Unless you’re an economist, or an extremely exciting dinner guest, pent up demand probably isn’t in your day-to-day vocab.
Let’s take a quick look at what it is and how businesses can plan for and leverage it to recover from the COVID downturn.
Pent up demand: a definition
Say you need a new computer. Well, you say need. Your partner says you just want it. Whoever is correct (it’s always the partner), the intent to purchase is an expression of demand.
But the economy is in tatters and you’re not sure spending money is a good idea right now. So you decide to make do with your current machine. But you still lust after a shiny new Mac. In other words, the demand still exists but it’s blocked by an outside force.
Once you have more faith in the economy, you’re likely to immediately make that new computer purchase.
When we don’t have the means to purchase something, that demand doesn’t go away. Pent up demand is one way that economists explain the steep increase in consumer spending after a period of economic instability.
Pent up demand and COVID-19
Here are two examples that are more pertinent: eating out and taking a holiday.
Regardless of their financial status, it’s physically impossible for many people to eat at restaurants or take holidays, so that demand is building without an outlet.
Yes, there is an increased spend on takeaway. But it’s only an adjacent experience. When people can eat out, it’s often in a reduced capacity thanks to density restrictions – getting a booking in Melbourne is like fighting in the Hunger Games.
This is a unique effect of this particular crisis, not to mention a policy minefield for governments. It’s one of the first times in living memory that many people are financially able to make a purchase but are physically unable to.
It’s leading to some researchers, like IPSOS, to predict that pent up demand for these two categories will lead to a precipitous increase in spending as soon as restrictions lift. This spending, the prediction goes, will be independent of the health of the economy.
With the COVID-19 crisis, there are likely to be two broad categories of pent up demand.
The first is that of products and experiences that consumers are ready, willing and financially able to purchase but physically unable to just yet. These include the family holiday, eating out, attending cultural and sporting events, dance clubs and touching the face of another human without worrying one of you will catch a deadly virus.
The second, which is harder to predict, is a more classic expression of pent up demand in which consumers want to purchase but are financially unable or unwilling. Often, big-ticket purchases like new cars fit this category. It’s hard to predict because it’s pretty much everything you wanted to purchase but couldn’t justify while worried you’d lose your job.
In their white paper on affluent consumers, IPSOS pointed out a psychographic phenomenon that they called the “Unattainable Effect”. It’s basically the world playing hard to get, making affluent consumers want it more.
It’s leading to an increase in desire for out-of-reach products when compared to pre-pandemic levels. The products include vehicles, home goods and services, and clothes. IPSOS is also reporting an increase in desire for experiences like travel, seeing a sports game or going to the movies.
How to leverage pent up demand
We have two words: build desire.
What goes down must come up.
The key insight is that demand never goes away completely. During an economic downturn, like the one we’re in, we can’t always make the level of sales we need for growth.
We can, however, continue to grow the demand for our products by working the top part of our sales funnel.
Continue recruiting new leads
The temptation for smaller businesses right now is to cut all marketing that isn’t associated with a direct financial gain.
This is a mistake. Obviously, you need to make sure money is coming in. But, if you only focus on the lower funnel, you’re missing a huge opportunity to prepare yourself for the rebound.
It may even be wiser in the long term to shift the majority of your advertising and sales budget towards the top of the funnel. You’re getting less bang for your buck down the lower end anyway, so why not go with the path of least resistance?
The worst case scenario would be that you are caught without any leads when demand for your product category is building at pace.
Your business purchases are part of the picture
Another great reason to hold firm on your desire-building marketing programs is that your ad spend is part of the picture. Demand has fallen for digital ad space. So, too, have prices.
So, while it may be more expensive than ever to convert a new lead, it’s cheaper than usual to build awareness and recruit leads.
What’s more, when demand for ad space peaks again, you may find yourself paying through the nose for top-funnel marketing.
Stay in touch with your customers
Engagement is key in this downturn. Find ways to meaningfully connect with your audiences. For example, it may be wise to run takeaway at break even point simply to keep yourself top-of-mind for your local customers.
Or else you’re simply continuing to post relevant, meaningful content on your owned channels.
Whatever it is, find a way to keep your current, former and potential customers engaged with you. By doing this, you’ll be way ahead of your competitors when demand starts to build.
Don’t be afraid to advertise
According to IPSOS, consumers are more willing to hear from brands than before the COVID-19 pandemic. While you don’t want to appear to be dancing during a funeral, advertising is part of a wider media culture.
And that culture helps us deal with stressful times. How you contribute will depend on your brand identity. Perhaps you make people laugh. Or else you make them feel seen. Or else you are one of the few brands that can meaningfully lift their quality of life right now.