Consumer spending constitutes approx. 70% of the U.S. economy and financial experts fear that current uncertain financial circumstances will have a psychological impact on households, causing them to cut spending, according to a news report by Reuters.
What should be the strategy of small- to medium-sized businesses in such a situation?
For the start, businesses should not forget that as long as there are people, there are needs and to fulfill those needs, people need commodities.
If your business sells something that is necessity as opposed to luxury, you should be comparatively safe. However, if your business sells luxury items, then you need to sell your luxury items as necessity items.
Do not confuse that suggestion with one that is encouraging you to deceive your potential customers. The suggestion is simply trying to get you to successfully sell your luxury goods to those who see them as half necessity and might not be buying because of the general (or your own created) perception of your goods as luxury items.
According to Catherine Rampell, an economics reporter for The New York Times, the answer to the question ‘what are luxuries and what are necessities’ “in 1973 [for example] would be very different from your answer today.”
She writes in her 2006 blog post, “In response to coverage of strapped households, a reader points us to the Pew Research Center’s 2006 report on what kinds of goods Americans consider ‘necessities’ versus ‘luxuries.’ The results show that, as their incomes rose, Americans have gotten somewhat needier over time. For example, the percentage of Americans who call microwaves a ‘necessity’ rather than a ‘luxury’ has more than doubled in the past decade, from 32 percent in 1996 to 68 percent in 2006:”
The complete blog post can be read here. If you hadn’t had a chance, do give this interesting blog post and the interesting comments left there a read.
As you can imagine, the same applies to businesses in the services industry as well. For example, we are an internet marketing firm with a considerable experience of marketing American businesses (in fact, we’ve had some extraordinary results marketing for a U.S. business), but all our achievements in the field of internet marketing can appear to have little to no meaning to some businesses (that’s certainly some of the businesses that do not sell online; it’s hard to imagine an online business that’d think internet marketing as having no value) while for other businesses our services can appear as a necessity. In tough economic times, our strategy should be to focus on businesses that may be consciously in need of our services rather than also trying to convince the other type of businesses to have us do internet marketing for them no matter how strongly we believe that every company must have an internet marketing firm on their side at all times or at least when a new product or service is ready to be launched.
Now if you are thinking that this is what sellers and businesses have been doing already from as early as when man first learned to sell to the current information age – focus on benefits (as opposed to features) in their marketing materials to convince people they need the luxury product or service, bypassing the difficulty of recognizing who sees the product/service as necessity and who as luxury – I’d beg to differ. In prosperous times, you can afford to sell a product solely as luxury if the business plan is to present the product as a luxury item so there be more sales, and you can have great sales too. The same approach can be disastrous during difficult economic times for obvious reasons. Hence, it is important to keep the focus on fulfilling the need more than giving the target market the feel that they will own a luxury.
Let’s see an example to get a clear picture:
LVMH (Louis Vuitton Moet Hennessy), the French multinational luxury goods conglomerate headquartered in Paris, is the world’s largest luxury good producer with over fifty brands, including Louis Vuitton, the brand with the world’s first designer label, Parfums Christian Dior, TAG Heuer, and since it is an accessible or mass luxury business, in a global economic crisis situation with people losing jobs in most parts of the world, it can’t afford to keep the focus on being a luxury goods supplier if it wants to continue the business with its income statements showing low or ideally no losses. Hardly any top professional marketer would recommend them to continue enthralling people in their advertisements; rather, they would suggest them to switch the focus to fulfilling the need of the people (or enlighten me in the comments if you disagree, marketers/sellers). True that just lowering the price without modifying the perception of the brands could be effective, but LVMH brands possibly cannot lower the rates to match the rates of inexpensive brands and hence fulfilling the need is also very important.
While the current economic circumstances may not be a huge problem for giant corporations and conglomerates, it would be an alarming situation for most small- and some medium-sized businesses selling items that can even remotely be termed as luxury. Working with your internet marketing firm to come up with a new marketing strategy that is compatible with the current economic times can give you some good results.
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