Customer Acquisition in an Uncertain Economy
8 Tips for consumer brands in the age of COVID-19
Volatile markets can be terrifying - but they also present tremendous opportunities. The team at Stealth Venture Labs has been through it all before. Here are eight actionable tips to keep your business growing in an uncertain market.
By Brent Freeman, CEO & Founder at Stealth Venture Labs
Over the past few weeks, the world has changed in significant and unprecedented ways - and we are now in a universe of financial turbulence, surrounded by lots of uncertainty. There are two lenses to analyze the situation we’re in; 1) from a place of fear and scarcity or 2) a place of opportunity and abundance. Personally, I choose abundance. Every economic downturn feels as if the world is ending - and if you were to check the news every hour, it’d be hard to dispute that feeling. However, the reality is that in times like this, the shrewd, calm, and diligent brand operators can turn any downturn into a competitive advantage. That is, if they know where to look and how to act.
The team here at Stealth and I went through the Great Recession in 2008. We came out the other side better than when we started. In this article, we are sharing some of our hard-earned lessons with you. They will help you weather the storm and emerge stronger than ever before.
Don't get me wrong: I would be much happier if COVID-19 magically disappeared, and the decade-long bull run in the market continued. However, as with all macro-economic shifts, these are the cards we've been dealt, and I still choose abundance. I refuse to let the circumstances dictate my outcome. So I’m now left with a choice. It feels like I have been training for this my whole life, so do I take my ball and go home, or do I lace up my shoes and jump into the game? Obviously, it’s game time and I’m in.
What do we know: COVID-19 is real, it’s spreading and it’s causing huge economic and health scares across the world in an unprecedented manner. Many people are working from home for the first time and are forced to quickly adapt. They are spending more time on social media and are shopping online more than ever before. That sounds like an opportunity - and it is - but if you don’t understand their buying needs and psychological behavior in this economy, you will make a difficult situation worse. For many brands, this is a golden opportunity to lean in, listen to the market, make some immediate changes and deploy capital into media spend the right way.
We are seeing strong indicators that discretionary spending is shifting - and fast. Stealth Venture Labs manages about $2-3M per month across platforms like Facebook, Instagram, Google, Snap, Pinterest, YouTube and more. Across this spend, we are seeing some trends: For almost all clients, customer acquisition costs have risen in the last 10 days - some upwards of 125%. It would be easy to attribute this drop to COVID-19, but to really know what’s going on, we need to understand Maslow’s Hierarchy of needs and the psychology behind online shoppers.
In a booming economy, people generally have their basic physiological and safety needs like food, water, shelter, personal safety, and health met. This frees them up to focus on buying and investing in things that help them achieve their highest level of self actualization. In an economic downturn - with a side-order of global pandemic health scare - people are not focused on discretionary self actualization products, goods and services. They will be laser-focused on the basics like food, safety, health and shelter. Anything outside of that fails to get their attention - or in our case - their clicks.
Understanding this above paragraph is critical to understanding the following eight tips we’ve laid out. All your customers are subject to these basic laws of human psychology - and it directly affects their buying behavior.
Here are eight tips on how to adapt:
1 - Keep Calm
First thing’s first; keep calm and keep your cool. Yes, markets are shifting quickly and so is customer behavior, however remember that rarely does anything good ever come from knee-jerk reactions based on fear. Now is the time for a swift, but calculated, response. The strategy you laid out last year for 2020 is likely no longer relevant, so you need to take some time to re-calibrate, re-strategize and respond appropriately. Slow down, get some perspective, think clearly, and focus on what you can control to adapt to the market conditions. Don’t forget that markets are always cyclical, and this is just another cycle. If history is any guide, we will each experience another 5-7 economic downturns. So slow down, meditate, step away from the computer, and take some to think when you’re not running on high levels of cortisol.
2 - Identify Your Maslow’s Hierarchy Score
Have a hard conversation with yourself about where your brand, product or company falls on Maslow’s pyramid for potential customers. Are you supplying products that fill physiological and safety needs, or is your product on the higher levels of the pyramid that become nice-to-haves in times like this? This hard, honest conversation with yourself and your colleagues right now will be one of the most critical observations you can make in a recession. Your game plan will depend on the answer.
Here’s a simple test:
1. Does my product, brand or service provide:
a. Food, water, shelter, basic essentials?
■ Yes = 5 points
■ No = 0
b. Personal safety, income, health benefits?
■ Yes = 5 points
■ No = 0
c. A way for people to connect virtually to feel a sense of belonging?
■ Yes = 3 points
■ No = 0
d. A way to feel better about my personal image, status or self-esteem?
■ Yes = 2 points
■ No = 0
e. A way to feel like I’m living my best life?
■ Yes = 1 point
■ No = 0
Tally up your score.
If you scored a 5 or more, congrats. What you are selling are the types of products people are paying attention to right now. It’s time to capitalize on this and acquire customers when all others are scrambling. Do so ethically: don’t price gouge; take care of your customers.
If you scored less than a 5 then you are a “nice-to-have.” You will need to adapt quickly and think carefully about how you’re going to reposition your product to customers. You need to adjust your marketing messaging / positioning to help customers understand why they “need” your product - or better yet - adjust your product offering to be something they actually do need!
Here’s an example: Say you are a make-up brand. If people go out less, does that mean they need your product less? Of course not. You can re-position as self-care, with a "Yes, everything sucks, so you deserve to feel good about yourself" type of messaging. Don’t know what positioning will work? Test ALL your ideas with Facebook or Instagram ads using multiple headlines and ad text in your ad copy to see which positioning has the highest click through rates . Take that winner and then adjust all your ad copy, site messaging and emails to match.
