How to protect your brand from a recession when selling on Amazon
Optimizon Amazon experts share their professional insights about how to protect your brand from a recession when selling on Amazon.
Uncertainty about the UK’s economic future abounds. A powerful combination of multiple lockdowns, Brexit, Russia’s war on Ukraine, and recent Government policy decisions, has led to severe business disruption in all sectors. It has also led to a cost of living crisis that will see UK consumers drastically cut spending. Your business, however, is not doomed to suffer in this time of exceptional financial difficulty.
Your Amazon business can survive and even flourish in a recession. Amazon is perfect for customers seeking a wide range of affordable solutions for their daily needs. More people are likely to depend on online shopping as they avoid expensive car journeys and work longer hours. Your Amazon business will endure and thrive if you anticipate and adapt to these changes.
In fact, now could be the perfect time to expand your customer base. We know that many brands cut back on marketing during recessions as an easy way to save money. This ultimately weakens their positions in the marketplace in the long term as competitors gain visibility. Take advantage of the reduced competition in the advertising space to safeguard and improve your brand’s position amongst customers.
Effective planning is key to ensuring your business continues to profit in the upcoming recession. In this paper you will find expert advice from Optimizon’s team of leading Amazon professionals, along with steps you can take to protect your Amazon business.
If possible, don’t cut back on marketing
‘Even during a recession, business is still there. You’ve got to be in the game making sure that you are taking your share of the market.’ – Dean Hawes, Head of Account Management at Optimizon
Experienced marketers swear by the adage ‘when times are good, you should advertise. When times are bad, you must advertise.’ Financially-struggling businesses often reduce advertising budgets and risk losing their greatest assets: their audiences. Meanwhile, those that persist with aggressive advertising strategies are more likely to retain and expand their customer base.
Marketing during a recession – an evidence-backed approach
Research shows you can substantially increase long-term profits by marketing during a recession. McGraw-Hill Research’s Laboratory of Advertising Performance conducted a study of 600 companies’ advertising strategies and sales between 1980 and 1985, a period of global economic instability. The study showed that:
- Businesses that maintained or increased their marketing expenditure during the recession enjoyed considerably higher sales after the economy recovered.
- Businesses that advertised aggressively during the recession had sales 256% higher than those that did not continue advertising.
The Strategic Planning Institute also published a report that analysed the impact advertising had on brand awareness, market share, and profitability in over 1000 businesses. It found that businesses that significantly increased marketing expenditure during recessionary periods gained an average 1.5 points of market share.
Continue advertising your brand and you will remain visible to new and current customers. Advertising spaces are less crowded during recessions, which allows lesser-known brands to gain prominence and become more widely established. This is why recessions are excellent opportunities to expand your customer base and increase sales.
The cost of saving on advertising
‘The recession won’t last forever so brands need to be in a strong place to then gather momentum again.’ – Dean Hawes, Head of Account Management at Optimizon
A study by Millward Brown following the 2008 recession showed that 60% of brands that went ‘dark’ (ie. stopped all advertising activities) saw ‘brand use’ and ‘brand image’ decrease by 24% and 28% respectively. Brands risked greater share loss by making increasing cuts to their advertising budget. This is because marketing plays a pivotal role in fostering customer loyalty.
It can cost 5 times more to acquire a new customer than to keep an old one. Meanwhile, research shows that increasing customer retention rates by 5% increases profit by 25% to 95%. Therefore, it’s vital you maintain strong consumer-brand relationships even during times of economic turmoil.
‘If you continue investing in advertising your brand you can build up trust and a reputation with your customers.’ Robert McGovern, Head of Paid Advertising at Optimizon
Brands with loyal customer bases are far more resilient during economic downturns. You can gain this loyalty by having a strong and recognisable brand identity. Brand marketing is just as important as product marketing in securing customers.
Commit to your brand image and maintain consistency across all campaigns. This consistency helps customers trust your products, and this trust can lead to brand loyalty and advocacy. A cohesive marketing strategy will also help customers remember your brand when making future purchases.
Reducing your advertising costs
‘As nervous businesses scale back their marketing spend in a recession, Pay-Per-Click ads become cheaper, so your brand can make ad budgets go much further.’ Ollie McAninch, Head of SEO at Optimizon
The good news is that maintaining your current advertising presence could cost your business less. A recession on Amazon could result in more traffic to your products, if you hold your nerve on ad spend. The volume of other brands scaling back their advertising spend can bring down the floor price of Pay-Per-Click ads, particularly on Amazon and Google.
