Effects of Recession on Consumer Behaviour and Impact on Sellers

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Table of Contents

Introduction
Effects of a Recession on Consumer Behaviour
Impact of a Recession on Sellers
Conclusion
References

Introduction

Central to all definitions of economic recession is the fact that there is a sudden reduction in economic activities that causes a frightening decrease in the level of spending. The resultant crisis eventually makes life very difficult both for manufacturers and consumers.

Consumers become more careful in spending while manufacturers have no choice but to spend heavily in advertising and marketing so as to retain their clients and even lure more.

According to Jackson (2011), economic recession will occur when two quarters or trimesters of negative economic growth are experienced. During these times, a country will record a substantial drop in the national Gross Domestic Product (GDP). Fear creeps in and both individuals and businesses are forced to considerably cut down their spending due to reduced cash flow.

When this goes on beyond the two year period, it leads to what is called a depression. Although very scary to think about, recession is seen as part of an ordinary business phase and is to be expected (Huey, 2011). Economies will normally go through a slow period and later pick up.

An economic recession will be characterized by among other things; a reduced level of employment opportunities, a slow down in consumer spending, a drastic fall in industrial production, rising cost of food and accommodation and, decreased stock market activities that to a very large extent will affect the stock market performance.

It also has negative effects like driving a country deeper into debt (Jackson, 2011). This situation can bring about very unpleasant consequences for businesses and for some situations; it may even lead to a closure of a business (Davis, 2010). Though it is not easy to precisely point out the real cause of recession, the effect is faced across the entire globe (Borade, 2011) and many are affected.

Effects of a Recession on Consumer Behaviour

According to Krishnan (2009), consumer spending on luxurious commodities is the first culprit that gets affected during periods of economic recession. Given that these are simply desires and not needs, they are mostly purchased based on a consumer’s good judgment.

Consequently, manufacturers and the marketers of such merchandise receive a terrible blow as they are compelled to give discounted offers the may result into horrifying loses. Manufacturers, sellers and consumers of these goods often end up playing games to outsmart one another.

Consumers will keep speculating hoping to see a fall in prices while on the other hand, producers and sellers will make efforts to keep prices lower and give attractive offers to customers with a hope that in due course they will be able to clear any remaining stock. The postponement by the consumers always leaves retailers at a loss as they are sometimes forced to lower prices even further (Krishnan, 2009).

Even though people will do just about anything during hopeless moments to continue existing, most manufacturers as well as marketers will choose to go against this popular belief to survive. They become more creative when it comes to dealing with the consumer.

One survival tactic employed by many businesses in times of economic recession to get consumers to buy their commodities is to create artificial shortages that later have the effect of increasing demand for goods, forcing the consumer to dance to the manufacturer’s tune (Krishnan, 2009). Usually, the retailers will purpose to keep only a small quantity of the luxurious goods in stock and in this way, they are able to greatly influence consumer behaviour.

The fake shortage creates panic among consumers and they are duped to think that there is a real scarcity. They are therefore, coerced to rush for commodities fearing that they might not be able to see them for an indefinite period of time. Using this approach, producers ensure that they are able to sell their products.

Borade (2011) argues that consumers must take a hard line stance when budgeting in the face of economic recession. There is a need for carefulness in planning on the part of the consumer. It is also important that one consolidates assets besides reducing liabilities as much as possible.

Some suggestions that have been fronted when it comes to dealing with economic recession include; exchanging one’s savings for gold or silver, drawing a clear distinction between commodities that one cannot do without and desires or wishes, bulk buying and being able to store items that can stay for much longer durations, changing from the use of fuel guzzlers to much cheaper cars and avoiding the use of plastic money (Borade, 2011).

According to Huey (2011), consumers during economic recession will more often than not, take time to figure out the best way to ensure that they can benefit more from use of their money.

Impact of a Recession on Sellers

Davis (2010) observes that when sales go down, the manufacturer is bound to also go slow on employing new staff or may stop employing altogether. A number of important undertakings such as carrying out research and development, introducing new products into the market or purchasing new equipment to strengthen operations will also suffer.

Expenditures meant to go into advertising and marketing will are subject to huge reductions. These cost cutting measures in the end negatively impact on other businesses that supply big manufacturers with goods and services (Davis, 2010).

Davis (2010) further argues that as revenues decline, and this is reflected in financial reports, the stock price may go down leading to decreased dividends available for shareholders. This development could upset the shareholders and the result will be loss of confidence in the existing team of management.

The advertising agency offering services to the affected company will also be rendered jobless while internally, the advertising and marketing team may face extinction. Valuable shareholder may settle on selling their shares in the company to reinvest in other better performing stocks (Davis, 2010).

According to Huey (2011), manufacturers and consumers cut down spending causing throwing marketers into a panic. With marketing budgets being reduced, it becomes very critical that marketers reconsider their marketing plans so as to continue living even beyond the recession.

The firm may also end up being bankrupt and this will eventually damage its credit rating hence preventing any additional borrowing (Davis, 2010). The business may resolve to lower the number of employees and the result of this may be overloading the remaining small number of employees with work. Fears of more job loses could demoralize the remaining staff (Davis, 2010).

Quality of goods and services during economic recession may suffer greatly due to attempts to cut down costs (Davis, 2010). Spending less money on advertising and marketing means that consumers are not made fully aware of the firm’s products and also advertising firms will face the risk of business loss as there will be no money coming their way.

In the study by Huey (2011), all marketers should be familiar with four major trends that influence the success of marketing activities. If well understood, this will greatly help marketers to engage in marketing operations that work during recession. Rather than respond in an emotional way to situations in times of recession, it is recommended that marketers should be tactful in marketing their commodities (Huey, 2011).

Research undertaken showed that during recession, manufacturers who opted to increase their marketing expenses realized growth in their sales revenue far much higher than those who chose to reduce advertising costs (Huey, 2011). By increasing their marketing activities, these manufacturers also benefited by seeing their market share experience an upward rise.

Conclusion

Without adjusting marketing strategies to address the new market environment during recession, a company is bound to suffer significantly. History has it that those companies that do not shy off from aggressive marketing end up raising both sales and market share leading to high long term profits.

Any company that seeks to cut down spending on either advertising or marketing loses out on opportunities for growth. Such a company may suffer even more after the recession is over. It is therefore very necessary that manufacturers take time to think before resolving to trim down important expenses such as those that support marketing operations (Huey, 2011).

It is also essential for marketers to understand consumer behaviour so as to devise the strategies to battle it out in the market place. Following the traditional approach to marketing will be a sure way to destruction.

References

Borade, G. (2011). How to Survive an Economic Depression. Web.

Davis, M. (2010). The Impact Of Recession On Businesses. Web.

Huey, C. (2011). Recession Marketing – 9 Survival and Growth Strategies. Web.

Jackson, J. (2011). Economic Recession – Impacts of Economic Recession on Employment Nowadays. Web.

Krishnan, R. H. (2009). Influencing Consumer Behaviour – Retailers Respond to Recession. Web.

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