Let's be honest, we don't really know what's coming. As sales started to drop in the past weeks, the immediate reaction for many was to cut costs, reduce prices and postpone new investments.

But in the long-term this won't be a sustainable solution. Instead, John Quelch from the Harvard Business Review suggests we look ahead and adapt to the new reality by taking our customers' changing needs under the microscope.

Understanding Recession Psychology

As I highlighted in previous newsletters, generic demographic and lifestyle segmentation of customers become less and less relevant. And in a recession, this becomes even more obvious.

The Four Psychological Customer Segments

John Quelch presents a model on how we can split our customers into one of four psychological segments.

Segment 1:Slam-on-the-brakes

This group is hardest hit financially and reduces all types of spending by eliminating, postponing, decreasing or substituting purchases.

Segment 2: Pained-but-patient

These consumers and businesses are resilient and optimistic about the long-term, but less confident on the speed of the immediate recovery. Also this group faces uncertainty on how well they can maintain their current standard of living / doing business.

Segment 3: Comfortable well-off

This segment feels secure and is confident that they can successfully overcome the current crisis. The consumption / buying behavior is near the same as before, though they might be a little bit more selective in what they purchase.

Segment 4: Live-for-today

This final, and most well-off segment carries on as usual and doesn't worry too much about an upcoming recession. Their spending behavior won't change much, or even increase. For B2C, this could be the young urbanites who have little fix costs and value experiences over owning stuff.

The Four Product Category Priorities

Furthermore, All of the above segments prioritize consumption by sorting products in one of the following four categories:

Category 1: Essentials

Necessary for survival or perceived as central to well-being.

Category 2: Treats

Indulgences whose immediate purchase is considered justifiable.

Category 3: Postponables

Needed or desired items whose purchase can be reasonable put off.

Category 4: Expendables

Products and services perceived as unnecessary or unjustifable

Putting it all together

Now following are two important graphs: One showing the shifting consumer behavior based on the above customer segments and product categorization, and the other giving clear tactics per segment and product on how to tailor your marketing to your unique situation.

This is a lot to digest and I highly recommend reading John's full article linked below. I leave you with the following quote of the Harvard Business School professor:

During and after the recession, it would be foolhardy for marketers to ignore those changing expectations. While businesses are putting customers under a microscope, their customers are, in turn, examining them more closely than ever.

Check out the full article