By Greg Silverman, Nov 16, 2020
In April 2020, U.S. consumer spending fell by 13.6% according to The Wall Street Journal. The sharp decline in purchases is indeed a direct result of the COVID-19 pandemic that has affected consumer income and shopping habits across the country.
While there’s much discussion about returning to a “new normal,” there’s no denying that this sudden and dramatic change in consumer spending (which accounts for 70% of economic activity, according to Marketplace) will affect the economy for years to come. The consumer purchase cycle has been broken as millions of people cut back spending in response to an uncertain future or reduced income.
With a shrinking consumer pool but just as many competitors, businesses must adapt their marketing strategies to increase market share just to maintain the same volume they did previously. Of course, this is easier said than done since businesses have not been immune to the financial impact of the crisis either.
Let’s explore how businesses will be able to adapt to a contracting market without increasing their spending.
Now is not the time for businesses to dwell on the past or begin extrapolating about the future; it’s an opportunity to adapt to the new normal. Without taking action to address the current market, organizations lose out on opportunities to surpass competitors and gain new, loyal customers.
There’s no magic way to conquer customers out of thin air even when market conditions are ideal. However, there are two distinct ways businesses are able to find customers even when they seem scarce:
1. Increase usage: A guaranteed way to increase market share and new customers is to find a new use for your product or service. Sound difficult? That’s because it is. The way and frequency at which a consumer uses a product are typically fixed, and while you may have identified heavy and light users, it’s difficult to change their habits once they are established.
For this reason, it’s also important to note that an increase in sales does not always correlate to an increase in market share. Consider the consumer rush that occurred as cases of COVID-19 began increasing in the United States. Toilet paper, non-perishable goods and household cleaners flew off the shelves, but did that mean consumers were actually using them more? In the case of cleaners and hand sanitizer, likely yes, consumers were using these products more frequently. However, in the case of food and toilet paper, usage was not increasing. Enticing customers to use a product or service more is difficult to do, because when it does happen it’s likely in response to an unexpected and uncontrollable event.
Personalized campaigns of this nature cost money, so businesses must ensure they are targeting the audience that will spend the most. The best way to accomplish this is by understanding how consumers use your product or service, which is typically split into three tiers based on usage: Heavy, medium and light. While all businesses may experience different product usage across tiers, hypothetically we consider heavy users to make up 20% of a businesses' consumer base, medium users to be 50% and light users to be the remaining 30%.
A business could use their budget to capture the light and medium users since they make up the majority of customers, however, that would only add a few points to their market share. Why? Because their purchasing habits are infrequent and they are not as loyal as heavy users.
Targeting heavy users with your marketing dollars is the best way to conquest new customers in your category. The Pareto Principle, also known as the 80/20 rule shows us why. According to Hubspot, the general rule hypothesizes that 80% of your results come from only 20% of your efforts. However, in the business world, this ratio is typically used to explain that 80% of your profits derive from only 20% of your clients.
This 20% represents the heavy users. They are loyal, more frequent with their purchases and use the product more. Targeting this tier in your industry starts by understanding their journey as a customer. While marketers may be ready to start building a meaningful relationship with this tier to create a loyal customer base at this point, they should change their way of thinking. In his book “How Brands Grow,” Byron Sharp explained that forming a brand personality is wishful thinking. The real way to acquire new customers is to ensure the product is easy to buy. This means understanding the customer journey and making the path to purchasing as seamless as possible so a consumer chooses your product over an alternative.
Once businesses know how, where and why heavy users purchase their product, they are able to take strategic action to acquire them while getting the most from their marketing dollars.
Of course, mapping the customer journey and understanding the behavior of heavy users is something most marketing teams are unable to comprehend on their own. While they may be able to identify trends in the market, do they understand what to do with that information?
Prescriptive analytics tells business decision-makers what they need to do to conquest new customers under a variety of different market conditions. This analysis takes into account the fluid nature of human behavior and allows users to pull different strategic levers in the media mix to create an ideal customer journey. Once marketers understand the best course of action to target heavy users, they are able to put the plan into action
In a contracting market, businesses must execute their plans with precision in order to gain new customers on a budget. Prescriptive analytics help this happen by not only identifying what will happen to a business’s customers in a smaller market but how to actually make it happen to their benefit. Prescriptive analytics is the backbone of the Concentric model that helps businesses in a variety of industries make better, faster cost-effective decisions. Contact us today to learn more.