The pandemic, economic stress and businesses

The busiest shopping season of the year — historically — is here. However, 2020 is not following the typical patterns.

Akshay Rao, a professor in the University of Minnesota’s Carlson School of Management, is available to speak about the impact of COVID-19 on shoppers and companies. 

Akshay Rao, Ph.D.

About spending and price cuts
“During times of economic anxiety, many businesses face two temptations: cut spending and slash prices. Neither is a good idea. Historically, businesses that don’t cut spending survive long term. Why? During a time like this, it’s critical for a company to maintain contact with customers. That can be done by taking advantage of typically cheaper advertising, enhancing social media efforts to maintain existing and gain new customers, and launching an app that uses past behavior data to better target their audience.

“Cutting price is a significant consequence to a brand as the lower cost dominates its overall value. Instead, companies should launch a flanking brand at a cheaper price point. This creates a new option for customers, revenue stream for the company and maintains the brand’s cachet.”

Holiday spending
“When accounting for the economic turmoil caused by COVID-19, the amount of money spent ought to decline overall. This is not only because the economy is under duress. If consumers could see a path out of it, it would lower the uncertainty about the future. That sense of comfort would provide people optimism to buy again. In turn, while it might not foster a strong comeback, it would depress the decline in spending throughout the holidays.

“However, in light of the good news on the vaccine front and the substantial amount of personal savings in the economy, it is perhaps too early to write off the potential for consumer demand to resurface.”

Small businesses
“From restaurants to stores and services, each is faced with a different customer profile and, as such, has varying needs. All small businesses are trying to cope any way they can. For instance, some restaurants have charged additional gratuities and some companies have tacked on additional shipping surcharges to help cover their costs.

“For all of these small businesses, the key is to stay in touch electronically. The most effective way is by sending a text, as the content is often easier to consume than an email and harder to delete. Share a link and provide brief details about products, services, changes in hours or even coupons. As soon as a customer clicks on a link, you have helpful data on consumer behavior that can inform future efforts to reach customers.”

Akshay Rao is the General Mills Professor in Marketing at the Carlson School of Management at the University of Minnesota. His teaching, research and consulting have focused on industries ranging from food and airlines to apparel and financial services, and the problems of consumer behavior, pricing strategy, distribution channels, product and brand management, and sales force management.