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May 13, 2020

How to respond to changes in consumer behavior during uncertain times

Luis Guzmán

Humans are predictable creatures. What makes us unique is how different layers shape our distinct behavior.

These layers develop from the context where we grow up and the people we spend time with. Eventually, we start associating with different segments determined by our culture, ideologies, political parties, and our favorite ice cream flavor. It doesn’t matter how unique we feel, there are thousands of people like us and that’s good news for people that create companies or marketers that grow products.

After discussing how to rebuild your growth strategy during a crisis, we need now to adapt to the rapid changes in the market by separating variations in behavior versus adaptation.How can we identify a shift in behavior vs a response that answers an adaptation need? By adding the psychological layer.

Early-stage startups are not prepared for these kinds of changes. They develop their products around the latest and most “stable” version of the behavior of a certain group of people. This means that changes in how people use your product can result in a partial or complete loss of product-market fit.

I recommend segmenting your user base based on the behavioral data of your product, demographics details you collect from your users, and the psychological context that takes into consideration any recent change that triggers an act of adaptation:

How to start

As you can see in the image above, segmentation is a combination of understanding how people use your product. Begin by collecting quantitative data of your product, what are the conversion rates, what are the leading indicators that drive certain behavior.

It is also important to gather qualitative data, I recommend making use of surveys and schedule calls with users that want to share their experience with you. There are numerous variables to measure the idea is to adopt the segments that fit best your product.

Quantitative data will mostly help you figure out the “what” and qualitative data will help you with the “why”. Both are necessary to start the segmentation process, and more importantly, design responses to each of these segments.An example of adding the psychological layer is an analysis from HBR where they suggest a set of new segments to classify your customers taking into consideration non-predictable events like a downturn:

Harvard Business Review

You can use as many segments as necessary, but I recommend starting with three:

Tier 1: The segment that will reduce heavy spending for a considerable period of time during and after the downturn.

Unless your company sells essential goods it’s likely that you’ll lose the majority of these clients. You can accept the loss, but don’t stop engaging with them. If you’re really playing the long game, being on top of the mind of this tier can pay off later on.

At the same time, there’s a potential market for a byproduct of your core offering. If your model and resources allow you to develop “lite” versions, side projects that save money or help users survive the crisis, this would be the perfect time to work on them. Assess the long term impact to make sure it compensates the effort now.

Tier 2: This segment will cut some consumption but maintain confidence in a positive outcome.

This is the most important tier. You need to quickly adapt to the short term conditions of these segments in order to keep long term retention, even if overall revenue is decreasing.

Think about bundling or simplifying your pricing if it saves money and friction, or unbundling if it helps to have lower barriers of purchasing, like smaller quantities or shorter contracts.

Be more flexible on contract terminations or deactivation of accounts. An extra month can make the difference to maintain a customer. Weighing the cost of a discount or extension now, versus the cost of losing a customer for X period of time and the cost to replace and onboard a new customer.

Tier 3: The segment that keeps their expenditure at the same levels but holds off on major purchases.

I always recommend to leave your power users alone. If they are happy, don’t annoy them. This argument also applies to this tier. If you don’t detect any changes in the behavior or the revenue, just leave them alone.

I suggest communicating how you are actively helping the rest of the tiers. This can be valuable in terms of brand perception and can serve as positive word of mouth around the actions you’re taking for other tiers.

Some examples I’m seeing in the industry and our portfolio to adapt to the new segments:

  • Rocket created Parachute to connect affected employees by the layoffs with companies that are recruiting and look for quality candidates.
  • Draftbit is giving away Pro plans (for however long they are needed) to developers who can make use of their tool for building COVID-19 mobile app solutions.
  • Explorest an app that allows you to discover the world’s greatest photo locations created the Explorantine campaign
  • Eastnine is offering three free months of their service. What I liked the most about them is that they created a big marketing campaign announcing this, embedded the special promo in their onboarding screens, and ran a big PR campaign about it.
  • Spotahome is creating content for homeowners to avoid infections at home
  • Close is putting content launches on hold and shifted its focus to helping other companies adjust to the new remote world.
  • Punchpass launched a Zoom integration (in a week) to let their clients – mostly small fitness and yoga studios – transition from teaching in-person classes to virtual ones.
  • 1Doc3 created an auto diagnosis tool to identify potential infection of COVID-19.

What’s next?

You need to understand your customers again. It’s likely you already ran user surveys to gather qualitative data, just as we recommend to the startups that take part in our growth program. We advise you to do it again and create new segments based on the latest information.

Then, develop specific actions for the new segments. Some of them will require drastic changes and others just a small adjustment. The crucial aspect is to tailor your strategy according to your audience and the form of adaptation they undergo during a change in their context.

User engagement and retention are more important than ever. Depending on how strong you're positioned during these recent changes, the attention of founders and marketers should move from acquiring to understanding what your current customers are doing, how you can avoid losing them, and how you can create mechanisms and loops that keep the growth machine going.

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