The recession may officially be over but globally people still feel they face an uncertain future. Consequently, they’re re-evaluating their lifestyles and reviewing their spending priorities.
There may be geographical variations but consumers everywhere appear to be engaged in a subtle value calculus. Going online to research and track down best value products and services is one manifestation of this trend, as is the preoccupation of tomorrow’s core consumers with thrift.
- How do today’s consumers perceive value?
- How is downsizing revealing itself in different global regions?
- Why are frugalistas going online?
- Are thrifty youngsters the consumers of tomorrow?
How do today’s consumers perceive value?
In these post-recession times, consumers remain preoccupied with value while the habits and mindsets they formed during the downturn are likely to remain for the foreseeable future. It’s not all about the lowest price, however. Value is a complex equation and consumers aren’t always opting for the cheapest option.
According to Convergys’ 2010 Consumer Scorecard Research study, 46% of US respondents reported they were worse off today than a year ago. Consequently, they’re demanding more bang for their buck and, generally, looking for that value in the customer service experience. They want companies to value them, their time, their money and their preferences.
The top customer service attribute for 33% of respondents was “addresses my needs on first contact,” up slightly from the 2008 pre-recession research; and third on their list, with 25%, was “knowledgeable employees,” up from 22% in 2008. 31% of respondents chose “good value for the money” as the second most important customer service attribute, up significantly from 2008. 33% of respondents rated reliable service as more important than price in their definition of what constitutes “good value for money.”
Only 5% of customers defined good value as “paying the lowest price.” Results also point to an increasing need for multiple customer care options, including self- service, live web chat, automated phone systems, and e-mail.
The view of the more demanding, value-driven customer is shared by a winter 2010 Rasmussen poll, which indicated that consumers are now not only hyper-aware, but, thanks to the rise of e-commerce, better informed. And, according to a 2010 survey by advertising, marketing and PR agency Ogilvy & Mather: ‘Eyes Wide Open, Wallets Half Shut,’ consumers have moved from making passive, simple purchasing choices to ones that are more active, deliberate, and complex.
The survey found that consumers used to think about spending vertically, looking up and down the pricing ladder. The new consumer, however, is a walking balance sheet, tallying all of his or her expenditures at once. Graceann Bennett, Ogilvy managing partner, explains: “We are finding consumers make very interesting trade-offs across seemingly unrelated categories in order to get their lives into balance while still feeling like they are treating themselves to those things that make them feel normal and well taken care of.”
For example, the survey indicates that Starbucks customers chose to cut out discretionary purchases of items like clothing during the recession rather than switching to a lower-end coffee.
Apple is another case in point. Over the last decade Apple has increased its market share of the US music market by introducing a series of must-have products such as the iPod, coupled with complementary media, iTunes, illustrating that consumers are prepared to pay for quality, innovative products that add value. The Ogilvy survey revealed that 73% of consumers say they’d rather have fewer, high quality things.
However, while they still want some luxuries, their shopping habits have changed, as 92% say they’re using coupons, 91% are shopping at cheaper/discount stores and 90% are buying more store brands.
Another phenomenon highlighted by a Caris & Co analyst, reported by CNN Money, is that many consumers simply cut back on the frequency of their purchases, as in the case of hair care products, rather than buying cheaper versions.
The survey also found that the local community is now the focus for the majority of those polled. “The consumer is moving forward, but many marketers are projecting the stresses of the economy in their marketing and not connecting with the new consumer mindset,” said Bennett. Marketers need to tap into building relationships with more one-on-one marketing efforts, and also to enter into the discount arena with care, because brands that are associated with deprivation and the recession may conjure up negative associations once consumers are more flush with cash.
The take-home message seems to be that unless marketers can differentiate their product, and show added value, they’re likely to lose out to the cheaper, own-brand versions that consumers have tried during the recession, found to be comparable to more expensive name brands, and decided to stick with.
