How to use psychology and strategy to increase sales in a declining cannabis market

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The cannabis market has been down in the United States for the past year, particularly in legacy markets. According to research from Headset, both the number of transactions and basket sizes have decreased since 2020.

With declining trends in the cannabis market and a potential recession in the near future, it’s more important than ever for companies working in and with the cannabis industry to take steps to protect — and even grow — sales. You can do it if you understand the psychology of consumer behavior and invest more strategically in marketing.

Understand shrinking markets and future recovery to protect sales

The cannabis market is declining, but that decline probably won’t last forever. Sales skyrocketed during the COVID-19 pandemic and are still normalizing after the pandemic. This is not surprising, but regulatory changes in the future could significantly impact how companies operate and have a positive impact on sales.

As such, both B2C and B2B brands in the cannabis industry need to consider how investments and strategies implemented during the current market downturn will impact their business going forward – much like brands should navigate recessions. And coincidentally, the US is approaching a possible recession, which means the information in this article is incredibly timely.

For companies, the immediate response to a declining market or recession is to significantly cut back on their marketing investments. However, this is a mistake. The recovery will come and sales will increase in the future. Therefore, the companies that will win in the future will be the ones that remain relevant even in bad times.

In other words, your marketing investments shouldn’t go away. However, you need to focus more on tactics that build brand trust so consumers are confident that your business will weather the near-term market downturn. Building trust and an emotional connection with your brand are critical investments to protect sales today and in the future.

4 tips to increase sales through psychology and strategic investments

To grow sales in a declining market, you need to understand your customers, adapt to the new reality, make more strategic investments, and stay agile to respond to new market shifts—especially when the market starts to improve.

Think of it this way — as the cannabis market begins to improve, there will likely be more customers to compete for. In addition, many existing and new customers will be interested in trying new products, services and brands. To ensure your brand is chosen by consumers, you need to carve out a strong place in the market today.

Here are four tips to help you conquer your place in the market and increase sales:

1. Analyze and identify opportunities

How is customer behavior changing due to the decline in the cannabis market? The first step to increasing sales in a declining market is to identify how the following has changed and/or will change for consumers:

• change buying behavior
• Shifting of priorities, product, service or brand decisions
• Changing the definition of value for money

The changes listed above will directly impact your company’s revenue. What worked two years ago may not work today or in six months. So create a document that lists all the details of the three bullet points above. This information is critical to making strategic marketing investments that have a chance to increase sales.

2. Reevaluate your customers

When a market is down or a recession looms, consumers change, and that means you need to reassess and update your buyer personas. What motivated consumers in the past may no longer work today.

For example, Harvard Business School researchers identified four psychological segments that marketers should consider when assessing how people respond emotionally to an adverse business environment:

• Hit the brakes: This segment will most likely eliminate, delay, or replace purchases with lower-cost options.
• Tortured but patient: This segment will restrict some purchases and seek discounts on their favorite brands. In the absence of discounts, they choose a cheaper alternative.
• Comfortably wealthy: This segment will continue to shop as before, but will be more selective, looking for better quality for the price (i.e. value) when purchasing items with higher ticket prices.
• live for today: This segment will continue to buy their favorite brands as ‘reasonable’ expenses, but are unlikely to try new products or brands.

Think about your buyer personas. Do they consider the four psychological segments? If not, update them now so your marketing investments are focused on the right messages while the cannabis market is down and a recession may be looming.

3. Focus on loyal customers (big and small)

Harvard Business School researchers found that loyal customers are the top priority for businesses in a recession, and this conclusion is consistent with data from Headset’s report, which shows that the top 10% of cannabis users are spending significantly more than average customers and “a disproportionately large percentage of sales contribute to the industry.”

Interestingly, Headset reports that the top 10% of cannabis users have actually tightened their budgets and will spend less on cannabis purchases than other cannabis consumers in 2022. This is an audience that cannabis brands don’t want to lose. Therefore, it is important that marketing investments aimed at the most loyal customers are not slashed from the budget.

For both B2B and B2C businesses, referral and loyalty programs should be a high priority, and these programs should reward both large and small spenders, especially those who make many small purchases, rather than just focusing on customers who less likely to make large purchases.

4. Develop the right offers and invest in promoting them

While you might be tempted to heavily discount multiple products or services to get more sales, don’t. Prices should reflect your brand promise and the value consumers receive when they purchase your products or services.

Do not skimp on the costs when it comes to promoting your offers. However, this does not mean that you have to invest in expensive advertising measures. B2B companies can use email marketing and social media marketing to promote their special offers. Pharmacies and other businesses with brick-and-mortar locations can use in-store promotional materials to increase awareness and acceptance of special offers. The key is to strategically invest in promotions.

Focus on these tactics to create the right price-based promotions and offers to drive sales in a declining market:

• discounts: Test different types of discounts (e.g. discount in dollars, percentage discount, buy one, get one free or get half a discount, etc.) to see what drives the most sales.
• Reward: Promotions that grant money toward a future purchase when consumers spend a certain amount today can work well to increase overall sales. Just make sure they have to use the rewards within a short period of time and don’t make the reward threshold so high that it’s unattainable.
• Bundling and unbundling: Experiment with offering bundled products to enhance the value of each transaction, and if you have bundled products or services, test unbundling them for more cost-conscious consumers.
• payment options: Offer options that allow customers to pay for higher ticket items over time or require lower upfront costs. These tactics can work well for B2B companies and service companies.

Be careful not to discount too much or offer discount prices for long periods of time. This could change how consumers perceive your brand, products, and services, and create new expectations for your pricing. As a result, they will not be willing to pay your full prices when the market improves. More frequent short-term discounts are a better option to increase sales in a declining market without sacrificing your sales in the future.

Key takeaways on using psychology to increase sales in a declining market

Just because the cannabis market is in decline doesn’t mean it won’t recover. It also doesn’t mean that there aren’t consumers who want to buy your products and services. Follow the tips above to align your marketing, sourcing, and pricing strategies to increase sales today without harming your brand or business in the future when the market recovers and grows.

Subscribe to the Cannabiz Media License Database to connect with cannabis license holders in the US and international territories via phone, email, social media and more. Schedule a demo to see how it can help you increase sales.