There’s always money in the market, no matter the economic situation. If your business is slowing down dramatically during a recession, there are three main reasons: your product is not essential, your product or service is not good enough, or you’re not selling it properly. In my previous article, I shared more abstract strategies to help businesses navigate tough times. This time, I’d like to focus on actionable tips to keep your business moving forward.
People Just Spend Money on Other Things
While demand for certain goods declines during challenging times, other businesses thrive. After the 2008 market crash in North America, many eBay sellers saw sales drop, while industries focused on commercial essentials, such as car parts, were unaffected. Fast forward to 2024, China currently provides a valuable example as a country in recession or mild deflation. Despite its current economic downturn, the daily necessities sector—supermarkets, large retail stores, and e-commerce—remains strong because it’s closely tied to people’s lives.
In Canada, supermarkets experienced record-breaking revenues during the COVID-19 pandemic. Canadian retailers thrived as people shifted spending to essentials. This illustrates that even in economic downturns, people continue to spend money—they just allocate it differently.
The Lipstick Effect
During a recession, people tend to tighten their budgets, but they don’t stop spending altogether. Instead, they reprioritize how they allocate their money. For instance, during prosperous times, someone might dine out four times a week. However, in an economic downturn, that same person still needs to eat but may opt to buy groceries and snacks instead of spending on restaurant meals. This shift in spending behavior highlights how people focus on fulfilling their needs differently, often seeking cost-effective alternatives.
This phenomenon is further explained by the "lipstick effect." Even when consumers face financial constraints, they continue to indulge in small luxuries. While they may forego expensive purchases like designer handbags or high-end electronics, they often find room in their budgets for affordable treats, such as premium lipstick, gourmet coffee, or a small piece of jewelry. These minor indulgences provide a sense of comfort and normalcy during uncertain times.
For businesses, the lipstick effect offers a valuable lesson: products that provide perceived value and small joys can thrive even in tough economic conditions. Companies positioned to offer affordable luxuries or cost-effective alternatives often demonstrate resilience. By understanding this behavior, businesses can adjust their strategies to cater to the emotional and financial needs of their customers during downturns, ensuring they remain relevant and competitive.
Sell the Right Items
Before discussing what you should sell, let’s focus on what you shouldn’t do.
Many clients I work with make the mistake of burning money on marketing and rebranding without addressing the real issue: their product or service. eCommerce has made business owners hyper-aware of digital branding, often overshadowing the core truth—your product is what truly matters. If your product or service isn’t meeting customer needs, no new website, fancy images, or Google ads campaign will save it. Instead of throwing money at aesthetics, take a step back and reflect on why customers aren’t choosing you over competitors.
- Diversify or Consolidate Your Product Line
If your current lineup isn’t performing, explore diversification. Speak with leads, analyze outreach traction, and test new products or services. Once you identify a high-demand product that aligns with an industry you understand and can market effectively, shift focus. Remove underperforming items and concentrate resources on what works. - Leverage Market Signals
Pay attention to stock market trends and expectations. During COVID-19, certain stocks, such as outdoor equipment companies, surged despite the economic crash. Observing this, Decathlon expanded rapidly in Toronto. While it’s impossible to predict perfectly, these signals can provide valuable insights into what industries or products might thrive in specific environments. - Listen to Employees and Sales Teams
Business owners often get stuck in their assumptions about what customers need rather than building products that customers truly want. For example, many site furnishings in Canada fail because their designs, inspired by American counterparts, are poorly suited to Canadian weather and environments. Employees and sales teams, who interact closely with customers, can provide critical insights into these gaps and opportunities. - Tap into Government Opportunities
During economic downturns, governments often increase spending to stimulate the economy, creating opportunities for businesses. Regularly monitor municipal Requests for Quotations (RFQs) to identify essential products or services in demand. Prepare a strong portfolio showcasing your offerings and reference projects, as these are often required for government bids.
Keep in mind that Canadian government contracts are typically awarded to the lowest bidder who meets all requirements. This means pricing needs to be competitive—often 20-30% below retail prices. To navigate this effectively, ensure your lead times are within the standard 6-8 weeks and your supply chain is optimized to maintain profitability. Targeting government contracts can be a strategic way to secure steady revenue in challenging times.
