Sunday 12 April 2009

Recession - the rise of a new consumer?

There was a bold statement in the latest Marketing Week. In an article entitled “Why communities will shape a new caring and sharing era”, Charles Vallance of VCCP stated that

"[The] age of consumerism is dead! Welcome to a
new era of premodernism where we will all strive to live within our means"

There is no denying that people are not currently consuming at previous levels, some out of necessity with a loss of income, but actually most simply out of fear – not knowing what is to come in the next few months.
I think however that describing this as a new era could be a little overstated.
In the book "No Logo" by Naomi Klein she relates how in the early 1990’s recession, Bob Stanojev, then Director of consumer products marketing at Ernst and Young stated

"If one or two powerhouse consumer products companies start to cut prices for good, there’s going to be an avalanche. Welcome to the value generation"

This was in reaction to Philip Morris stating that it was to cut the price of iconic brand Marlboro by 20% to compete with bargain brands which were increasingly attractive to recession hit consumers and were eating into its market. During this time, from the start of the recession in 1990 to 1993 brands such as Wal-Mart’s Great Value range nearly doubled their market share as consumers hard hit by the recession were shopping around.

The same book reports how Cincinnati journalist Shelly Reese stated that

"Americans [] aren’t pushing grocery carts of Perrier down the aisles anymore. Instead they’re [] manoeuvring carts full of Kroger Co.’s Big K Soda. Welcome to the private label decade."

Sales of branded water however went on to increase 9% year on year and within 6 years was a $3.4bn industry.
It would seem that there is precedent for people calling time on consumerism during recessions.
The Marketing Week article also made a comparison between the current behaviours of thrift and frugality and the attitudes of people 50 years ago when these behaviours were rife.

The difference however between now and then is that the attitudes of 50 years ago were born of an era of rationing, running from 1940 till 1954 – a period of almost 15 years - and so a whole generation was brought up with behaviours of making do.

When clothes rationing meant that a single coat purchase could use up to a years worth of clothing ratio
ning points, it’s no surprise that people repaired and reused clothing.
I don’t think people will be going back to a period of powdered eggs and darning socks though - we are in a completely different situation.
Looking at the history of recessions in the UK, they typically last around 2 years in terms of the official definition and around 3.5 years (13-14 qtrs) to recover to the GDP position before it started.

During the worst recession we’ve had in the UK in last 50 years in terms of GDP decline – a massive decline of 6.1% - which ran from 1980-82,
unemployment rose to 11.9% of the working population, meaning over 88% of people employed at the start were still employed when it finished.

This means the issue of thrift is typically not one of income for most people and so isn’t driven out of necessity.

Some apparent signs of thrift aren’t really related to the recession at all and are simply natural extensions of trends from the last decade.
People sight the growing demand for allotments and grow your own as evidence of peoples desire to save pennies. However this is really the natural progression from the green movement and the healthy eating movement. Whether it’s because of food miles or a requirement for organic food, the demand for allotments has more to do with trends from the previous boom period than with the current recession.
Even before the recession started, newspapers were reporting high demand and a shortage of supply for allotments – driven in part from programmes such as River Cottage which promoted growing your own and the increasing trend of packing people into smaller plots of land, meaning many have little or no green space of their own.

It’s also easy to state that people are consuming less and obviously for some larger purchases such as cars this is true. However what the numbers seem to hide is that people may be spending less, but actual consumption doesn’t seem to have slowed all that much. Just last month Sainsburys posted it’s results which showed that both transactions and basket sizes had increased – so people were buying more, not less. However with a 60% increase in its Basics value line, it’s clear that people are looking to get more value for their money.

It’s not just food retail – online retailers are doing well. A recent report from IMRG shows that online sales are up 12% year on year, with January in particular up even more at 19%. As with Sainsbury’s however, volume may be up but value doesn’t necessarily follow – at DSGi-owned e-tailer Pixmania, although orders are up, the average basket spend is down. Ulric Jérome, executive director at Pixmania says that “If people are choosing between two products, they'll choose the cheaper one".
People are still consuming, just in different ways and different channels on the hunt for increased value.
With increased value comes increased savings, and it seems that people are now using the savings made in trading down and putting off to increase savings in the bank. In a recent article in the Times, it reported how Britons are saving more than ever with the cash value of savings almost trebling in the final quarter of last year. The proportion of savings to disposable income has also increased, rising from a low of 1.2% at the start of 2008 to 4.8% by the end of the year.

People are wary of what is to come and so are putting off larger purchases and cutting back on luxury items or brands in an attempt to build up a little money as a cushion, should the worst happen.

It would be great to think that in some way we will come out of the recession as a more responsible, caring and sustainable consumer, however I suspect when the worst doesn’t happen and the savings balance is large enough, people will go back to consuming as they were before. The real danger for brands is that while customers trade down or put off purchases today, they won’t be the brand of choice when that consumer comes back tomorrow – and come back they will.
This means brands need to try and bridge the gap, even where consumer purchases slow down or stop for a while.
Adding value to the basic purchase transaction can help brands to bridge this gap and Charles Vallance addresses this in a trend he calls “Trading vs Consuming”.

Discussing a shift in the value exchange as consumers increasingly recognise and exert their buying power, he states that brands can add value whether this is ethical (Starbucks and Fairtrade), business model (e.g. Blyk or Spotify), extra rewards for customers such as O2’s Priority initiative or increased levels of participation such as Walkers Do Us a Flavour campaign.

This I think is the real key – consumer behaviours will change for a while during the recession and what brands do today such as helping them recognise increased added value will in part separate the winners from the losers as the consumer rises again.

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