Future-Proofing Business Strategies for Economic Recession
Brought to you by WBR Insights
Consumer confidence continues to decline, as signs of an economic downturn become clearer. And with the holiday season already upon us, retailers face an uncertain future — and doubts over how to proceed with their marketing plans.
With a wide variety of marketing technology and eCommerce solutions available, prioritizing those efforts becomes paramount, but especially challenging in an atmosphere of economic decline. As 2020 fast approaches, marketers have tough questions to deal with. How to drive conversion despite the uncertainty, what to invest in, what to stay away from, what to outsource, and what to do in-house are major issues that players in the retail sector will have to resolve if they are to future-proof their businesses for what may be trying times ahead.
Signs of An Imminent Downturn
Many economists and financial experts are predicting that the next economic recession is just around the corner. For organizations in all sectors, these forecasts are worrying news. Events like the bursting of the internet bubble and the Great Recession of 2008 are situations that can make or break a business.
The economic downturn at the end of the past decade left a lasting impression on many business owners and professionals — especially those who lost their jobs or were forced to shut down their companies.
Though the economy has largely rebounded in the past decade, a growing number of financial experts expect the next recession to hit in 2020 or 2021. Factors like the US-China trade war, progressively slowing sales figures, stock market corrections, or a geopolitical crisis are likely triggers.
Though an upsurge in the use of digital media, data, and direct mail volumes bolstered markets in the second half of 2018, the prolonged government shutdown in the US took its toll on the stock market and consumer confidence.
That slowdown continued into 2019. According to the US Bureau of Economic Analysis, the personal savings rate rose to an average of 8.2% in the first seven months of 2019 — higher than the average for any full year since 2012. This can't be good news for the retail sector as the holiday season gets into full swing.
Data Privacy and Regulatory Concerns
Balance sheet matters aside, the coming years will also bring with them adjustments in business practice, as marketers attempt to be more transparent about how they are collecting, sharing, and using information in the light of existing and imminent legislation on data governance and privacy. The European Union's General Data Protection Regulation (GDPR) has been active since May 2018, while the California Consumer Privacy Act (CCPA) will come into effect on January 1, 2020. Other frameworks may be imminent.
At the second annual US/European Privacy Shield GDPR Implementation Review, analysts noted that while close to 50% of marketers say their policies, procedures, and documentation are now in line with GDPR, only a third are confident that they can identify all the data that they have on each person.
In the years ahead, marketers will need to take a more comprehensive and proactive approach to data governance, particularly if they're dealing with a variety of different sets of compliance rules in different states or regions.
According to Bruce Biegel, senior managing director of New York-based global strategic consultancy, the Winterberry Group: "We might have different privacy regimes in California and New York and Florida — how do you possibly manage to that? If someone from California is coming [to your site], do we put up a wall and block them? Some people turned off traffic from Europe because of GDPR. Do we turn off traffic from California? That's not very practical."
While major players in the online services market such as Amazon or YouTube can achieve compliance with new privacy regulations simply by requiring all visitors to opt-in before receiving their content or services, small to medium-sized businesses without the same level of brand recognition or resources will likely suffer.
For Marketers, It's Not Necessarily All Bad News
Despite the dire predictions of economic decline, the outlook remains fairly optimistic for the marketing sector, with eCommerce in particular expected to maintain healthy and resilient growth.
An analysis of multiple sources by the Winterberry Group shows that expenditure on marketing and advertising rose 5.2% in 2018 over 2017. Increases in experiential, traditional outdoor, direct mail, and addressable TV expenditures boosted US offline media spending to $220.98 billion in 2018. Online spending continued to rise across the board with a 17.1% increase, but with slightly decelerated growth, indicating a maturity of the market. Spending on data in support of online, offline, and TV-related marketing rose 10.8% to $20.09 billion.
Growth continues in the marketing technology sector — not only in the acquisition of new tools by marketers but also in the adoption of tools that they've already invested in. As martech evolves and becomes more of an accessible commodity, investment is projected to continue.
Looking Beyond Local Shores
Worldwide, consumer purchasing power is expanding and digital infrastructure is becoming more sophisticated. In the years ahead, businesses should be looking to identify and access emerging markets as a hedge against any domestic slowdown. In this way, organizations can diversify their revenue streams, helping to build greater resilience and stability when growth slows in other markets.
2019 has seen the rise of regional trade clusters, with negotiations on the Regional Comprehensive Economic Partnership (RCEP) — the world's largest trade pact, involving 16 countries — expected to conclude this year. The success of this partnership will ultimately drive international trade with the member states of the Association of Southeast Asian Nations (ASEAN), the People's Republic of China, South Korea, Japan, India, Australia, and New Zealand.
Opportunities clearly exist for cross-border eCommerce, with anticipated changes to taxation and trade policies related to online goods making Asia Pacific a likely target. The region offers diverse opportunities for retailers, as price is not the only driver for online purchasing.
Almost half of consumers in Asia Pacific shop across borders, as it allows them to purchase higher quality goods and gain access to items not found in their own countries. Consumers there are willing to pay a premium for unique or niche products, while shoppers for mass-market commodity goods are willing to search for the cheapest options available to them from anywhere in the online retail ecosystem.
To succeed in the cross-border market of the coming years and capture market share, businesses will must integrate seamless logistics solutions into their operations for the delivery and return of goods in addition to upholding high standards of customer service. Streamlining payment processes and making secure payment options available in a consumer's local currency will also encourage cross-border purchasing
Addressing Consumer Confidence
As the economy slows, instinctive reactions are commonly based on fear and emotion, not least in buyer behavior. A decrease of confidence in the economy as a whole results in declining consumer confidence, with buyers becoming more cautious, gearing towards lower value items and cheaper alternatives or delaying higher-level purchases.
For the providers of goods and services, the initial responses to a slowing economy and declining consumer confidence are to preserve or downsize, rather than grow. Reductions in budgets and marketing activity are common — with the result that business development, innovation, and marketing are curtailed as businesses try to source cheaper inputs.
But there's a flip side to this, which can favor the marketer who's willing to seize the opportunity. As competitors scale back their activities, retailers can use a logical and strategic approach to achieve marketing success in difficult times.
Established marketing wisdom has it that it costs five times as much to acquire a new customer than it does to retain an existing one. Retaining loyal customers is, therefore, the sounder strategy — yet 44% of companies reportedly focus more on customer acquisition, compared with the only 18% of organizations that focus more on customer retention.
Now and in uncertain economic times ahead, retailers should be focusing on retention and making sure that those customers who have already shown loyalty to their brand will continue to do so. As a marketer, you should start by identifying which 20% of your customers bring in 80% of your income. Then, look at how you can get repeat business from that 20%.
Critical to this is targeted, timely, and regular communication. Once a customer makes a purchase from you, set up an automated calendar of communications consisting of news that could be of interest to them, as well as personalized product recommendations based on the information you have collected on them in your CRM system.
Your customer relationship management system should also yield information on the ROI of each customer. You can use this data to offer incentives and discounts to your most profitable customers, thereby encouraging further loyalty from them. This approach also enables you to allocate your marketing budget to the areas offering the greatest return.
Changes in customer confidence and the behavior of buyers may leave some customers stranded as competitors consolidate their activities. Marketing to these potential customers enables you to seize market share. To this end, you may adopt the strategy of more sales at lower per-unit value.
In a climate of reduced consumer confidence, businesses are likely to try to get rid of excess or slow-moving stock through heavy discounts and "just-in-time" processes. Frantic discounting merely serves to create price wars, which can diminish your brand and set up false expectations in the minds of consumers.
Locating and offering a cheaper alternative is preferable to engaging in a price war. This approach also enables you to capture market share at multiple points with high, medium, and low-price offerings.
Addressing Customer Concerns
With consumers cutting back to smaller purchases, retailers selling high-value items could be the worst hit if they don't put strategies in place to make buying easier for the customer. Offering finance to consumers in the form of monthly installments prevents them from having to spend a large sum of money all at once. In this way, customer finance can remove a major barrier from their reluctance to purchase.
Advancements in the technology of programmatic advertising are making it an increasingly effective option for retargeting existing visitors to eCommerce sites and other online retail channels. Using data analytics on demographic information and an individual's behavior online, the tools are enabling retailers to deliver targeted display ads to their high-value customers and to bring them back to their sites to purchase.
Predictive analytics technology is also enabling programmatic advertisers to forecast what a particular customer might be interested in purchasing at a given time in the future. For example, if a customer buys an engagement ring, a merchant can begin serving ads of jewelry in a little under a year's time, 'as the perfect anniversary gift'.
Putting Technology and Infrastructure to Work Over Multiple Channels
The expansion of the digital ecosystem is enabling retailers to take advantage of the abundance of sales funnels available. At the same time, retailers are having to juggle the demands of a fragmented collection of sales channels. In the years ahead, organizations will need to put in-house technologies in place and form strategic partnerships to allow fulfillment at all stages in the buying process.
Payment, delivery, and customer support infrastructures will be critical in maintaining operational and CX initiatives and in differentiating organizations from the rest of the market. More flexible supply chain processes will enable retailers to enhance the customer experience. At the same time, smarter and more agile stocking and shipping policies can improve margins for the business.
Using Data-Driven Pricing Intelligence
In an atmosphere of economic uncertainty and the looming shadows of Amazon and other major-league players, retail data analytics will be a critical growth driver for the years ahead. In addition, retailers will have to appeal to a consumer base of increasing digital sophistication who has easy access to more industry information.
If the downturn continues, businesses will have to account for a growing number of recession-hit and fixed-income shoppers, all with stricter and higher standards for spending their money. Real-time price optimization systems will give data-driven insights into buying patterns, price and inventory levels, as well as the competitive landscape.
With the correct price optimization solution, retailers will be able to analyze buying patterns, capitalize on competitive inventory gaps, and set up pricing offers that entice buyers. Platforms that enforce Minimum Advertised Price (MAP) policies provide tools for monitoring the market landscape and tracking pricing violations that might threaten an organization's compliance status. They also offer brand protection by frustrating the efforts of unlicensed resellers who undermine established brands by peddling goods on the "Gray Market."
A data-driven marketing approach also gives retailers the ability to formulate an intelligent assortment strategy that offers consumers an appropriately curated and easily digestible selection of goods. The capacity to understand customer behavior, monitor marketplace inventory levels, and adapt pricing in real-time will also empower retailers to optimize their cross-channel merchandising.
Other Ways to Prepare for Economic Decline
All the data and technology in the world won't help you weather the coming storm if your basic business practices aren't up to scratch. Some realignment and compromise may also be necessary in safeguarding your bottom line.
The balance sheet and cash flow statement are barometers of corporate health. To future-proof your company, you'll need to take in available capital to provide a cushion against the downturn, know how long you can operate without new revenue, and create a disaster plan for any contingencies that may arise.
Auditing existing contracts and their terms will prepare you for any eventualities that might occur, such as you or a contracted partner going bankrupt, or the occurrence of external events that void contract terms or precipitate complex legal or insurance-related actions.
Finally, call on your executive team to do a risk assessment and to plan for the future. Ask the hard questions, review the answers, and use what you learn to set up the best hedges.
Charting the Way Ahead
Anticipating an economic downturn carries a certain weight of pessimism, but planning for the worst-case scenario can make that eventuality a lot easier to bear.
But in the years ahead — and despite a decline in consumer confidence — there's an abundance of opportunities for marketers, and it's all thanks to emerging technologies, improved data handling, and the greater integration of channels.
Future-proofing is set to be a hot topic at eTail Connect 2020, taking place in April at the JW Marriott Miami, Fl.
Download the agenda today for more insights and information.