At the time of writing, economists around the world are reporting signs of a global recession that will peak in 2023. Companies are retrenching and laying off their employees, cost of living is rising due to dwindling supplies, and central banks around the world are raising interest rates to combat inflation from worsening.
It might sound worrying, more so for businesses that rely on revenue from the free market. What can local businesses do to stay afloat in tough economic times? Particularly in Malaysia, where the economic and political climate is already rocky as it is, what are the steps to take to cushion the impact of the recession?
Read more: 6 Critical Hacks to Increase Sales in a Tough Economy
In this article, we’ll first look at what a recession is like. Then, we’ll explore how local businesses can brace for the toughest part of the economic cycle.
What does a recession look like?
A recession is a period of economic downturn, usually characterised by high unemployment, slowing production, and decreasing trade and investment. During a recession, businesses may struggle and people may see their incomes and spending power decline. Consumer spending, which drives a significant portion of economic activity, may also fall.
There are a few key indicators that economists use to identify whether a country is experiencing a recession. These include:
- decline in gross domestic product (GDP)
- increase in the unemployment rate
- decline in the stock market
- decrease in business investment
- decline in industrial production
What does it mean for business?
During a recession, businesses may face a range of challenges, such as declining sales, reduced demand for their products or services, and pressure on profits. In response to these challenges, we may need to take a range of actions to try to maintain financial stability and adapt to changing economic conditions.
Here are what some businesses are doing to curb the impact of a recession:
1. Diversify Products & Services
One strategy is to diversify the products or services that a business offers. This can help to reduce the impact of a downturn in any one particular area and provide a steadier stream of revenue. Large conglomerates are known to diversify to a lot of areas, but SMEs can also extend their products and services too.
2. Work Smarter with Less
Businesses can also try to increase efficiency by streamlining processes and finding ways to do more with less. This can help to reduce costs and improve competitiveness. Using marketing automation like HubSpot, for example, lessens the workload. Some businesses go beyond automation and make use of A.I technology such as chatbots and content creation to work faster and smarter.
3. Adjust KPIs & Revise Internal ProcessesIt’s wise to revise quarterly targets for this year knowing what might happen in your industry. Set realistic targets in the event of reduced demand or other factors. Businesses also take this time to prioritise internal improvements and audits. This way, when the economy starts to grow again, the company has a fresh start with improved internal systems all ready to go.
Read more: How to Motivate & Guide Your Sales Team to Achieve Greater Heights
4. Keep an Eye on Your CompetitorsWhat are your competitors doing when the market slows down? What are their approaches and more importantly, can you do the same if not better? Watch out especially when they seem to decrease their budget on certain markets or activities, such as marketing. When they retreat, it might be a good opportunity to use this to your advantage and take charge.
5. Offer Tiered Services
In a recession, customers and clients are looking for as many ways to cut costs and stay as fiscally lean as possible. If it’s possible for your business, look into tiered services where you offer flexible packages and plans. Throw in some customisable options for added value and see how this can increase the affordability of your products and services.
How we can still win customers during a recession
Customers still need a lot of things done regardless of economic conditions. As businesses, we should maintain the momentum even during a recession to ensure we capture the right people who still need our products and services. Here are a few strategies that Malaysian businesses can use to secure customers during a recession:
1. Offer Value
A lot of consumers become more price-sensitive during a recession. You could consider offering promotions, bargains, and other valuable incentives to ease customer’s friction. But more than margin-cutting measures, it's important for businesses to offer value. This could mean better customer service, flexible arrangements, quality products that last longer and other elements that make your customers think that yours is worth buying.
Read more: Why do Malaysian Businesses Need Inbound Marketing More Than Ever?
2. Focus on Customer Delight
As the experts at HubSpot would always say, customer delight is the responsibility of the entire company and not just one department. Excellent customer service can be a key differentiator that helps you stand out during a recession. It can help to build loyalty and encourage repeat business.
Read more: The 3 Stages of a Buying Process (Buyer’s Journey)
3. Adapt to Changing Customer Needs
Customers’ needs change according to seasons and economic climate. A recession is no different. Businesses must be alert of changing trends and demands. In the beauty industry, for example, it is found that Malaysian shoppers tend to buy beauty products in smaller packages as a cost-cutting measure. Thus, some brands capitalise on this by making mini versions of their best-sellers more accessible.
4. Build relationships & Brand Loyalty
As mentioned previously, good customer service is key to building relationships with the customers. Businesses should focus on building strong relationships with their customers through excellent customer service, personalised communication, and other strategies. Retaining customers costs less than trying to win new ones, saving a company 1/7th of the average customer acquisition cost.
5. Capitalise on Digital Marketing
Digital marketing can be an effective way for businesses to reach new customers and retain existing ones during a recession. Social media is a powerful tool for community-building and getting your brand out. Email marketing helps to stay in touch with your customer base. Search engine optimisation attracts customers in a non-aggressive way. There is a lot that digital marketing can do even during tough economic times.
Read more: 6 Inbound Marketing Success Stories that Bring Impact & Results
A recession is a part of the natural economic cycle. It’s helpful to note that most recessions are relatively mild and short-lived. Understanding what the recession can do to your business is a smart move to ensure the survival of your business. As the country is set to face the recession in 2023, take the time to improve internal processes, rethink on what your customer demands and how you can still win them.