Doing the Right Research in a Recession

Much of the world appears to be moving toward or has already arrived in a period of economic contraction. Price inflation, primarily attributed to energy costs along with supply chain malfunctions,  accompany this contraction. Many corporate decision-makers have never managed through an economic situation like this. Over the past several years we have seen older generations of leaders leave their roles. This exit of matured talent contributes to a knowledge and experience gap that leaves many firms with a void in personal experience and knowledge.

What is the role of market research during a recession?

When corporate executives ask me how I create value, or what is my reason for being, I usually say that as a market researcher I reduce decision risk. That is, after all, what we as market researchers do. I am including analytics researchers, user experience designers, ethnographers, and other interdisciplinary siblings and cousins in that statement. Someone has a choice to make and rather than depend on their psychic abilities they turn to experts on human behavior to reduce the chance of making an economic and career-derailing error.

The knee-jerk reaction to an economic storm is to reduce program costs and personnel expenses. But when economic uncertainty and corporate inexperience merge, decision risk is magnified, and the demand for market research should increase.

It is the responsibility both of client-side and supplier-side researchers to build the case for the right types of research to help partners and clients not only survive but thrive in a time where we are all looking through the glass darkly.

In times of uncertainty, research priorities should remain the same, but with greater importance placed on learning and recommendations.

Deeply understand whether you are selling to needs or wants

This economic situation is accompanied by a significant level of inflation. Some of that inflation appears to be associated with the drivers of the contraction such as energy costs and food costs linked to supply chain disruptions. Other price changes appear to be increasing because some decision makers are leveraging the current environment to raise prices. So basically, raising prices because they can, not because they must.

Increasing prices reduces demand which in turn leads to further program and staff cuts, creating a spiral of despair. In economically constrained conditions households should reduce or drop spending on wants before they cut spending on needs. If conditions continue to erode, households may be forced to make choices between needs such as, do I pay the rent or pay to repair the car so I can go to work? These types of decisions are extremely stressful and regretfully subject to irrational errors.

Our research should tell us whether different segments of our customer populations perceive our products and services as wants, that will be eliminated first, or needs that will be protected if possible. If we are selling to customer wants, raising prices may prove incredibly ill-timed and tone-deaf. Companies that survive may not only experience a loss of customers but irreparable damage to their brand image.

Conduct trade-off analysis to understand the priority placed on your products compared to a broad set of household expenses. You may be surprised by what you learn. Your trade-off analysis should also include substitute products for your offering. While the market may find the category of your offering to be a necessity, your specific product might be ripe for exchange with an alternative solution.

If your products are among the first traded off, what steps should you take to raise their importance or, at least,  not supply added motivation for households to drop them?

Track both intentions and behaviors

One of the flaws in only using analytics to understand behaviors is the potential lack of data on ‘away from you’ transactions. For example, the customer of multiple music streaming services may be forced to cancel one or more subscriptions as their household economics tighten. This attrition behavior may continue over time as their economic strain continues. When we ask behavioral intention questions the customer may or may not take the actions they are predicting. The customers who strongly agree to a behavioral intention question, however, are still more likely to follow through. The person who strongly agrees to an intention to attrite question and tells you they have already canceled their services with competitors should be taken very seriously.

Learn from the past

When preparing to draft this article, I reviewed the literature from earlier economic downturns. On the Advertising Age website in May 2009, Katherine Jocz and John Quelch published an opinion column addressing market research in a recession.¹ Dr. Quelch followed up that column with an article in the Harvard Business Review.² Among other excellent recommendations the authors pointed out that during good times firms can afford to have “less than optimal branding, positioning, pricing, or segmentation.” In challenging times there is less or no room for error.

There are two recommendations from this point. There is rich existing literature – popular, academic, and governmental – from earlier recessions. Synthesize that information. What learning, suggestions, and recommendations did the literature review reveal? How can that learning be applied to help research contribute to the success of the company? How does that learning help shape the decisions the firm must make? Beyond the surface information, look for deep learning, what were the unexpected consequences of actions businesses took? How should you think through the potential outcomes of your choices?

Additionally, with less margin for error, the need for rich research and testing becomes more obvious. Yet, in a constrained environment, the funds may truly not be available. Develop a prioritization process to help decide which business initiatives deserve a greater share of the research budget based on potential gain from the investment or potential risk from failure. Remember the priority goes to support decisions the business must make not to research ideas that appear most interesting.

In the swirl of all the dramatic events occurring today, research plays a critical role in reducing the risk linked to the business decisions necessitated by economic strain. The cost of making even a moderately inaccurate decision is magnified in economically uncertain times guiding us to apply strategic research to minimize the risk of making the wrong choice.

 

1 Jocz, Katherine, Quelch, John, Research May Be Costly, But Its Critical, Advertising Age, www.adage.com May 2009

2 Quelch, John, How to Use Market Research in a Recession, Harvard Business Review, May 2009