Research by McKinsey, business management consultants, found that, in any given category, an average of 18% of consumer-packaged-goods consumers bought lower-priced brands in the past two years. Of the consumers who switched to cheaper products, 46% said they performed better or much better than expected. As a result, 34% of the switchers said they no longer preferred higher-priced products, and an additional 41% said that while they preferred the premium brand, it “was not worth the money.”
As argued in a 2010 Advertising Age article, marketers need, in these still precarious economic times, to reposition themselves in terms of value. It quotes a Macy’s executive, who says the department store is “working to more clearly define Macy’s value to our customers in a way that isn’t focused only on price,” which includes longer-term strategic issues such as its localization programme.
Other sources agree that innovation that is truly meaningful to customers is key. A Kimberly-Clark Corp. executive argues there’s an increasing need for brands to prove themselves not just against others in their categories, but against other categories.
How is downsizing revealing itself in different global regions?
According to the managing director of gsFITCH Dubai, part of a global design company, what consumers want in the wake of the recession, both in the UAE and globally, is not to be cheated. “They want fair deals”, he told Emirates Business. “They only want to pay for what they need. They want transparency of price and they will be ready to spend more time to get the right thing at the right price,” he added.
And when it comes to downsizing, globally the rich are no different, according to recent research by McKinsey. The wealthy are still buying luxury goods but now they’re looking at the price tag and trading down. More than 40% of Americans and almost a third of Europeans canvassed said that, even after the economy recovers, they will buy luxury goods only when they are on sale. And with luxury purchases becoming more considered, consumers are demanding more.
They want more made-to-order products and services tailored to their needs, such as preferred pillow types or pet-sitting at hotels. They are looking for things that will last, and have more emotional resonance. About 30% of Americans, Europeans, and Japanese consumers say they are most likely to pay full price for an item that is classic, as do more than half of the Chinese.
However, some luxury consumers are taking the opposite tack. They view more expensive products, especially those that can’t be bought at a discount, as more valuable and a good “lasting” investment, rather than an indulgence.
In China, more than half of luxury goods buyers told McKinsey they equated a higher price with superior quality. The report’s conclusion is that when it comes to spending big money, timeless design sells. Companies able to trade on their history or tradition should do so, and those that can’t need to highlight their service ethos and attention to detail.
Wealthy Chinese seem the most immune to the global recession. Only 8% of those surveyed said they had changed their luxury shopping behaviour in 2009, compared to 46% of Americans and 51% of Europeans. Indeed, 44% actually bought more, compared to 6% of Americans and 3% of Europeans. Almost 40% of Chinese consumers with household incomes equivalent to $37,000 bought a luxury item in the last 12 months; as opposed to 15% of Americans.
McKinsey concludes that high-value brands will have to manage complexity to a much greater degree than before: utilising the internet shrewdly, creating inviting stores, and responding to social concerns and to a sense of tradition.
Why are frugalistas going online?
Online is fast becoming the tried and tested route to net a bargain. According to findings from a Retail Trends survey conducted in October by Market Force, a customer intelligence company, more than 60% of US respondents said they planned to shop online on Cyber Monday, which falls the week after Thanksgiving.
This is a marked change from responses to a similar study conducted the previous December, when more than three-quarters said they would be “extremely frugal” going into 2010. The survey also revealed that three-quarters of consumers typically research purchases online before going shopping. The primary reason for online research, given by 55%, was to compare prices. And a National Retail Federation survey found that one-third of Americans who shopped from Thanksgiving Day to Sunday did their buying online, a 15.2% increase from last year.
Cyber Monday is also creeping northwards to Canada, fast on the tails of the American shopping tradition of Black Friday, the day after Thanksgiving, that’s come to be marked by frenzied bargain hunting. “This is the first year we’ve called it Cyber Monday,” a spokesperson for Sears Canada told the Toronto Star. And in a clever marketing ploy, Canadian specialty clothing chain Le Château launched its e-commerce website on “Cyber Monday.”