Fewer competitors will mean you get more bang for your buck. Similarly, if there is budget available, an increase in ad spend can have a far greater impact within your market. To make the most of drops in demand, ensure that your business regularly reviews bidding costs and strategies in order to drive value wherever it can be found.
How you can effectively adapt your marketing strategy during a recession will depend on your customers. Let us take a closer look at how your customers’ behaviour may change and how you can shape your products to their needs.
Understand your customers
‘Competition is high on Amazon, you need to understand your customer and be clear on what the benefits of your products are.’ – Hallane Hill, Content Lead at Optimizon
We all know ‘the customer is king’ and understanding your customer is key to business success. We can gain great insights into your future customers’ potential mindsets by studying previous recessions.
Harvard Business School professors John Quelch and Katherine Jocz identified four types of consumers that consistently arise in times of financial difficulty. Familiarise yourself with each of these customer types in order to effectively tailor your marketing strategy to their needs.
First, it is worth noting that all customers sort products and services into the following four categories:
- Essentials: non-negotiable purchases required for survival and well-being. Examples include food, housing, and clothing.
- Treats: non-essential purchases that customers can justify. Examples include beauty treatments and restaurant visits.
- Postponables: necessary or desirable purchases that are not immediately urgent. Repair services are examples of postponable purchases.
- Expendables: purchases customers deem unnecessary and unjustifiable. This category usually includes holiday travel and high-priced luxury items.
Different personalities prioritise different areas of spending
Where your products fall may vary from customer to customer. Customer priorities also change as new problem-solving products emerge and become integral parts of daily life. For example, whilst past customers believed high-priced electronic items were expendable purchases, many modern customers believe these are now necessities.
Studies have shown particular personalities have a tendency to prioritise different areas of spending. Research found extraverts tended to spend more on food, drink and going out, whilst neurotic personalities spent more on personal care and beauty products. Different personalities also react in varying ways to changes to the economy.
It is important to consider your audience’s personalities, how they currently perceive your brand and how this may change, particularly as budgets tighten. This will determine your course of action in ensuring your products maintain their appeal.
Let’s take a look at the four types of consumers we are likely to see in the recession and how they typically alter their spending in each category.
Not surprisingly if you have little money in your pocket, you will be wary of spending when things get tight. Slam-on-the-Brakes consumers are low-paid or unemployed people with little disposable income. These consumers meet their financial obligations by cutting spending in all areas where possible.
Consumers with higher incomes can also fall into this category if they are anxious about their future finances. This can be due to changes in health, income or personal circumstances. Studies have shown those who score highly on the neuroticism scale are also inclined conserve money for fear of overstretching themselves financially.
- Essentials: consumers seek cheaper alternatives by substituting preferred brands with affordable labels.
- Treats: consumers significantly reduce spending by going without these products or opting for lower-cost substitutes.
- Postponables: consumers avoid spending in this category unless forced by emergency circumstances. This includes delaying repairs and personal services, such as dental appointments.
- Expendables: consumers eliminate all purchases in this category.
These customers are drawn to brands that focus on value and providing essential every-day-savings. Budget supermarkets Aldi and Lidl saw a great increase in business during the 2008 financial crisis, as they offered customers inexpensive alternatives to mainstream brands.
Focus on long term savings
You can appeal to these consumers by focusing your brand messaging on the long-term savings your products will create. Reassure customers they are receiving excellent value for money they cannot find elsewhere for products that are essential to daily living.
It’s also worth noting that these customers respond well to smaller pack sizes with lower price points and low-cost value ranges. You will have greater success selling your products by offering easily obtainable discounts for single purchases over creating multi-purchase special offers. Demonstrate the immediate value and benefits of making a purchase over delayed or long-term benefits.
These customers may also buy occasional, inexpensive treats. Brands can successfully appeal to customers emotionally with ‘you deserve it’ messaging and by showing their products are easily accessible and affordable ‘little’ luxuries.
These consumers are optimistic about the future of the economy and their personal finances but concerned about maintaining their standards of living in the short term. They cut back on spending in all areas, albeit far less aggressively compared to their slam-on-the-brakes counterparts.
