A recession is defined as “a period of economic decline during which there are declining levels of activity, output, employment, income, consumption, investment, production, trade, and prices.” This definition is broad enough to include both short-term recessions and long-lasting depressions. Recessions are typically preceded by a prolonged growth phase known as expansion. During expansions, economies grow rapidly and unemployment rates fall sharply. When the economy starts to contract, however, it becomes harder for businesses to expand profit margins. As a result, profits start to shrink and hiring slows down. In addition, consumers’ incomes drop, and many people feel less confident about spending money. All of these factors combine to slow the overall pace of the economy, causing a recession.
The effects of a recession vary depending on the type of industry you work in. For example, manufacturing industries tend to see slower sales because fewer goods are being produced. Retail stores experience lower revenues because consumer spending declines. However, some sectors like technology and healthcare continue to thrive even though demand decreases.
Recessions usually happen slowly over a number of months, although sometimes they occur abruptly. Some economists believe that the next major global recession could begin within the next few years. If a recession occurs, it won’t affect every sector equally. Industries that rely heavily on discretionary spending—such as retail and entertainment—will suffer most. Businesses that depend on fixed costs such as rent, utilities, and payroll will fare better.
While a recession doesn’t necessarily mean that your business will fail, it does mean that you’ll face challenges. Here are four ways that a recession might impact your business:
1. Your customers will spend less. Consumers cut back on purchases of big-ticket items such as cars, homes, and electronics. They also reduce their spending on dining out and traveling. These changes in behavior put pressure on retailers. Many businesses decide to close stores or lay off employees.
2. Your competitors will do well. Companies that sell similar products don’t have to compete against each other. Instead, they can focus on capturing market share from other companies. As a result, one competitor may gain market dominance while others struggle.
3. Your advertising budget will decrease. Advertising helps you reach potential customers. But advertisers must make cuts to keep budgets under control. Because advertising is expensive, companies often try to save money by cutting back on TV commercials. Other media outlets, such as newspapers and magazines, also cut back on ads.
Advertising spending typically takes up a large portion of marketing budgets. And when times are tough, many companies cut back. However, there’s no reason to believe that reducing ad spend will help your bottom line. As we’ve seen over and over again, smart marketers know that investing in advertising during a recession gets them better returns than scaling back.
In fact, some studies suggest that even when advertisers do reduce their budgets, they see increased sales. For example, according to research done by the American Marketing Association, “companies that spent less money on advertising in 1982 outperformed those that spent more.”
4. Target new opportunities.
In times like these, it pays to look outside your typical audience and markets. When the economy slows down, people tend to cut spending. This includes both consumers and businesses.
As a result, there is often a lull in demand for certain types of products and services. However, some industries don’t seem to care — healthcare and government, for instance, are two sectors that have historically remained recession-proof.
If your typical audiences and markets have been hit harder than most others, it might be worth considering what other markets exist where you can find potential customers.
For larger organizations or businesses that sell products that are easy to ship, such as digital goods, consider even looking abroad at markets that aren’t as impacted by the current downturn. In fact, one study found that companies based in countries with lower GDP growth rates actually experienced stronger revenues over the same period.
This would mean taking a lot of effort and re-positioning, but if it helps you avoid becoming stagnant domestically, you could end up with a good long-term investment.
If you’re feeling the pinch financially, it might seem like the perfect opportunity to scale down your advertising spend. But cutting marketing budgets too soon could actually hurt your bottom line. This is because it’s difficult to gauge how much money you’ll lose once you stop spending on ads. And even if you do manage to save some cash, there are still plenty of ways to maintain your brand presence without breaking the bank. Here are three reasons why you shouldn’t let go of your marketing efforts just yet…
1. Your Brand Is Important
In tough economic times, people often turn away from big corporations. Instead, they seek out smaller companies that offer better value for money. So, while you might think you don’t need to advertise anymore, your customers won’t know what you’ve been up to unless you tell them.
2. People Are Still Watching You Online
Even though we live in a world where most people prefer to shop online, there are millions of shoppers who want to see what products are being sold in stores. They use social media sites such as Facebook and Twitter to find information about local retailers, and they rely on reviews posted on review platforms to help them decide whether to buy certain items. By continuing to promote yourself online, you ensure that your brand is visible to potential customers.
3. There Might Be New Opportunities
When things start getting tight, consumers become more open to trying something new. During recessions, they tend to focus on quality over quantity, meaning that they’re less likely to purchase expensive goods – but they’re more willing to try new products. As a result, you might notice that sales spike for new products and services that you haven’t promoted in quite some time.