3 - Know Your Numbers
Before you do anything else, get a full overview of your financial situation. Now, more than ever, your business and marketing needs must be managed from the P&L. That includes cash in the bank, outstanding invoices, accounts receivable, any inventory you have in your warehouses, and any unfinished work product. Run scenario calculators of sales to understand the impact the business volatility could have on your cash position and develop game plans for each. Export your P&L from your accounting software, and extrapolate the data over the next 3, 6, and 12 months to see what the different scenarios’ financial impacts could be. Do this exercise before you cut staff, media, contractors or other expenses. One of the biggest mistakes we see in down markets is people reacting out of panic versus responding using their pro-forma P&L - and their knee jerk reactions can make things worse. I’m not saying delay cutting your costs: what I’m saying is to expedite your P&L forecasting so you know which costs to cut, and how deep.
Having a good spreadsheet to work from means you have ways of modeling the financial wellbeing of your business. Better information means better decisions.
4 - Emphasize the Value to Customers
In down markets, customers are price sensitive. They are worried about the economy, their jobs, their retirement and their health. They are more likely than ever to be looking for a good deal. In the 2008 recession, the companies that thrived through the downturn were brands like HomeGoods, TJMax, Ross, WalMart, McDonalds and more. Why? Because people still ate out, bought clothing and needed things for their homes, but they didn’t want to / couldn’t pay higher prices.
Emphasize the benefits of your product to your customers in ways that are undeniable from the moment they touch your brands. If you have any price comparisons to other brands, use them. If you are 20% cheaper than buying the same product at the mall - tell them that. And if them buying your product saves them money in other ways, make it obvious. Include this messaging in your top-of-funnel ads, homepage copy, product details pages, checkout page, email marketing, and any other touch-points where you communicate with your customer.
If you were giving an introductory offer to new customers of 20% off their first order, bump that immediately up to 40% or higher (or whatever amount makes financial sense for you). Do the same in your remarketing offers and email marketing efforts. Give new customers a strong financial incentive to try you out and get their attention immediately when they see your ad. In a booming economy you wouldn’t be comfortable with discounts like this - but in this economy, increase the sweetener to get people to buy your product. Make your purchase incentive a no-brainer.
5 - Reduce the risk for your customers
Right now, consumer confidence is crashing faster than the stock market and even simple purchases are being mulled over. To counteract that, highlight your customer-friendly policies in your user experience. Potential customers need to know they can trust you, trust your product and trust that their purchase is safe. Making a purchase a “no-lose situation” for your customers will keep them spending. For example, there's a regional airline in California called JSX. It is not a membership service, but it flies out of small airports, for roughly the same price as Southwest. As Coronavirus took hold, they removed all change fees and de-risked the transactions for their consumers as they were booking flights. Now, if you need to travel, are scared of the big airports and are looking at JSX - there's no reason not to book with them - even if plans change last minute.
These customer service areas most affect customer acquisition / conversion:
1. Return Policies
2. Refund Policies
3. Customer Service Hours
4. Shipping Fees / Times
5. Satisfaction Guarantees
Include messaging like “money back guarantee” or “love it or send it back” “Extended customer service hours” or “easy returns” in your entire marketing funnel. It enables people to feel less risk in trying your product or service for the first time.
6 - Turn Inventory into Cash
Frequently, especially in subscription businesses, people panic when they see their customer acquisition cost (CAC) increase overnight. Their urge is to stop spending on new customers right away. Pulling back all ad spend will have major downstream effects on cash flow. If you have inventory sitting on the shelves right now, it's better to get it in the hands of customers. Cash is better than aging inventory - so use your inventory as incentives to acquire new customers as well as to sell more products to existing customers in flash sales using emails. It’s likely your fastest source of increasing revenue while combating CAC headwinds.
7 - Test Faster, Get Creative
When the market is growing in boom times, you can get away with making mistakes and still keep growing; the margin of error is much greater. In a bear market, you have to exercise tight P&L control because the margin of error is drastically smaller. Get back to basics and keep an extra-close eye on your marketing experiments or channels that aren’t producing sales. Kill experiments that aren't working sooner, and double down on successful campaigns and experimentation. Evolving market dynamics will be surprising and unpredictable, opening arbitrage opportunities. But whatever you do - don’t stop experimenting - just move quicker than you were previously and be creative with price, promotions and positioning.
8 - Double down on existing customers
In difficult times, focus more attention on your existing customers. They know you, They trust you, so segment the customers and market to them again. Try to re-activate churned customers, or increase the basket size for existing customers. If you are only sending two emails to existing customers per month, double it. Triple it. See what happens - it's a low cost, guaranteed return on investment on a massive scale. Whatever you do, make sure that you update your positioning and promotions accordingly to help instill a sense of urgency in your customers: these deals won’t last forever!
We’re in a lot of unchartered territory. Consumers are focused on their basic needs being met. Your products and messaging need to align. The initial shock of quarantines and forced work-from-home situations will wear off. Once consumers feel safe again, and their basic needs are met, people will again start needing more products and services that make them feel loved with a sense of belonging. This is your opportunity to look at your brand with fresh eyes and reposition it for a brave new world.
Hope these points help you not just survive this market -- but thrive through it. If you ever want our team to do a free audit of your media plan or accounts, all my contact details are below. Feel free to reach out anytime. Sending you, your team and your families lots of love, optimism and fortitude during these times!
Brent Freeman
Founder & President, Stealth Venture Labs, Inc.
