Skip to content
Whether you’re a business owner or simply keeping an ear to the global economic pulse, the term ‘soft recession‘ has probably popped up on your radar lately. But what is a recession, specifically a soft one, and why should it matter to you?
A soft recession is a gentle economic downturn, a bit like a car slowing down instead of suddenly hitting the brakes. If you’re a business owner, this could mean fewer customers and sales. For individuals, perhaps your job might not feel as secure, or you might tighten your belt a bit when shopping.
What causes a recession? There are various leading indicators of recession, but commonly, disruptions to the supply chain, financial crises, or significant world events play a role. These can shift the balance of our economy and lead to these slowdowns.
It’s not just big, faceless market forces at play here. Specific stakeholders, from governments to large corporations, have a hand in how our economy fares. Their actions or inactions can steer us towards or away from these challenging times.
The good news is that the better you understand the forces at play during a soft recession, and how and why various recession metrics impact customer spending and behaviour, the easier it will be to adapt your marketing strategies and come out on top. Stick with us to learn more!
A Soft (Slow Burn) Recession
Going a bit deeper, a soft recession, often called a ‘slow burn’, isn’t an abrupt financial crash but rather a gradual cooling down of the economy. Think of it as a pot simmering on low heat instead of boiling over.
So, what does this mean for the average person?
- Financial Impact: Your savings might need to stretch a bit further, or perhaps you’ll see smaller increments in your salary. For those looking to buy homes or make other significant investments, lending rates might not be as favourable, and loans could be harder to secure.
- Daily Life: The ripple effect of a soft recession can be felt in daily life. That holiday you’ve been planning might need to wait, or maybe you’ll opt for local brands over imported goods due to price hikes.
To provide some context, during previous downturns, certain industries, particularly those directly tied to discretionary spending, have felt the pinch. Let’s consider the restaurant industry. With fewer folks dining out, many establishments had to get creative. Some started offering special deals or revamped their menus to be more pocket-friendly. Others diversified by venturing into catering or hosting private events. By understanding the industries affected by recession and adapting, they weathered the storm.
It’s worth noting that while the term “soft recession” might sound gentle, its effects, when looked at through the lens of recession metrics, can be wide-reaching and profound. The silver lining? Forewarned is forearmed. By understanding what a recession entails and the leading indicators of a recession, you can make informed decisions for the future.
The Effects During a Soft Recession
When the economic tide turns, it doesn’t rise or fall uniformly. Depending on your industry and business phase, a soft recession can either present minimal impact or pose significant challenges.
Effects on Businesses:
- For Startups: Launching a business during a soft recession can be particularly challenging due to decreased consumer spending and more cautious investors. However, the upside often includes less competition and the potential to lock in long-term customers by meeting needs that others can’t.
- For Established Businesses: Companies with a strong foothold might find retaining customers more challenging. They may need to reevaluate their business models, reduce costs, or diversify their product or service offerings.
Industries in the Crosshairs:
- Most Affected: Industries like retail, restaurants, and travel/tourism often face the brunt as they rely heavily on discretionary spending. A classic example would be a boutique travel agency, which might see bookings plummet as people cut back on luxury vacations. Real estate might also stagnate, with fewer properties being bought or sold, and manufacturing might slow due to reduced demand.
- Least Affected: Conversely, industries like Healthcare and Information Technology tend to be more resilient. People still need medical care, and businesses still require tech solutions, even during downturns. Take, for example, a healthcare tech firm: even during economic slowdowns, they might find that hospitals and clinics are investing in technology to improve efficiency and patient care.
Real-World Effects on International Companies:
It’s one thing to speak in general terms, but seeing how actual companies fare during a recession can help put things into perspective. Some examples from various global recessions highlight this very clearly for us:
Negatively Affected:
Lehman Brothers: This investment bank played a pivotal role in the global financial crisis of 2008. Its collapse signified one of the largest bankruptcies in history and was a catalyst for the recession that followed. The downturn, which spanned six quarters, caused significant upheavals both in the UK and on Wall Street.
Starbucks: This coffee shop chain, known for its high-priced coffee drinks, has faced several challenges during recessions. When economic conditions deteriorate, consumers tend to cut back on discretionary expenses, such as premium coffee drinks. As a result, Starbucks had to close stores and reevaluate its strategy in some markets.
Positively Affected:
Sasol: This international chemicals and energy company adapted swiftly during the COVID-19 pandemic. Recognising the urgent need for hygiene products, Sasol ramped up its production of hand sanitiser, and used the downtime to overhaul their business model. Their adaptability showcased how businesses could pivot in response to global challenges and find avenues for growth even in dire economic climates.
Walmart: Known as a discount retailer offering a vast array of products, from groceries to electronics, Walmart has shown resilience during multiple recessions. As economic hardships intensify, consumers gravitate towards discount retailers in search of better deals.
These stories serve as a reminder: the industries affected by a recession can experience different trajectories. While some companies navigate the downturn strategically, others face challenges that test their resilience. It’s important to understand that no industry is entirely immune, but being informed about where the pressure points are, and where there might be opportunities, can make all the difference.
Combatting a Soft Recession
While you as an individual or business owner might feel powerless in the face of an impending soft recession, it’s worth noting that there are steps stakeholders can take to mitigate its effects.
- Government Intervention: By implementing favourable monetary and fiscal policies, governments can stimulate economic activity. This includes reducing interest rates, increasing government spending, or providing tax reliefs to businesses and individuals.
- Corporations: Large businesses can invest in research and development, create job opportunities, and expand operations. These actions can, in turn, spur economic growth and stability.
- Financial Institutions: By offering loans at reasonable rates and terms, banks and other financial entities can keep money circulating in the economy, encouraging businesses to grow and individuals to invest.
As for individuals and business owners, the key lies in preparation and adaptability. Being informed, making strategic financial decisions, and diversifying income streams can make navigating a soft recession much more manageable.
Marketing During a Soft Recession
In the heart of a soft recession, many businesses’ first instinct might be to cut costs, and often, marketing budgets are the first on the chopping block. However, it’s crucial to resist this urge. Here’s why:
- Visibility is Key: Remember, while you might be facing challenges, so are your competitors. Maintaining or even increasing your marketing spend can ensure you remain at the forefront of consumers’ minds.
- Digital Opportunities: A soft recession often leads to shifts in consumer behaviour. With more people spending time online, digital marketing becomes even more essential. Platforms like social media, search engines, and email offer cost-effective ways to reach your audience.
- Targeted Messaging: Use this time to refine your messaging. Ensure it’s empathetic to the current climate and resonates with the challenges your audience might be facing.
- Re-evaluate Traditional Methods: While digital should be the focus, don’t entirely discard traditional marketing methods. However, be more selective and ensure that every penny spent gives you the best return on investment.
- Analyse and Adapt: Continuously monitor metrics and customer behaviours to inform your marketing decisions. This real-time analysis can help you pivot when needed, ensuring optimal outcomes.
In Closing
To summarise, a soft recession is a period of economic downturn, but not as severe or prolonged as full-blown recessions. Various industries are affected by recession differently, with some feeling the pinch more than others. Key leading indicators of a recession, like disruptions to the supply chain or significant world events, can offer insights into potential economic challenges.
Yet, even during these trying times, opportunities arise. By understanding the nuances of a soft recession, you’re better equipped to adapt and thrive. Especially in marketing, where being present and resonant with your audience can set you apart from the competition.
If the waters of soft recession marketing seem too treacherous to navigate alone, Ruby Digital is here to help. We’re experts in ensuring the best possible ROI on your marketing efforts, soft recession or not. Don’t hesitate to reach out and let us guide you.
