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It goes without saying that recessions change the way we spend our money.
Changes in circumstance impact what people buy and how they purchase.
In general, in times of financial uncertainty the majority of consumers look for better value for money, spend more time researching items prior to purchase, and seek reassurance from brands they’re already familiar with.
In this article, we break down the key ways spending changes in times of economic downturn, and examine a few strategies retailers can use to anticipate customer needs.
Briefly, what is a recession?
A recession is defined as two consecutive quarters of negative economic growth.
You can read more about the origins and implications of the current downturn in Particular Audience’s article here.
How does spending change during a recession?
1. We spend to enhance in-home experiences
In general, during a downturn people try to spend less money out of home (on movies, dinner out etc), which often leads to more spending to enhance in-home experiences.
Products that provide at-home entertainment such as movies, books or video games, or items that can help consumers save money, for example, cooking appliances, are popular in times of downturn.
Purchases related to home improvement such as furniture, lights or outdoor landscaping also grow in popularity as people make their living spaces more comfortable. In fact, following the 2008 recession the National Association of Home Builders estimated that consumers spent an average of $8,886 on major remodeling projects in 2010, which represented an all-time high at the time. This is a trend we’ve seen return in recent years, with an increased demand for furniture and homeware from retailers during pandemic-related lockdowns.
Ultimately, if consumers can’t afford luxuries like vacations and dinners out, they'll try to make other aspects of life more enjoyable with home improvement and at-home entertainment.
2. Bargain hunting drives shoppers online
When people have less disposable income, they’re less willing to spend on the sort of big ticket items like fridges and new cars you’d find in showrooms.
With decreased spending and a larger focus on saving, many consumers shift to increased price comparison and bargain hunting online. This means retailers need to ensure they implement effective pricing strategies and speak to value for money in marketing material.
Knowing this, PA clients have found success in offering in store price checking policies online, like Price Beat. This allows retailers to convert price-conscious shoppers with results as great as 2X conversions at a cost of as little as 2% to margin.
3. Brand loyalty matters more than ever
Great brands are resilient - many household favorites have been around for a long time, and there’s a reason for this.
According to Forbes, in uncertain economic times, "anxious consumers cling to familiar, trusted brands as a safe haven…In a recession, purposeful advertising and comforting messages that reinforce an emotional connection with the brand, as well as demonstrate empathy” are key.
Popular brands have a lot of goodwill among customers, but this shouldn't be taken for granted.
Wherever possible, businesses should also look to capitalize on brand loyalty by further improving customer experience (CX). This could look like personalized product Recommendations on their sites, intuitive AI chatbots to improve customer service, or better rewards programs for their most loyal customers.
Ultimately, consumers are looking for reassurance from their favorite brands, and businesses who can provide better CX may even increase their market share despite uncertain economic times.
Recessions change our spending priorities. When financial uncertainty arises, consumers seek out brands they trust, as well as better value for money. Retailers who adapt to their customers' needs, embrace new technology and lean into brand loyalty strategies will be able to meet the moment and build goodwill.