding the psychology of your customers and how they are likely to respond to the coronavirus situation will help you develop strategies and messaging that resonate with them in the current climate.

MEET THE EXPERT

Siobhan Stirling is the director of award-winning marketing and PR agency Sharp Minds Communications. She is currently partnering with a business coach and accountants to offer up to 90 minutes’ free business strategy advice to companies in Kent and Sussex and to Capital Space clients. Read more about this offer here.

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