As digital marketers it is our job to keep track of consumer shifts in the market and pivot as needed. 2023 is proving to be a challenging year for many small business owners and we wanted to take a moment and address what we are seeing and how to navigate these shifts in consumer spending and sentiment.

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If it feels like lately you are spending more and getting less in return, you’re probably right. We understand that the times, and finances, are challenging. We’ve seen over the course of this year that, collectively with our clients, we’ve had to work twice as hard and spend twice as much to get the same marketing results as in previous years. But this shift goes way beyond the marketing space. We are facing a unique set of financial circumstances that seem to be shaping a consumer-led recession. Let’s take a moment to break down the factors driving this recession, why it matters, and what we can do to navigate it.

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A Perfect Storm of Factors

In the post-pandemic era we have heard about the recession looming on the horizon. We’ve seen inflation affecting everything from gas prices to groceries and utilities. According to Moody’s Analytics, in July of 2023, households spent an average of $709 more on the same goods and services they did just two years ago. Mortgage rates have hit a 23 year high, raising mortgage payments significantly. This spike in rates has pushed more people to the rental market which in turn, has contributed to higher rental rates. American consumers have spent down the entirety of their excess savings from the pandemic, which at one point totaled over $2 Trillion. For many, there is no cushion to fall back on.

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The Plastic Predicament

Credit cards are so easy to tap or swipe for an easy solution. But consumer credit card debt is at an all time high, hitting $1.03 Trillion in Q2 of 2023. While consumers may be carrying higher balances to help compensate for rising prices, it is a double edged sword. Interest rates have risen with APRs at a record 20.63%. Banks have noted an increase in delinquencies as consumers cope with financial burden and exhaust their savings. Card issuers may turn to lowering credit lines in order to minimize their exposure, further exacerbating the situation.

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The Student Loan Shadow

Add to this mix the return of student loan payments after a three-year hiatus. A recent survey paints a worrisome picture: 56% of student loan borrowers are anticipating a tough choice between paying rent, buying groceries, and meeting their financial obligations. This is a sobering situation that could have ripple effects throughout the economy.

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Why Does It Matter?

Let’s circle back to why all of this is so important. Consumer sentiment and activity make up a hefty 70% of our overall economic activity. In simpler terms, our spending drives the economy. But though the signs point to a consumer-led recession, this doesn’t mean that people stop spending money altogether. Instead, they are becoming more selective about how and where they spend their money. People are stretching their dollars and searching for value, a trend which could result in a longer-term shift in consumer behavior, even after the recession eases. For business owners, this means more tire kickers, more price shoppers, longer sales cycles and more competition for your customers’ dollars.

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What You Can Do

While the outlook is challenging, it’s not impossible. U.S. consumers are seeking more value from their purchases, but they are still making purchases. This gives your business the opportunity to stand out by offering high-quality products and services that offer a good value and resonate with this new consumer mindset.
We’ve put together some tips based on what we are seeing in the market:

Stand out from the competition and provide value: We recommend that all of our clients craft a great offer. This could be a discount, financing, shipping, ongoing service/maintenance. It should make sense for your business, and your customer, but most importantly it should provide value.
White Glove Service and quick response time: We are seeing a lower tolerance for waiting for a call back or even waiting on hold. We need to make sure we are delivering exceptional customer service and will need to work harder to close the sale.
Always Be Closing: Digital marketing is even more important during an economic downturn. Keep investing in marketing. Find more opportunities to be in front of consumers. Post videos of projects and benefits of doing business with you. Don't lose market share to competitors because it will be difficult to gain this share back once the market improves.
Diversify your marketing digital portfolio: Costs are increasing on Google Adwords. We are testing other channels to find qualified leads at lower costs.
Read the room: Acknowledge and be mindful of consumer sentiment during a down market. If consumers aren’t purchasing from you, ask why. Do you need to find a better financing partner? Do you need to get creative with costs by offering bundling options? Is there a service that you aren’t providing?

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The important thing to remember is that we are in this together. We have a challenging road ahead, but there is also an opportunity for growth and adaptation. By crafting innovative strategies, focusing on providing value, and aligning your offerings with changing consumer behavior, your business can weather this storm and come out even stronger. We’re here to help.

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-The Geek Team