I constructed a model in the course of the worst recession in fashionable occasions. This is what I discovered
There was no method to know that I’d be launching a enterprise solely a few years earlier than the financial system slid into the Nice Recession. In 2008, Sprinkles opened its fifth and largest location but within the upscale Palo Alto buying middle.
Inside days, my enterprise outlook turned from promising to bleak. How do you construct a enterprise throughout one of many worst financial downturns in fashionable occasions?
In the end, it comes right down to strengthening your model.
Consumers pull back on spending during downturns, but there are still small luxuries and strong brands that people will make room for in their budget.
The term “lipstick effect” was coined by Leonard Lauder in 2001, when he observed that lipstick sales tend to be inversely correlated to economic health. The idea is that many consumers will find the cash for small indulgences during hard times, even as they forgo buying bigger, more expensive items. And it’s not an urban legend. A well-known beauty founder told me recently that sales of her upscale lip scrubs had soared during the Great Recession.
Even notoriously exclusive French brand Hermes, known for its inaccessible luxury handbags, is expanding into beauty on this downturn. In comparison with its baggage, Hermes lipstick is downright democratic, out there to the plenty at some shops and even on-line. Nevertheless, it’s nonetheless some of the costly lipsticks in the marketplace ($69). With the eye-catching design of their lipstick circumstances, Hermes offers their prospects with model bang for buck. Since lipstick is the one make-up that’s Emily Publish-approved to be utilized in public, you’ll be able to flaunt that costly lipstick in entrance of your folks.
It’s time to think about: What’s your recession-proof hero product? Do you have already got a “lipstick” in your product line? Is your model sturdy sufficient that prospects will make room for it inside their smaller price range? If not, are you able to provide a smaller piece of your model?
When revenue starts to slow, the first casualties are usually marketing and advertising. Microsoft, which spent an estimated $294.8 million in TV promoting in 2021, has already cut its TV ad spending for the upcoming season.
Though it’s tempting to chop out all marketing-related bills in a market downturn, this impulse could be shortsighted. Market downturns provide a chance to take market share and acquire a aggressive benefit. Research have proven that the manufacturers that reduce advert spending throughout a recession are likely to lose market consciousness and cede model recognition to those that continued to take a position. In a much less noisy advert setting, it’s simpler to be seen and heard–and it’s inexpensive to get in entrance of these prospects.
Resist any knee-jerk response to chop all pointless advertising and marketing expenditures. Advertising and marketing and promoting might very properly be the surprising workhorse to hold you thru an financial despair. In reality, a colleague within the client packaged items wellness area was barreling in the direction of her Sequence A however has just lately pumped the brakes to provide herself time to climate an unpredictable market. She is at present centered on being considered with spending and increasing her runway. Nevertheless, she simply employed a brand new CMO who she believes might be key to efficiently scaling her enterprise.
Consumers are looking for frivolity and fun during economic depressions, especially one that comes on the heels of a morale-crushing pandemic. Brands that can offer a form of escapism will come out on top.
It’s not hard to see why this summer’s blockbusters Top Gun Maverick and Jurassic World Dominion have been a massive success. They played on happy memories from the past to offer some respite amid a storm of uncertainty. Leveraging nostalgia can also be a creative way for a newer business to signal that they are dependable and trustworthy. Branded memes are even on the rise as a way for brands to communicate with customers online. They show the brand is culturally current and add a dose of levity and fun.
Now more than ever, brands should be capitalizing on humor, nostalgia, and levity. Marketing Brew’s theory is that the 80s are back, with a wide-ranging use of 80s aesthetics in advertising.
For example, Vacation is a sunscreen brand that has blown up with its retro 80s nostalgia. Although its vegan, reef-friendly formula is very much a modern product, everything else–from its website to packaging and ad campaigns–evokes a time of big hair and shoulder pads. Even the coconut scent of its sunscreen transports you back to the days of “laying out” by the pool lathering Hawaiian Tropic in pursuit of the ultimate tan.
It can be tempting to push sales and offer deep discounts in an effort to thin out a bloated inventory or spark excitement amongst a stagnant customer base.
Ultimately, it’s a bad idea. Though customers will be drawn to slashed prices, it will squeeze margins during a time when costs are at an all-time inflationary high. Plus, there’s an implied value to any price tag. Continually discounting not only trains your customers to wait for the next price drop or flash sale, but it starts to erode the perceived value of your brand. In the short term, you effectively train customers to recognize markups and never pay full price. And, perhaps more importantly, you devalue your brand.
In the first year of Sprinkles, customers would come in towards the end of the day expecting discounted cupcakes and be surprised to learn the price remained the same. Customers had been taught by other bakeries to expect that the product at the end of the day was worth less than at the beginning. But with our just-in-time baking system, these cupcakes were as fresh as their morning relatives. Even then, as tempting as it was to sell off those last few cupcakes at a discount right before closing, I knew we had to stand firmly behind the price. I preferred to donate those cupcakes than to eat into the value of our brand.
Economic downturns aren’t exactly the harbingers of a business boom–but they can be an opportunity to get creative with your product and explore new avenues for marketing in ways you might not have otherwise.
Buckle up, tighten the purse strings, and schedule a few more creative brainstorms. Just remember: Your product is nothing without a strong brand, so in this upcoming storm, make sure it’s safe and sound.
Candace Nelson is the founding father of Sprinkles, Pizzana, and CN2 Ventures.
The opinions expressed in Fortune.com commentary items are solely the views of their authors and don’t mirror the opinions and beliefs of Fortune.
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