To gauge the impact of the COVID-19 crisis and accompanying wave of “stay at home” orders, numerous market analysts have authored assessments for the cannabis industry. Following an initial surge, when will spending level off? What will be the new (albeit temporary, let’s hope) baselines for sales and consumer interest in the following months? Another question getting increasing attention is: what will the world look like after the immediate crisis abates?
Most agree we are headed to a recession. Only the severity, breadth, and duration are under debate. Morgan Stanley’s forecast for 2020, for example, uses a global recession as its base case. In an op-ed for Fortune, Harvard Business School luminary Bill George declared “the next Great Recession has already begun”. To illustrate the immediate impact of the virus outbreak in the US, Vox released a series of charts on March 30 on jobless claims and pay cuts that look “more like a natural disaster than a normal recession”.
How should decision makers in the industry react?
The natural response would be to look at longer-term plans and pull back. During downturns, consumers will always reorder and tighten priorities. Businesses will see consumers respond in various ways, by trading down, seeking deals, reducing purchase frequency, embracing price promotions, shopping competitors, respond to price If sales start to soften, businesses will postpone new investments and trim costs. Few firms will have pockets sufficiently deep to pursue acquisitions and seek distressed assets. To cut expenses, managers will naturally seek variable costs and target spend allocated to future projects. Speaking broadly, marketing – including advertising, market research, new product launches, packaging redesigns, and other activities – is often a victim as budgets are slashed. This is a mistake. Data- and insights-driven adjustments to marketing plans will yield better long-term results than taking an axe to the budget. The former will position cannabis brands to succeed and possibly flourish during a recession and the rebound afterward. The latter will only defend short-term profits. To guide decision-making in these uncertain times, we offer the following rules:
Rule One: Don’t Make Sweeping Changes to the Marketing Budget
It’s easy to understand the temptation: cut a percent of every budget across the board. Yet working backward from a percent- or dollar-based target in reducing company expenses leads to hasty, ill-advised decisions. If you must, take a scalpel, not a hatchet, to the marketing budget.
Rule Two: Base Decisions on Data and Insights
Times of uncertainty level up the stress and stakes for decision-makers. Businesses must investigate what’s being done today and (previously) planned for tomorrow. What can be optimized? What will customers expect in the future? Investigations must be fueled by internal and external research and not by gut feel.
Rule Three: Track and Analyze
Downturns act as filters: some businesses do not survive. Some brands fail to adapt. Not aligning with your target audience will be among the reasons for these failures. By tracking and measuring the behavior and mindset of your target audience, you can grasp how to maintain relevance. Doing so will require nimble responses as your audience fluidly responds to economic changes on a macro, micro, and personal level.
Rule Four: See the Opportunity
Counter-intuitively, the conditions the cannabis industry will experience will create opportunities. The first place to look will be existing customers. Dive deep to understand how, when, and where customers expect to engage with your brand. Maintaining loyalty will be the top priority as ever. Beyond ensuring a passionate base, look to see how you can deliver more value. Can you introduce more balance into your portfolio of offerings? Devoted supporters may be more willing than ever to substitute if presented with a compelling option by a trusted brand. This can lead your brand to new categories, new products, and new variations on current offerings.
To end on a positive note, see the ongoing crisis and looming recession ahead offer as a rare opportunity. Successful businesses will find a means to demonstrate relevance and why you are relevant, even integral, to the needs and desires of your target audience. Businesses pulling away from marketing investments will reduce the “noise” in the market. As a result, brands have an unusual opening to seize initiative and capture market share from gun-shy competitors who will be slow to react, overly cautious, or not creative enough to chart a path forward.
