There’s never a dull moment with Elon Musk. He shocked investors and markets on Friday (June 3, 2022) when it was leaked Tesla is pausing hiring and cutting 10% of its workforce because Elon has a “super bad feeling” about the economy.
Elon Musk is more colorful than most CEOs, but he wasn’t the first to announce cuts. In May 2022, Meta (Facebook), Salesforce and Netflix all announced hiring freezes or layoffs. So too did dozens of other tech firms like Coinbase, Snap, Carvana, Robinhood and Mural.
Elon is not alone with his super bad feeling. I ran a poll on LinkedIn the first week of June to ask, “Is the economy heading for a recession in 2022?” 79% of respondents said, “yes.”
The Economy Is Rewinding
During the pandemic, the United States injected approximately $10 trillion in stimulus into the U.S. economy. The wild part is GDP expanded by a paltry $2.3 trillion, while household net worth ballooned by $34 trillion.
According to an article in Barron’s, “In effect, U.S. consumers were handed roughly two full years of income, via the increased value of their houses and of their 401(k) accounts and other securities holdings. Now the movie is on rewind.”
The stock market is returning to pre-pandemic levels. Since the start of the year, the U.S. stock market has shed over $10 trillion in value or 19.9%. And that doesn’t account for the value of cryptocurrencies being cut in half with over a trillion dollars of wealth evaporating.
Psychologically, consumers felt more buoyant and “rich” during the pandemic. Their house and 401(k)’s values were booming, and they felt like they had cash in the bank so they spent.
Even though most of the recent losses are “paper losses,” consumers now feel a lot less wealthy. They see the pinch in their savings and they are naturally tightening their belts. And with tech companies’ stocks being punished, they too are tightening their belts and waving off many of their growth plans.
Rapidly Shift to Growth Markets
All of these market forces and negative news stories have an impact on your business. Even if the economy doesn’t go into recession, we are facing a shift.
In every downturn there are winners and losers. Luxury products and consumer goods surged through the pandemic. Lots of people spent their newfound wealth on cars, toys, and products for their homes.
The next stage of the economy will have other growth markets:
- Restaurants and consumer services should do well with consumers looking for more experiences over things.
- Oil and gas and natural resources are surging. The conflict in Ukraine coupled with inflation has set up companies servicing the energy sector with substantial growth prospects.
- Local manufacturing and lesser known brands have a real opportunity to shine with continuing global supply chain issues and rising prices. Companies and consumers are willing to try other, local brands that might be a bit cheaper or able to deliver more reliably.
It’s a matter of perspective. If one or some of your core markets begins to contract, start looking for new growth markets.
At Sticky Branding we ask three key questions, the 3M’s, again and again:
- Market: Who and where are the customers that will drive your next stage of growth?
- Message: What is the brand messaging that will provoke your customers to buy?
- Method: How will you get the right message to the right person with the right call to action at the right time?
When you get the 3M’s aligned it drives growth. Check out some of Sticky Branding’s Success Stories for how companies used the 3M’s to rapidly recover lost sales during the pandemic.
Increase Your Marketing in a Downturn
In addition to improving your brand’s positioning, you’ve got to be bold. It may feel counterintuitive, but increase your marketing budget in a recession.
There are two reasons to increase your marketing:
- You need to focus on customer acquisition and retention like never before. You can’t drive sales if no one knows your brand.
- Anticipate your competitors will reduce their marketing budgets and cut costs as their sales decline. You can exploit this as a weakness.
Nirmalya Kumar wrote in the Harvard Business Review, “During recessions, when most firms are cutting back on their advertising, a firm’s share of voice increases if it can maintain or increase its advertising budget.”
By increasing your marketing you can dramatically out-market your competition. This is a moment for connecting with customers and winning market share.
But it’s also different. The marketing strategies that may have worked during the pandemic, or even before it, may not work anymore. Customer habits and expectations are continuing to shift. Be agile in your marketing.
Go back to the 3M’s and really focus on your customers and their “burning needs.” Who are the customers that really need your products, services and expertise the most right now? Those are the people you really need to reach with your marketing.
This is a time to be disciplined in your marketing to ensure you are reaching the markets with real potential.
The Pandemic Made Businesses Stronger
Even with a slowing economy, I am incredibly bullish on the prospects of growth, especially for Sticky Branding’s clients.
We’ve gone through the muck. We’ve navigated incredibly difficult times, made cuts, improved systems, and made investments to improve our businesses. The hard work has already happened.
Now we are entering a new phase of the pandemic. To me, it’s more of a rewind than a recession. Governments around the world pumped trillions of dollars into the economy, and it created bubbles everywhere.
My biggest concern is not slowing growth, but rising costs. Inflation is the real kicker to what is ahead. Companies need to step on the gas and grow to stay ahead of declining profits. They need to have strong brands so they can raise prices, and still be their customers’ first choice.
Recession proofing your business is different in 2022 (going into 2023) than it was during the pandemic, or any prior recession. But the same advice holds true: the companies that act fast and adapt faster always have the advantage.
What’s your sense of where the economy and your business is heading?