Sell the Right Way
Lowering your price shouldn’t be your go-to strategy. Effective marketing is about adding value to your product and increasing profit per sale, not just maximizing sales volume. Small businesses often struggle with products or services that lack a differentiating factor or competitive advantage, leading them to believe price-cutting is the only solution. However, this approach can erode customer trust. For example, I’ve had clients claim their B2C digital service was the “cheapest on the market,” offering “wholesale pricing” that didn’t hold up under scrutiny. Savvy, price-sensitive consumers will do their research, and such claims can backfire. Instead, focus on strategies that enhance value and credibility.
- Don’t Be Too Fixated on Large Marketplaces
I’ve heard from many business owners who believe that getting their products into large marketplaces like Amazon or Home Depot will solve all their sales problems. While this can work to some extent, the reality is that big retailers often take a significant cut of your profits. As the supplier, you're also responsible for handling product issues, manufacturing delays, and various fees, such as SKU charges—which are common in industries like food.
If you're just starting out in eCommerce, avoid jumping straight into major marketplaces. Unless you're prepared to deal with the downsides—like potentially buying fake reviews, which unfortunately happens in some regions—your products will quickly get overshadowed by established competitors. Instead, consider testing your market and marketing efforts by setting up a Shopify store. For digital products, platforms like Gumroad can be an excellent, low-risk way to build traction and engage customers directly, without the complexities of larger marketplaces. - Sell Smarter to Existing Customers
Instead of lowering prices across the board, focus on offering value through tiered pricing. Maintain premium pricing for your flagship products or services, while introducing a budget-friendly alternative to attract more price-sensitive customers. Many clients come to me concerned about poor sales for their products or subscription plans, with the instinct to slash prices. My approach is to analyze their current offerings, identify features they’re providing for free or can deliver with minimal effort, and repackage these as a lower-tier option or add-ons.
This strategy is tried and tested, particularly in industries like airlines and grocery chains, where businesses successfully cater to both premium and budget-conscious customers. By appealing to diverse market segments, you can boost sales while preserving the perceived value of your main offering. During COVID, I applied this method for an eCommerce store and boost B2B commercial products 400% by providing alternatives and reaching out to the right customers. - Build a Personal Brand to Enhance Credibility
Developing a personal brand can significantly boost your credibility and make it easier for customers to trust and choose your products or services. While I haven’t always prioritized personal branding, I’ve witnessed its power in creating opportunities and building lasting customer loyalty. A well-executed podcast, for instance, can forge deeper connections with your audience compared to a written blog. The conversational and authentic nature of podcasts makes your audience more inclined to trust you, ultimately leading to higher conversion rates and participate in your community.
However, many businesses misuse podcasts by treating them as overt sales pitches, which often results in low engagement and poor conversion rates. No one likes to listen to a series of 30min videos about your product over and over again. Instead, focus on providing genuine value—whether it’s sharing insights, solving problems, or telling compelling stories. - Pivot to the Right Clients
A Canadian B2B eCommerce business I worked with was heavily reliant on the commercial real estate sector. When the pandemic hit, the industry collapsed, and new projects came to a halt. To help the business stay afloat, I guided them in pivoting toward enterprises, which tend to have more stable sales and lower churn rates.
This transition required strategic B2B outreach, including targeted cold emailing, attending industry tradeshows, and offering cash incentives to drive purchases. By identifying more resilient customer segments and adjusting their sales approach, the business was able to weather the storm and secure more consistent revenue streams. - Hire a Culturally Diverse Sales Team
SMEs in Canada often lack the resources for dedicated sales teams in different regions, such as targeting Indian communities in Brampton or Chinese communities in Markham. However, you can test these markets by hiring temporary sales representatives on commission. This approach allows you to tap into diverse cultural markets without overextending your resources. In today’s economy and immigration situation, there’s no shortage of people seeking flexible job opportunities.
Recessions bring challenges, but they also offer opportunities for businesses willing to adapt. By focusing on selling the right products, targeting the right audience, and leveraging economic trends, you can position your business for growth—even in tough times. If you need personalized guidance for your business, send me a quick message.
