In the last several months, the U.S. has seen a rise in inflation, gas prices are high, and companies are considering hiring freezes and layoffs as they plan for an uncertain economic future. When we look at historical events, we know that rising interest rates can trigger a recession. But what are some things go-to-market teams can do to prepare to weather this possible storm?
If we take a step back and look at recent economic performance as far back as 2019 and earlier, the economy as a whole is doing pretty well. We’ve actually seen some growth aside from the last few months. One of the things you’ve probably noticed is that real estate has been booming the last few years, and that has started to slow down as interest rates have increased.
On the flip side, unemployment rates have come back down to pre-pandemic levels. Wage increases are happening across the board and companies are struggling to fill positions. However, recent job reports in May have stated that this is diminishing or even reversing those increases because of some of the inflation we are seeing.
As we think about how this impacts consumers, one of those elements we look at is the decrease in demand. This doesn’t mean that we are seeing a decrease in revenue, however. Companies are still turning high profits. This increase in inflation is impacting consumers. People may be starting to rethink that vacation they had planned.
The Fed has increased interest rates as they try to slow the economy to combat inflation. When interest rates are increased, this makes it harder for everyone, including businesses, to borrow money. Chair of the Federal Reserve, Jerome Powell, has noted that as we diminish demand and cool the economy, a reversal in the job market and higher unemployment may trigger a recession. The stock market is anticipating some of those possibilities now.
One of the things to consider, which differentiates this period in the economy, is that consumers have more cash than ever before. At the beginning of 2020, there was $13.7 trillion among U.S. consumers and $4 trillion has been added in the last two years and continues to rise.
How do we think of this in terms of acquiring customers? What we’ve seen at Windfall is that marketing budgets for travel and hospitality are still below pre-pandemic levels, which were around 5% of total spend in 2021 but have surged to around 8.4% in 2022, and are continuing to build as there had been a lot of locked up demand for travel during the pandemic.
So how are markers starting to think about the composition of marketing spend? 60% of ad spend is on digital advertising. Where is the 40% going? One thing many marketers have been talking about is direct marketing.
Contrary to popular belief, direct mail is still an effective channel, and for the first time since 2016, companies were increasing their direct mail volume in 2021. Response rates to direct mail are currently 2.5x higher than ten years ago. Additionally, if you look at database response rates, they are 2x higher whenever when you send them a piece of direct mail after you’ve acquired them through an email list serve.
There are three main areas where marketers are struggling. First, people are looking for customer insights. How are consumers changing? How are we able to drive business outcomes, and where can we double down on our efforts? Second, we need to augment our understanding. You’re only using as much information as what’s in your database. How do you reactivate those consumers and get that 2x response rate by knowing who to target in your first-party dataset? Finally, how do you iterate on campaigns as consumers change over time?
In 2021 businesses had a lot of optimism in the market. In 2022 they need to focus on optimization again. Despite the stock market minimally impacting consumer wealth, consumers believe there is less wealth overall. While that statement is generally correct, we must look at other various aspects of consumer wealth as it is generally hedged in other asset classes. What we see is that stocks only make up a small portion of the wealth of an individual. All of this means that fluctuations in the stock market affect overall wealth much less than we tend to think it will.
So what can businesses do to set themselves up for success in the face of a possible recession? Here are our five recommendations.
Data-Driven Strategies for a Volatile Market
Any data-driven organization must start by building a foundation of trustworthy data. Oftentimes there is overlapping data across disparate systems within an organization like CRM data, transaction data, loyalty data, email data, and more. Organizations must first unify the data and enrich it to then enable action.
Once a foundation of trustworthy and unified data is laid, it’s time to augment your data with deeper intelligence and insights. Doing this helps you develop a 360-degree view of what characteristics define your ideal customer. You should ask yourself questions like “what is their net worth, when was their last stay, and what loyalty tier are they in?” The more you know about your ideal customer, the more targeted and efficient you can become at finding more individuals like them.
Combing a large dataset and drawing conclusions from that data will undoubtedly be an expensive and time-consuming process. That’s why it’s important to leverage AI and machine learning to drive strategic processes. With predictive modeling, your organization can point out individuals with a higher propensity to engage, allowing your team to prioritize them in their outreach efforts.
When there is a consensus that the data you’re using works and is trustworthy, it’s time to take action across the business. Prove to stakeholders that the data works and show how it can increase success rates among your go-to-market team. This is an opportunity to try it across other channels and measure.
The final step is to analyze, measure results, and continue to iterate. This is an ongoing process. Data changes, and as you refresh and organize your data, you can maintain and refine the process. In this phase, it’s important to continue to train your team on this process and refine your KPI’s as you hone in on your ideal target segments.
With the tools available today, businesses can set themselves up for success with the outlined strategies, despite an uncertain economy.
About the author
Arup Banerjee is the CEO and Co-Founder of Windfall. Arup has over 15 years of experience building data-related technology companies. Prior to Windfall, Arup served as SVP, Product at Radius, a B2B predictive marketing company that raised over $125 million. Earlier in his career, Arup helped build out technical infrastructure and analytics frameworks at GoodData, a cloud-based business intelligence company based in San Francisco. Arup holds degrees in Computer Science and Economics from Duke University and an MBA from the Haas School of Business, UC Berkeley.