How to navigate market uncertainty through an understanding of consumer behaviour, data, and financial responsibility.
This is a guest post written by Gold Testola, a DTC growth partner and entrepreneur who focuses on helping brands grow their businesses without the guesswork. You can follow him on Twitter here.
The lasting effects of the COVID-19 pandemic have caused a significant shift in consumer behavior, leading to changes in market conditions and increased competition. As more people started shopping online and doing more things at home, demand for products and services that met their new needs surged. Businesses that could adapt to these changes thrived, while those that couldn’t struggled.
While the pandemic is on its way out, the impact of COVID-19 has left a lot of brands facing an uncertain future:
- Disrupted supply chains
- Waves of redundancies
- Shrinking economy and labor force
- Rises in inflation, savings, and inequality
What’s clear is that brands need to be adaptable and agile to navigate these challenges and capitalize on the opportunities. The question, of course, is how?
Let's dive in.
DEMYSTIFYING CONSUMER BEHAVIOUR WITH DATA
First, let's talk about understanding consumer behavior. In the wake of the pandemic, people have changed the way they think about shopping and their buying habits. DTC brands must be aware of these changes to stay relevant and successful. One way to do this is by using data, such as share of search.
We can establish a baseline by analyzing data from before the pandemic and then continuously monitor consumer behavior to learn how it has evolved. You can identify trends and patterns and understand how the pandemic has affected your industry.
A free way to do this is by using Google Trends.
You can analyze the search volume for keywords related to your products and compare it to previous years or your competitors.
For example, let's say you're a small DTC brand selling natural skincare products. A quick look at the related queries of the 'natural skincare' topic shows that True Botanicals (a competitor) is the top related topic.
When we look at the search history for True Botanicals, we can see that their search volume has increased by 200% since the pandemic:
Looking at the rising related queries, we can see one of their products, 'Chebula serum,' appears as a breakout term.
When we look at the 'Serum' topic, we can see an increase in interest there too. So, what does this mean for you if you're a natural skincare brand?
If you haven't already, you should invest in creating products that come in serum form to meet the rising demand. You can go even deeper and get some more ideas about what kind of serum you should create too.
On the flip side, you can use this data to understand if a slow-down in purchases on certain products in your store is coming from a macro trend. If the search trends for a certain product you sell decreases over time, it might make sense to pivot along with this behaviour.
What causes these shifts in search trends? Since the pandemic began, there's been an increased focus on self-care, for example. A quick Google search will tell you some interesting facts:
- The demand for skincare serums is rising due to increased awareness of skincare routines as well as skin issues that people experience
- With more people staying at home and having more time to focus on their skincare routine, they're more likely to invest in high-quality products such as serums
- The global skincare serum market was valued at US$ 3.1 billion in 2021 and is projected to grow at a CAGR of 7.4% over the next decade, making it a very lucrative industry due to its growing popularity
- Anti-aging serums (like True Botanical's Chebula) are becoming more popular due to increasing awareness about age-related skin concerns
TARGETING THE RIGHT MARKET
When developing marketing strategies, DTC brands need to consider the changes in social groups caused by the pandemic. You can better understand how different social groups behave by conducting market research and gathering data on your target audience.
For example, suppose you're a brand selling children's clothing. In that case, you can use survey data and interviews to gather information on the demographics and psychographics of your target market, finding details such as age, income, occupation, family size, and lifestyle habits.
Let's say you conducted a survey among customers and found the following information:
- Most of your target market is parents with children between 2 and 8 years old.
- Most of your target market is in the middle-income bracket and are working professionals with busy lifestyles.
- Most of your target market values eco-friendly and sustainable materials and production methods.
Based on this information, you can adapt your targeting to reflect the results of your survey by:
- Creating specific collections and designs that cater to children between 2 and 8 years old
- Creating marketing campaigns around the convenience and durability of your clothing for busy, working parents.
- Promoting your eco-friendly and sustainable production methods in your marketing and website to appeal to your target market’s values
- Segmenting your target market and creating different messaging for different segments to make your campaigns more effective
- For example, you can use interest stacks in Meta Ads Manager to target specific segments based on interests, behaviors, and demographics similar to those of your customers
- You can also create Similar Audiences in Google Ads using segments created on Google Analytics using the data gathered from your research. This will allow you to reach people similar to your existing customers, increasing the chances of conversion. Get in on this now, as the Similar Audiences feature will no longer be supported from May 1, 2023
At the end of this exercise, compare your new findings to your previous understanding of your target market. You may find differences illustrating how consumer behavior has changed over time.
BEING FINANCIALLY PREPARED
DTC brands need to be prepared for any financial challenges that pop up in 2023. This includes regularly reviewing your balance sheets, strengthening your cash positions, and maintaining strong liquidity. By doing so, you can identify any areas of concern and take action to address them.
To be financially prepared, you should build projections and forecasts for different scenarios. Gather data on your past sales, expenses, and cash flow and use this data to create financial projections for the next couple of years. Have different scenarios such as “slow-growth,” “stagnant,” and “high-growth,” each with its own set of projected financials.
Consider your historical sales data, market analysis, and industry trends to create sales estimates. Taking the children’s clothes brand as an example, the owner may look at all these things and calculate a 5% decrease in sales. In this case, they can prepare for this scenario by:
- Identifying which products or product lines are most sensitive to economic changes.
- Adjusting their sales projections for those products accordingly.
- Focusing on cost-cutting measures, such as reducing marketing expenses or negotiating better deals with suppliers, to offset the expected decrease in sales.
If it seems cash flow is going to be tight in the coming months, you can diversify your revenue streams. This means creating multiple sources of income that sustain the business during difficult times.
For example, say you're a coffee shop owner. You can start selling your coffee beans online, along with other coffee-related products like mugs. You can also add online subscriptions for regular deliveries of coffee.
It’s also possible to expand your revenue streams by upselling and cross-selling. You can offer higher-end versions of a product or complementary items. For example, a skincare brand can upsell customers on a higher-end version of their favorite moisturizer or cross-sell them a facial serum to enhance their skincare routine. Additionally, you can create programs to increase customer retention, such as loyalty or referral programs, and promote repeat purchases through email campaigns that can also boost revenue from existing customers.
SO WHAT NOW?
If you take these learnings on board and execute them, you can better prepare yourself for the uncertainty of 2023 and come out stronger on the other side. Remember, the pandemic has also created new opportunities, and by being agile and adaptable, you can capitalize on these opportunities to grow and thrive.