Talk of a potential recession is ubiquitous and marketers are widely sharing advice on how to approach a downturn. Many are drawing their insights from past recessions such as the 2008 financial crisis. But it is at most unclear that we’re in a recession—and if we are, it is driven by factors very different from the ones that generated the Great Recession. So, marketers re-running plays from 2008 and 2009 are consulting the wrong playbook.
We are facing decades-high inflation coupled with a historic war in Ukraine—plus continued fallout from the pandemic. These are the forces businesses need to bear in mind as they devise marketing strategies to confront today’s economic challenges. We need to approach these challenges like it’s 1981—when a sharp rise in oil prices pushed inflation in advanced countries to new double-digit highs—not 2008.
To understand what today’s challenges are and how to overcome them, let’s consider how the Ukraine war, inflation and the pandemic are challenging businesses, and the guidelines marketers can follow to drive success in light of these events.
The dominant economic force with which marketers need to contend is inflation. Macroeconomic, geopolitical and meteorological forces are converging to make running businesses more expensive, leading brands to pass on those costs to consumers.
Though COVID’s impact on consumer demand has waned (and, if anything, may be spurring buying activity as consumers continue to enjoy a period of relative freedom), its disruption of the supply chain persists. Countries with especially aggressive COVID safety regulations, especially China, are creating global bottlenecks that continue to squeeze retailers and undermine supply, raising prices.
Then there’s Russia’s war in Ukraine. Shipping routes have been blocked, agricultural production has been disrupted and embargoes have stopped the free flow of goods, especially fuel. The most significant impact of the war on the global movement of goods may be felt in the food sector given Ukraine’s deserved reputation as the breadbasket of Europe. That region also produces a great deal of fertilizer, which will likely be in short supply heading into the late 2022 and 2023 planting season, causing issues for years to come. This is another source of price hikes.
Finally, climate change continues to wreak havoc on global trade. Heat waves compromise crop yields, affect animal reproduction, undermine the transport of goods and make the whole process of trade more expensive. Floods and other disasters exacerbate disruption. Nations often then try to compensate by restricting exports, furthering the problem.
Collectively, this means that while it is possible the U.S. and other nations may experience a recession, the No. 1 macroeconomic issue to which companies and marketers need to respond is not a dip in demand. It is the price hikes they will need to implement to cope with supply chain challenges—hikes that consumers are likely to experience as a burden.
Here are guidelines for marketers to navigate today’s economic challenges:
Marketers need to build trust with consumers and find the right audiences for their products at a time when price pressure is high. This challenge calls for different strategies at the high and low ends of the inflation-adjusted price range.
Marketers will need to raise prices on some products to preserve margins. In those cases, thoughtful messaging is paramount to retain trust and clarify the value proposition of increasingly expensive products. For example, a grocer might emphasize the sustainable bona fides of its high-end products to justify price points. Another tactic would be catering to the shopper’s willingness to pay for experiences by appealing to a “carpe diem” mindset. After two years of COVID, many shoppers are eager to make discretionary purchases. Brands and retailers should make that case.
But giving shoppers what they need also means providing cheaper options for those who cannot bear the burden of inflation. Consider the case of a quick-serve restaurant that has historically provided a reliable meal for a family of four for less than $20. The restaurant risks undermining long-term trust by taking away that option. Its task is to figure out how to offer the less expensive meal, perhaps with slightly different options, and to market it based on value.
What marketers do not want to do is misstep in this inflationary period by repeating the strategies of textbook recessionary cycles. For an example of how this can lead to a mismatch between strategy and present circumstances, consider the approximately 100 builders and lenders who offered to cover mortgage payments during the 2008 financial crisis for new home buyers worried about losing their jobs.
While an inspiring play to limit a dip in demand during the 2008 and 2009 recession, this strategy would risk crippling builders and lenders at a time of exceptionally high costs for home materials and high interest rates for borrowing. Instead, what builders and lenders need today is a marketing strategy to justify the high cost of more valuable homes while offering cheaper options where possible and asking for customers’ understanding about shipping delays and inflation.
Inflation remains high, and supply chain disruption is not going away. Marketers certainly need to respond to the moment. But they won’t be able to do so by reviving strategies from the most recent recessions. Those that focus on today’s core issue— inflation—by building marketing around high prices and competing on value when feasible, will give themselves the best chance to overcome the odds, earning consumers’ attention and trust at a time when each dollar is precious.