Online shopping remains a small percentage of total Canadian retail sales, though it’s grown from 8% of all retail sales in 2007 to 11% now, said the vice-president of marketing for Maritz Research. American websites such as iBlackFriday, BlackFriday.org and SlickDeals Black Friday are also reaching across the broader and, for the first time, are offering their best deals to Canadians.
A desire for information on the best deal for purchases is also driving more Chinese consumers online. They do much more research before purchasing a product than average consumers in the developed world. Decision making is particularly protracted for big-ticket items but is also drawn out for foods, beverages, and personal-care products, as an increasing number of brands and new products become available.
On average, 25% of mainland shoppers in the 2010 McKinsey survey said they never buy a product without first checking the internet, compared with half that percentage in the USA. For big-ticket items, the proportions can be significantly higher in China, approaching 45% for cars. 70 and 67% of Chinese shoppers said they found retailers’ and manufacturers’ websites, respectively, credible.
In the developed world, by contrast, consumers prefer to get product information from third-party sites. The fact that online information is so highly regarded in China makes the internet extremely important for shaping consumer opinion.
Back in the USA, while people may once have bragged about the size of their assets they’re now bragging about how much money they’ve been able to save on their purchases. And, increasingly, they’re sharing their money-saving tips online. According to a winter 2010 Gallup poll, six out of ten Americans say they now enjoy saving rather than spending.
With 57% spending less money than they used to, it’s a growing trend. “Fifteen years ago, according to a survey we did, 7% of people used the internet to find coupons. Today, it’s more than 70%,” the Yahoo Web Life editor told King 5 News. It’s not just coupons. Blogs, forums and social media sites are full of steers for wannabe frugalistas. Sites such as TheEveofReduction.com and the One Dollar Diet Project now number in the thousands.
Are thrifty youngsters the consumers of tomorrow?
The outlook of recent Japanese graduates, who’ve never experienced a buoyant economy, is markedly different to that of their parents, according to a 2010 McKinsey survey of 18 to 35 year-olds. Japan’s economic heyday ended abruptly in 1991 and the aftershocks, including limited job prospects, low wages, and reduced consumption, continue to reverberate. The report argues that the consumer habits learnt by this pessimistic generation could endure.
It points out that consumer confidence is a key predictor of future consumption; low confidence leads to low future consumption and low discretionary spending. If this is true then the outlook in countries such as the UK does not bode well. A YouGov Youth Index survey, released in January 2010, portrayed an unemployed and dejected “lost generation” of young people who will find it increasingly hard to secure jobs and attain happiness in the future.
Other McKinsey research has indicated that younger consumers are particularly value-driven. Almost 30% of shoppers under 30 named price as the most important factor they consider when shopping, compared to just 21% for those over age 50. Younger consumers are also consuming differently, with less emphasis on cars, for instance, and more on technology.
Another key trend that observers have identified in Japanese youth is “cocooning.” Instead of engaging with the real world, they’re retreating online and using social networking or communication platforms such as Twitter. However, at the same time they appear more outward looking in their purchases. Unlike their elders, Japan’s young consumers also seem much more willing to buy a range of foreign-made products, from cars to fashion and, increasingly, even foods and consumer electronics.
American youth are also feeling the pinch. According to the Western Union Payments Money Mindset Index, released last August, Generation Y, those aged 18-34, is in financial trouble. As a result, according to a December US News report on further Western Union research, one in three members of Gen Y were planning to spend less on festive season gifts.
They were more budget-conscious than older groups, with an average allotment of just $245 for all their gifts. Members of Gen X planned to spend almost $300 in total. US News also highlights a new survey from TD Ameritrade, confirming the cautious trend among the young: 41% of 20-somethings are monitoring the markets and their investments more heavily than before the recession, compared to just 30% of older investors.
Two-thirds of Gen Y investors surveyed by TD Ameritrade also said they’d already built an emergency fund and were on or ahead of schedule with their retirement savings.