The majority of consumers usually fall into this category, which covers a wide range of incomes. The cost-of-living crisis, however, is likely to see more of these consumers migrate into the former segment.
- Essentials: consumers seek and stock up on preferred brands at cheaper prices or opt for cheaper alternatives.
- Treats: consumers reduce spending by purchasing less often and focusing on gaining value for money.
- Postponables: consumers put off large purchases and try to repair products instead of replacing them. Consumers also focus more on value and low purchase cost over additional features.
- Expendables: consumers significantly reduce spending in this area.
These customers, like slam-on-the-brakes consumers, are looking for the best deals available. Deal-a-day website Groupon had huge success launching in the 2008 recession by attracting customers with this mindset. You can attract these customers by assuring them your brand offers excellent quality at reasonable prices. It is important you show that your products are genuinely useful.
High research shoppers
Experts believe rising inflation will lead to customers spending more time researching potential purchases to ensure they are getting maximum value for money. Look at your competitor’s products and clarify your unique value to customers. This will increase customer confidence when purchasing products from your brand.
It’s important to note these customers also like to occasionally buy small luxury items. In previous recessions, data showed that customers preferred to buy multiple small treats over making a larger purchase. You can effectively target these customers by positioning your products as modest luxury items – something customers can indulge in without feeling excessive or extravagant.
This segment also responds well to messaging focused on escapism. You can tempt consumers by showing your products provide respite from the stress of modern living and managing budgets. Studies show that emotions have a major influence over purchasing decisions, so it can be highly effective to appeal to your customers’ need for comfort during times of financial turbulence.
Comfortably well-off consumers
These consumers are financially-stable and feel confident about their ability to ride out current and future economic difficulties. They have enough savings or income to comfortably maintain their current standard of living. Their spending is unlikely to change much, although they may be less conspicuous in making expensive purchases.
- Essentials: consumers continue buying preferred brands at pre-recession levels.
- Treats: consumers are more selective when buying luxury products but do not significantly reduce expenditure.
- Postponables: consumers will seek high-quality products at a reasonable price.
- Expendables: consumers do not generally view any purchase as expendable, but may be more conspicuous about some purchases.
To appeal to these consumers, focus your attention on promoting the superior quality of your products. Customers in this segment are generally easier to retain, but it is still essential to continue nurturing strong consumer-brand relationships to ensure they remain loyal to your products.
This segment consists of consumers who carry on as usual regardless of income or savings. They are generally younger and from urban backgrounds, and often score highly on excitement-seeking sub-trait for extraversion. They are unlikely to make many changes to their spending habits unless affected by major change, such as redundancy.
These consumers typically prefer buying experiences over products, with the exception of electronic items. They may delay some larger purchases, but will otherwise continue purchasing their usual products.
- Essentials: consumers continue buying preferred brands at pre-recession levels.
- Treats: consumers continue buying preferred brands at pre-recession levels.
- Postponables: consumers will delay purchases, but may buy products if deals are available.
- Expendables: consumers do not generally view any purchase as expendable, but may avoid expanding the range of products they buy.
Customers in this segment are unlikely to deviate from their preferred brands unless offered special deals. You can attract these customers by offering subscription services or promoting limited-time deals. They also respond positively to messaging focused on aspirational living and unique experiences.
It is important to show these customers you have a strong brand identity and innovative must-have products. You can effectively engage this segment by incorporating excitement and urgency into your marketing materials. Focus on the experience your products provide and setting yourself apart from your competitors.
‘Use your creative assets to show that your products are high quality and make the customer’s life better.’ – Hallane Hill, Content Lead at Optimizon
How to protect your brand from a recession on Amazon – Conclusion
‘It’s the battle of the strongest and the strongest will survive. When you come out of recession there will be damage and there will be losers. But the people that come out the other end will be in a really good position.’ – Dean Hawes, Head of Account Management at Optimizon
No two recessions are the same, but preparing your brand now will make it more resilient in the months to come. Recessions can be excellent windows of opportunity for lesser-known brands to come to the forefront as more dominant brands reduce spending. It is essential you keep your business visible now to ensure customers see your brand when searching for products. This will create healthier long term profits and ensure you have a greater share of the market.
We have a large team of dedicated and experienced Amazon specialists who are ready to help your brand maximise its earning potential on Amazon during the recession. Find out more about our Amazon services here or get in touch to learn more.