Few people would be surprised to see that American consumers have changed their spending habits as a result of the current recession. Determining whether these changes herald a ‘new normal’ was the goal of a recent study by the consultancy, Booz & Co. The firm spent the past two years collecting data on how the recession has impacted the practices and values of American consumers. To gain a historical perspective, the researchers also utilized Young & Rubicam’s Brand Asset Valuator (BAV), an ongoing 20 year survey on consumer behavior.
Booz’s study found that the recession has merely accelerated changes in consumer beliefs that were occurring over the 2005-2009 period (per the BAV survey). These changes represent a significant shift back to historical purchase drivers and lifestyle values. Traditional purchase drivers put more emphasis on humane product and corporate attributes such as “kindness & empathy” (+391%), ”socially responsible” (+63%) and “high quality” (+124%). This swing has come at the expense of other brand values like “exclusivity” (-60%), “sensuous” (-30%) and “daring” (-20%).
Although the data is U.S.-centric, Booz believes it is applicable to all markets, including Canada.
Overall, the study found that firms scoring in the top 20th percentile in the BAV survey on the humane values identified above enjoyed almost three times higher product usage and brand preference than their peers who scored lower against these values. Companies that do not adjust to this ‘new normal’ may face a future characterized by falling product demand, declining pricing levels and a loss of competitiveness versus their more attuned and agile rivals.
Booz distilled their findings into 4 guiding principles:
1. Frugality is fashionable
According to the data, more than 65% of U.S. respondents now prefer a simpler lifestyle with fewer possessions and less emphasis on displays of wealth. Significantly, the figure rises to 77% for millennials (those born between 1980 and 1995). Not surprisingly, these attitudinal shifts are driven by record levels of household debt and a slowing economy that prevents consumer spending from growing faster than personal income. Moreover, the transition from spending to savings – savings levels are now approaching 5% of income versus 1% in 2005 – also suggest that a new era of parsimony is here.
Consistent with their emphasis on frugality is people’s desire to be more self-reliant in order to attain a greater sense of control, empowerment and status. Brands such as Weight Watchers, Craftsman and LeapFrog that stress “educational,” “helpful” and “durable” attributes scored more than 200% better than their competition on BAV measures such as likelihood to refer to friends, ability to charge premium prices and propensity to repurchase. To cope with this new milieu, marketers must improve their positioning and value proposition if they are going to maintain competitiveness in the mass market.
2. Transparency creates trust
The combination of economic and environmental bad news plus the rise of social media has fostered a large class of jaded consumers. The study showed that consumer confidence and trust in a firm’s product claims, environmental footprint and social impact across every industry has fallen by nearly 50% over the past 2 years. Increased consumer cynicism has driven a stake through many brands reducing their differentiation, image and value perception. One important way to restoring trust is for organizations to increase their transparency in areas like strategy, core values, supply chain and environmental footprint.
3. Change is ubiquitous
Consumers are changing in far-reaching ways. According to the research, 55% of all Americans are part of a movement towards a simpler, more purpose-driven lifestyle. As an example, 88% of respondents reported they now purchase less expensive brands than they used to. Furthermore, 78% of consumers indicated they are happier with a more back-to-basics lifestyle. Interestingly, not one demographic, socio-economic group or region was unaffected by this attitudinal and spending shift. Whether the firm is Hermès or H&M, they need to stay relevant by relentlessly delivering quality products and service at a fair price.
4. Companies must care
In today’s marketplace values matter and consumers are speaking with their wallets. The study found that 71% of U.S. consumers are now aligning their spending with their core values such as community, honesty, self-reliance and adaptability. Moreover, almost 66% of people said that they avoided companies whose values contradicted their own. Managers must look for opportunities to align their business model to these values, whether through robust Corporate Social Responsibility programs, new products or services or via ethical business practices.
Despite these early signs of change, more research is needed over the next couple of years to determine if these attitudinal changes have led to a permanent shift in spending and behavior. Not surprisingly, many companies are not waiting for these results to change their approach.
-guest writer for wejungo.com, Mitchell Osak is the Managing Director of Quanta Consulting Inc., a boutique management consultancy serving Fortune 1000 companies. Quanta’s mission is to build shareholder value through developing and executing innovative business, marketing and operational strategies. Connect with Mitchell at firstname.lastname@example.org.
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