Keeping customers is top priority in recession

Understanding psychology is key to retaining business

How to retain customers during the downturn is a hot topic at businesses big and small. It is the cover story in this month’s Harvard Business Review and will be one of the key issues examined at the NEW Executive Leaders Forum July 14-16 in Dallas. The theme of the invitation-only event is “Thriving in Tough Times.”

Noting that “no two downturns are alike” the authors of the HBR report say that the key to success during today’s tough times is understanding recession psychology. Forget old demographic models like "over 50" or "new parent," and focus instead on segments based on psychological responses. Authors John Quelch and Katherine Jocz write that customers fall into four main groups: The “slam on the brakes” segment that reduces expenditures most; the “pained but patient” group that is more optimistic and cuts spending less aggressively; the “comfortably well off” who may be more selective and less conspicuous in their consumption; and the “live for today” segment that carries on as usual and is unconcerned about saving.

Consumers in each group sort products and services into four categories, Quelch and Jocz write: Essentials, considered necessary for survival or well-being; Treats, indulgences that are considered justifiable; Postponables, needed or desired purchases that can be delayed; and Expendables, items that are perceived to be unnecessary or unjustifiable.

During a recession, consumers are constantly reevaluating goods and services to decide in which category they belong. New clothes, which might have been seen as an essentials, may now be considered treats. Treats like dining out may be substituted for cooking at home, an essential.

Marketing essential

Marketing is not optional during a recession, the authors of the HRB report write, but “a 'good cost' [that is] essential to brining in revenues” from loyal customers. Budget cuts often fall “disproportionately” on marketing departments. While surgical trimming may be justified, the authors say businesses should “take care to distinguish between the necessary and the wasteful. Building and maintaining strong brands – ones that customers recognize and trust – remains one of the best ways to reduce business risk.” The article cites Colgate-Palmolive and Johnson & Johnson as two companies whose stock prices have done better in the current downturn than less-known brands.

The recession is a good time to let go poor performers and reassess your firm’s marketing strategies. “Managers can defy old mind-sets and creatively search for superior solutions to customer needs instead of relying on the next line extension.”

Among the communications strategies recommended by the authors – discounts and bonus packs for Essentials; smaller sizes and stable prices for Treats; and simpler models, layaway plans and low-cost financing for Postponables. Recommended communications strategies for Expendables include do-it-yourself alternatives, core product improvements and continued awareness advertising to maintain the brand and position it for the recovery.

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