Consumer Spending: The New, Not So Good, Normal

It is not an understatement to say that the current recession has been the worst slowdown since the Great Depression. For the first time in almost 80 years, US per capital spending has fallen two consecutive years.  According to a recent Booz & Co. study, this recession has triggered a seismic shift in consumer needs and spending habits towards value enhancement.  This change will have painful implications for unprepared firms in the consumer goods, retail, entertainment, hospitality and apparel sectors.

This ‘new normal’ will likely persist even after the recovery gains more momentum due to many factors:  high levels of household debt, lower employment and an aging population.  As well, existing trends will continue to encourage frugality including:  higher Web usage (for shopping and research); the growth of private label products and; the rising importance of discount sellers like Walmart and Amazon.

On two different occasions, Booz interviewed 2,000 US consumers across demographic, geographic and socio-economic lines to understand their spending plans, habits and behaviors.  The conclusion?  a wave of frugality is sweeping all demographic groups and segments. Higher levels of belt-tightening were noted among women and lower income groups. Other key findings include:

Consumers are driven more by price considerations – Conspicuous consumption has been replaced by a new value consciousness that dictates trade-offs between product performance, brand image and price. This trade-off is manifested by increased levels of online comparison shopping; trading down to lower-priced private label & value brands and a higher frequency of coupon clipping.

For the majority of consumers, value has become the most important purchase attribute – Right now, value brands are perfectly positioned to exploit consumer frugality.  However, consumers will continue to buy higher price point products as long as those product’s performance and image can clearly justify a price premium versus lower cost alternatives. 

Traditional segmentation strategies may miss new value seekers – Traditionally, retailers and marketers segment consumers primarily by demographics.  However, the study presents a more nuanced view of how consumers could be segmented by value-seeking behavior.  For example, 68% of all consumers reported exhibiting higher price sensitivity and increased  value-centered activities.  These activities include higher online usage (e.g., searching for lowest cost items, purchasing through online discounters) and increased purchases through lower cost offline retail formats.    

Firms can take a number of steps to mitigate revenue risk and build market share:

1.     Continue to drive product and brand differentiation

Negative growth periods often trigger heavy price discounting as firms look to protect market share.  To sustain this, firms usually dial back on differentiation-enhancing plans like advertising and functional upgrades.   This approach is misguided as declining differentiation reduces brand price premiums and harms competitiveness versus private label or low cost alternatives.  Companies must maintain their focus on differentiation by continuing investments in advertising, the customer experience and product performance. 

2.     Improve the value proposition

Decreased consumer spending does not automatically lead to value brand share increases.  Many best practice leaders like P&G, Benckiser and Kelloggs have maintained share in difficult times by improving product performance & convenience, right-sizing formats, and clearly communicating and aligning pricing levels (for consumers and retailers) to product value.

 3.     Optimize the Customer Experience

Look for opportunities to improve value and differentiate along the entire purchase and support spectrum.  Enhancing the customer experience can improve loyalty, foster cross-selling & up-selling and increase customer satisfaction.  Properly executed, customer experience initiatives can also raise operating efficiencies and reduce cycle times.

 4.     Know your consumer better

In order to sustain and communicate value, the ‘new normal’ requires companies to deepen their understanding of consumer’s needs and habits.  To do this, firms could undertake new segmentation strategies based on purchase behavior as well as using advanced qualitative research tools to explore sub-conscious and cultural drivers of behavior.

5.     Maximize opportunities for on and offline distribution

New retail formats like kiosks, co-branded stores as well as fully built out e-commerce platforms are 3 examples of how companies can simultaneously improve product distribution and reduce risk at a lower delivered cost.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.


3 comments so far

  1. Kyle McGuffin on

    Great blog Mitch. You have demonstrated the need for corporations to capitalize on their existing communities. The time is right to allow your communities to interact, engage, and share their needs. This will allow companies to enrich the current relationship to the next level. The fastest way to do this are enabling your community to interact on the free social media environments that exist today. Ie, Facebook as first choice on sheer volume. The companies that do not take the time to connect with their community will lose customers. This has already begun in many cases. Now is the time to let your customers know how much you appreciate them and keep showing them value or they will be gone!

  2. John1031 on

    Very nice site! is it yours too

  3. anna und die liebe on

    This is actually my first time here, really nice looking blog. I found so many interesting things in your blog especially it’s discussion. From all the remarks on your articles, it appears like this is really a very popular website. Keep up the great work.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: