In his latest guest column for InternetRetailing, veteran retailer David Kohn outlines some strategies for selling in a downturn.
Following the brief aberration that may come in future years to be referred to as ‘the Truss/Kwarteng calamity,’ we’ve now had our mini-budget from Messrs Sunak and Hunt. And, very unappetising it is. Whilst it appears to have calmed the financial markets, it will have done very little to rebuild customer confidence. In what is already a shaky economy, it now looks unlikely that there will be any material recovery in spending until 2024 at the earliest.
What does this mean for ecommerce and for digital professionals? Many in the industry will have grown up seeing only relentless growth. In the 2000s and for much of the 2010s you could reliably deliver double-digit growth simply by keeping the lights on. Things started to look tougher towards the end of the decade, but then along came Covid and riches aplenty. We’ve had a few months now to get used to the post-lockdown hangover, but how are we going to cope with what is likely to become a prolonged period of sluggish growth?
The good news is that you won’t have to completely reinvent your strategy and start anew. But you will have to consider the likely headwinds, and work out how you adjust your plans to respond to them. What can you expect these to be?
First, customers are likely to be more cautious about making purchases, particularly discretionary ones. As their real incomes drop due to higher fuel bills and inflation, they will become choosier about what they spend their ‘free’ money on. Whereas in good times your job is mainly to persuade them to buy from you, in bad times you have to persuade them to buy at all. At all times, persuasion is a matter of appealing both to the customer’s rational side and to their emotional side, but how does this change in tough times? Well, you probably have to up your game on both, but my sense is that you need to focus more on the emotional side. If people are buying less, they will want what they do buy to be a little more special. So, focus on creating desire and communicating the pleasure that your product will bring. Think less about value for money and more about satisfaction for money. Make sure you’re communicating how your product will enhance your customers’ lives.
Looking for deals
Second, notwithstanding the above, customers are more likely to be looking for deals. Your competition, particularly those with less product differentiation, will be discounting more aggressively. With input costs likely increasing, your margins are going to come under pressure. How do you counteract this?
One answer is to be smarter about how you incentivise your customers. Multichannel retailers have tended to present all their customers with the same offer at the same time. In fact, for many years, it was an absolute tenet of faith that online would match in-store. Digital technology now offers the capability to target offers more intelligently. Whether it’s in real time, or based on observed behaviour, you can now target customers with offers specifically for them. These can often elicit a stronger response as well as saving you margin.
The cost of customer acquisition
Third, customer acquisition is likely to become more expensive. We’ve seen some pretty serious inflation in the key channels in the last couple of years, and with the likes of Alphabet and Meta seeing their stock prices plummet, things are unlikely to improve. Changes to data privacy rules won’t help, and your competition (at least some of them) will be bidding harder just to stand still. So, what do you do?
Focus on what works
Sadly, there aren’t any easy answers, but there are a couple of things you could look at. First, focus on what works and try and do more of it. This sounds utterly obvious, but it’s a natural instinct to give attention either to what’s not working or to try and find new, incremental channels. The latter, in particular, can absorb a lot of time and budget. Instead, you will have many campaigns that are working well – focus on these and working out how you can make them more effective.
Second, put more focus on retention. Again, this seems obvious as it’s almost always more cost-effective than acquiring new customers. My sense, though, is that approaches to retaining customers have become rather stale and uninteresting. Technology has taken over from creativity, and everything’s become formulaic. We need to rethink what it is that makes people feel loyal to our brand or business. To me, it’s a feeling that they are being served, not sold to. Many programmes are simply about trying to sell you the next thing; instead, think more about how you can genuinely help the customer whether they’ve bought from you recently or not.
Have a clear plan
Finally, in tough times you may find that your working environment becomes more difficult. Your board or boss are likely to generate many more ideas about what needs to be done to turn things around. Budgets may be cut. A blame culture may arise. Your team, and indeed you, may lose confidence or motivation. In the circumstances, there’s a natural tendency to become more defensive or cautious. What can you do?
My best piece of advice is to have a very clear plan about what you are doing and how you’ve determined your priorities. You’ll have a long list of initiatives ranging across trading, marketing, technical and logistics. Your job is to work out, with your key stakeholders and team, which need to be done first. You may have to disappoint your team if some longer term or more speculative (or exciting) initiatives get relegated down the list. But, a clear plan will help you and your team to focus on what really needs to be done.
Managing through tough times is not straightforward and there aren’t any easy answers. Success, though, is possible – it just requires hard work and focus. Best of luck to you all.
David Kohn is a veteran retailer, whose experience most recently includes customer and ecommerce director at Heal’s, and previously commercial and digital roles at WHSmith, Waterstones, Borders and Snow+Rock Group. Now acting as an independent advisor, David remains on the look-out for interesting and effective innovations.