Marketing in a recovering economy

France, Germany and Japan have officially emerged from recession, so heads are turning to the UK and the possibility of a more positive outlook for 2010.

By Andy Wood

Further fuelling the fire of optimism is the latest statistic from the Institute of Chartered Accountants. Their index of business confidence jumped 4.8 at the end of June, from 28.2 in March, representing the biggest improvement since the survey began in 2003. It also predicted the UK economy would grow 0.5% this quarter, breaking 5 quarters of declining output.

According to the latest distributive trades survey by the Confederation of British Industry UK retail sales fell for the fourth month in a row in August, but retailers are no longer feeling so pessimistic about the outlook for their business situation in the coming months.

Over the last few months much has been said about the importance of customer retention in the recession rather than wasting squeezed marketing budgets on prospecting. This is all very well since changes in consumer behaviour and spending during a downturn make it essential for marketers to alter their strategies in order to retain customers who might otherwise defect to a cheaper competitor. Conversely, before the recession the balance was very much in favour of customer acquisition rather than customer management.

But now that we are starting to see the 'green shoots' of recovery and the possibility that economy could start improving as early as next year, marketers need to be ready to reassess their strategies once again. It is critical that retailers start looking now at how to position themselves and implement a pro-active marketing strategy when the country emerges from recession, rather than waiting until it actually happens.

Research we published a couple of months ago gives us an idea of what has happened as the recession has dragged on. Across the nation, some 35% of consumers say that, in the last year, they have switched downmarket to a 'value' supermarket for a significant portion of their food shopping. Although this may not mean that their total supermarket spend has switched, it still represents a very significant loss of revenue for the premium providers and an equally significant gain for value outlets. The equivalent proportion amongst clothes shoppers was even higher, at 39%. And not all of these defectors intend to move back 'upmarket' when the recession is over. Only 13% said they would do so for their food shopping and 20% for clothes, representing a significant overall loss.

Many retailers will view a more robust economy as an opportunity to start winning back customers they lost in the recession. It is worth noting, though, that a fair proportion of customers that defected in search of better prices during the course of the recession are the promiscuous shoppers who move from supplier to supplier based on price. These types usually don't stick around and prove to be unprofitable over the long term - and so are not worth enticing back

A recovered economy also presents fresh opportunities to prospect for new customers once again. The mistake that many marketers will make at this point is to neglect the existing customer base in favour of attracting new ones. However, management of existing customers should always come first, no matter what level of attention is being given to prospects. Neglecting those loyal to you could very well lead to the loss of customers before a new one has even been recruited.

The problem with putting all efforts into acquisition is that identifying appropriate new customers it is not always as easy as seems. Theoretically, modelling and segmenting existing data to create detailed profiles of exactly who the right customers are for your business - i.e. those who are more likely to remain loyal and expand their relationship to related businesses or brands - should lead to building up a picture of the potential customers who are most likely to be interested in, and respond to, an offering. But, more often than not the profile of the best customer is the same as the profile of the worst customer, so it is very difficult indeed to say who will be a good prospect.

Another mistake that many marketers are likely to make when prospecting is again part of the marketing strategy, is to focus on customer acquisition without thinking about how to treat new customers once they start spending. Often a new customer will spend once and then never again. However, it is in these early stages when it is vital to nurture the customer relationship. Every effort should be made to turn that new customer into a long-term, loyal customer who can then be encouraged to spend more and spend more often according to the usual customer management strategy.

In short, customer acquisition should not be carried out to the detriment of ongoing customer relationship management. The opportunities for retailers to achieve a happy medium in their customer development and prospecting activities are apparent, and with the faint glimmer of economic recovery on the horizon, they should now be starting to put themselves in a position that will guarantee them market share coming out of the recession. Those that don't will get left behind when business is again booming.

Andy Wood is Managing Director at GI Insight

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