Companies all over the world are facing the harsh realities of a global recession. Money is tight, and resources are constrained. Investors are nervous, and loan providers are incredibly cautious. Each day brings stories of companies that are postponing planned initiatives, cutting staff, shedding brands, and even pondering bankruptcy.
Citibank will cut its headcount by 50,000; GM proposed axing Pontiac, Saturn, and Saab -- and its endorsement relationship with Tiger Woods; Viacom froze executive salaries. Far less dramatically, though revealing nonetheless, Unilever aimed to sharply reduce costs by trimming the color palette used in its packaging from more than 100 hues to a mere 6. Boardroom discussions focus less on growth opportunities and more on coping and surviving.
While the United States often dominates news reports, the worries are global. A McKinsey survey of company executives reported that almost two-thirds expect that their countries' economies will be worse off in early 2009, and executives' expectations are particularly dismal in Asia and Europe. But while companies are fearful about the economy and wary about their spending, so are their customers. And no matter how companies may choose to slash their expenses, their ultimate survival depends not on an influx of government bailout money, a dramatic reduction in their payroll or marketing expenses, or even the elimination of the CEO's bonus. Companies need customers, and they need them more than ever when times are tough.
What's happening to the customer?
Much like company executives, consumers are also fearful about the future and uncertain about the economy. More than half of Americans report that they're "struggling." These struggles are reflected in consumers' buying behaviors and also in their shopping plans.
<>There are clear signals to consumers as well as to companies that it's no longer "business as usual." Change is in the air, and yesterday's habits are subject to alteration as consumers become increasingly aware and attuned to the options that lie before them. They may continue to shop where they've been shopping, and they may continue to patronize the firms and brands they've been using. But changing circumstances mean that, for many consumers, it's time to rethink old habits.And even in tough economic times, it's crucial to remember that the options for most consumers remain plentiful. There is, of course, the "money in the mattress" option: essentially a wait-and-see approach that involves consumers holding on to what they have, curtailing their spending, and ceasing to invest. But when need or desire demands that consumers make a choice between alternatives -- whether it's for the weekly groceries, a winter coat, or a flight to see Grandma -- which option will they select? Quite simply, consumers will pick the alternative that makes the case that it's "worth it." And "worth it" involves more than just price -- or habit.
Cutting back while competing
Appealing to cautious and concerned customers is the critical challenge confronting businesses that are focused on paring back what they provide and how they provide it. Paradoxically, in recessionary times, companies must compete vigorously to hold on to their customers while at the same time cutting back on what they offer them. And every cutback, whether it's GM's brand and product array or Citibank's employee headcount, has the potential to disengage the customers whom they're striving to retain.
Customers do notice the actions companies take, and they don't develop an enduring bond with a hotel, auto, or airline because of a single feature or product characteristic. Little things do matter to customers. A recent study points out that a company's so-called backroom "foot soldiers" perform a crucial role in the execution of a consistent brand experience. These unheralded employees contribute mightily to maintaining store-level profit performance. Company cutbacks can have a powerful impact both on the foundation of the customer relationship (confidence that the company is committed to keeping its promises) and the ultimate destination (a feeling that the company remains irreplaceable). (See "The Engagement Imperative" in the "See Also" area on this page.)
Customers bond -- or fail to bond -- with a brand, whether it's a bank or a consumer electronics retailer, as a result of their total experience. That experience typically includes what happens at multiple points of contact, which may range from the store to the call center or from the Web site to the product package. When companies change these established points of contact, their customers are essentially being challenged to rethink the relationship. And because this rethinking happens during times when competitors are out a-courting, existing customer relationships must be considered highly vulnerable.
Paying attention
Companies are currently cutting back in a variety of areas, and customers are noticing the difference. The University of Michigan's American Customer Satisfaction Index has reported a decline in the overall level of customer satisfaction in the United States -- a trend highlighted as particularly troublesome in recessionary times when satisfaction appears to take on increased importance. McKinsey's customer surveys appear to concur, suggesting that the actions being taken by companies -- which have included reduced hours of operations, increased prices, lower store-level staffing, and the closing of retail locations -- are being met with less than enthusiastic customer response.
What's a company to do?
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Pay attention to the things that your customers do and feel, not just to the things that cost you money. Look through your customers' eyes at the experience you're providing. Carefully examine every proposed change in your product, staffing, pricing, policy, and service not merely for its effect on the bottom line but for its impact on the level of customer engagement. When staffing is dramatically reduced, what's happening to the quality of the customer experience? And, consequently, what's happening to the customer?
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Focus on the things that build customer relationships, not just short-term transaction volume. Your company will survive and prosper only to the extent that you've built -- and are continuing to build -- engaged customer relationships. These relationships pay dividends well beyond the next quarter. Remember also that all relationships are reciprocal, and don't take your customer partners for granted, especially when change is in the air and competitors are coming to call.
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Never forget your core brand promise and what it means to your customers and to your employees. Every brand encounter has a potential for impact on the future health of your brand. Customers remember those encounters, often for a very long time, and they will hold you accountable. They will remember how they've been treated when times were tough and when resources -- yours and theirs -- were constrained. Hard times represent the acid test of a relationship.
Some companies have been advocating a "back to basics" approach, and that's certainly smart -- depending, of course, on how you define the basics. For example, ASDA, one of the U.K.'s large grocery retailers, contends that the focus needs to be on "good products at good prices." But those two factors may not represent the basics required for a fully engaged relationship. Regardless of the economic conditions hanging over the market, today's customers are still searching for an experience that's somewhere beyond "good" -- one that includes a level of service and personal attention that convey respect for the customer's time and sense of self-worth as well as for her money.
Gallup's research has consistently shown that price and product are vital contributors to the health of a retailer's customer relationships. But price and product often pale in comparison to the shopper's desire to feel genuinely welcomed and appreciated. By themselves, price cuts may well contribute more to building transactions than to ensuring lasting relationships. In that sense, the requirements for engaging customers during tough economic times aren't all that different from what's required when the times are good and companies and customers are relatively flush with cash.
