If you’ve been watching the news recently, it seems like the possibility of a recession has grabbed everyone’s attention.
Americans have already seen signs like inflation in rent, gas prices, groceries and other needs that pre-existing wages cannot meet. But even so, some experts say we could still avoid a recession, and if we don’t, a recession might not last as long as the one in 2008.
With all these changes and news in mind, business decision makers might wonder how their potential customers are reacting. And if their spending habits could be changing in the near future as a result?
While we don’t know if we’ll ever enter a recession, this post aims to help brands and marketers prepare to continue meeting consumers where they are, even in uncertain times.
To give readers insight into how spending behaviors are or may be changing, we surveyed more than 200 US consumers of all age groups.
Before we dive in, let’s briefly explain the concept of recession:
What is a recession?
A recession is a prolonged decline in economic activity that occurs when the value of goods and services falls for two or more consecutive quarters. This contraction in the economic cycle reflects not only the reduction in the value of goods, but also the decline in income levels, industrial production and stock prices.
Recessions are a normal part of the business cycle and can be induced by global economic shocks, changes in consumer confidence, and other large-scale economic changes.
But this year in particular, there are a few select factors that have raised concerns about a possible recession, even though it has yet to be declared or confirmed.
To learn more about what causes recessions and why some are worried they will happen in the near future, Check out this helpful post from our partners at The Hustle.
How consumers’ spending habits could change
We conducted a Glimpse survey of US consumers to understand how they spend their money and how financial uncertainties like the recession could affect them. Here’s how they answered our questions:
1. How has the news of a possible recession in the United States affected your spending habits?
Although a recession is not yet certain, most respondents are buying less and spending money more concisely than in previous months.
Rising costs of goods and services often make consumers more cautious about frivolous spending, and we’re sure Americans are feeling the effects quickly.
As a marketer or brand leader, now might be a good time to consider discounts, sales, deals or freemium marketing. Even though people are potentially tightening their wallets, they can still purchase items, services, or experiences that are affordable or give them money.
How might spending change in a recession
When thinking about consumer spending behavior, it often depends on external factors, and news about huge changes in the economy is worth looking at. Below is the distribution of the different consumer decisions and how they would respond to financial uncertainty or a possible recession in the future.
2. If a recession is declared, how will your household budget change during the first three months of this new financial era?
Unsurprisingly, the majority of consumers surveyed (64%) say they would decrease or continue to decrease their household budget if a recession were to be declared.
In June, inflation reached 9.1%, a new record high for the Federal Reserve. But wages are not moving to match these increasingly rapid changes. Naturally, the public is already looking for ways to avoid breaking the bank by cutting their budgets.
If you market B2C brands or products that would be used specifically in the home, this is important to consider if financial uncertainty continues. While you shouldn’t panic and change your entire marketing strategy with just one small survey, you may want to consider strategies like marketing your more affordable, discounted, or essential products above higher-priced items or luxury
3. In uncertain financial times, what did you spend the most money on?
We also asked consumers to reflect on their purchasing behavior in previous economic times with the question, “During uncertain financial times (such as past recessions or during the COVID-19 pandemic), what did you spend more money on?”
When surveyed, the most prominent goods that consumers have purchased in times of uncertainty are usually considered necessities.
- Essential foods and groceries
- Rent, mortgages, housing bills
- Essential products for personal care
- Medicine and healthcare
The data reflects a shift toward self-preservation and less shopping for pleasure or risk-taking is no surprise. By eliminating leisure or entertainment costs, people can make sure their families are taken care of before taking their dollar to do things like start a business, go to the movies, or invest in an unpredictable market.
The good news? This does not necessarily mean there will be a complete pause in retail, entertainment or other non-essential services. More than 10% still plan to invest in digital or online entertainment, about 7% would still invest in restaurants and bars, as well as education and academics, and more than 16% would invest in clothing and apparel. So unlike the pandemic, we probably won’t see entire economies completely shut down for months at a time.
How might the next recession differ from 2008
There are some key differences between this recession and the one in 2008, mainly in the factors that caused it and its expected duration.
According to Morgan Stanley, the potential recession would be largely pandemic-induced and credit-driven.
Fiscal and monetary stimulus related to COVID-19 contributed to inflation and fueled speculation in financial assets. This is very different from the Great Recession of 2008.
The 2008 recession was due to debt-related excesses built up in housing infrastructure, which took the economy nearly a decade to absorb. Conversely, excess liquidity, not debt, is the most likely catalyst for a current recession.
Because of the difference in causes, IMF experts predict that a new recession could be short and shallow.
Key points for businesses in 2022
As sellers, we are not financial market experts and should not be considered a source of investment, human resources and legal advice. And no one ever knows for sure if or when there will be a recession.
It should also be noted that while the above results may help you navigate how to market your brand, they are only part of a small survey and a brief glimpse into the eyes of consumers. Before making important decisions about your marketing department, spend, or business, you need to do your research, analyze multiple data points, and consult with experts in your industry.
While your decisions should be based on a deep data dive, the results of the above survey show that marketers need to be cautious about how their efforts should change with changing consumer needs or trends .
Here are some takeaways to consider.
- A current recession might not be the same as the one in 2008. While consumers are likely to be cutting budgets and looking for products that offer the most value or need for their dollar, they may not be in dire financial straits. They could still be convinced to buy a great product that will be marketed to them in the coming months.
- Market your product’s affordability, value and/or need: As consumers and businesses cut their budgets, it will be harder to make sales, retain customers and persuade people to buy non-essential products. Make sure you market that your product has added value or importance, other than flashy, trendy or cool.
- Marketers may want to explore more profitable strategies. (Consider cutting excess ad spend and focusing on organic social, SEO or email marketing.)
Remember that financial uncertainties, and even recessions, are common. And while it may be harder to win customers in the coming months, businesses and consumers will keep moving (and buying) even as we expect the cycle to run its course.