Consumer buying habits have changed. Nobody wants to pay full price anymore.
I heard this statement by a commentator on a CNBC yesterday. Then I get a marketing research newsletter by email summarizing a new study, entitled “Marketing to the Post-Recession Consumers,” by Decitica. The article states that the study “addresses the lasting effects of the recession in the way American consumers have internalized the recession experience. It’s particularly relevant in developing ‘positioning’ and marketing/merchandising/advertising strategies.” Sounds profound. Here are some of the findings:
- The effects of the Great Recession on consumer behavior are so profound that many of the assumptions underpinning consumer segmentation are no longer valid; and
- Marketing strategies that do not fully recognize the diversity of consumers’ recession experiences won’t have the desired potency in the post-recession world.
- Many have accepted this radical change as the “new normal,” and not just a cyclical phenomenon.
- The recession has caused a profound, deep-rooted change in consumers’ spending habits in favor a more restrained approach.
There are four distinct consumer segments emerging from the recession according to the study, identified as:
- Steadfast Frugalists,
- Involuntary Penny-Pinchers,
- Pragmatic Spenders and
- Apathetic Materialists.
Price has become the dominant consideration in the purchase of all kinds of products, concludes the study. Of considerable significance is the fact that half of Pragmatic Spenders are looking at price before other features and one-third say that brand name products are not worth the extra price, heralding what will likely be a long uphill struggle by marketers to shift the focus away from price, says the report.
Don’t Bet The Farm On The Reported Consumer Behavior Change
There have been similar studies to this one reported recently. Taken at face value, it looks like its time for a monumental shift in your marketing approach. Be careful – take a moment to get some perspective before you rush to change your marketing plan based on this type of research.
Depending on research that asks people what they think they will do in the future is very dangerous to your brand. You cannot predict what people are going to do based on what they say. You can only measure what they have done. People will give you what they believe is an honest answer about what they think they will do, but they really don’t know until they are faced with the decision. It’s just human nature.
Study What People Actually Do
I’ve been fascinated by the studies which have found that people who change their lifestyle after a major health event like a heart attack often do change their behavior for a period of time, but the majority typically go back to their old behaviors as they move farther away from the crisis event.
There is no question that the folks that have been hit hard by the recession have made changes to their buying behavior. But is this really a long-term shift?
If you have ever spent time with people who went through the Great Depression, you’ve seen a frugality that has carried through for their entire lives. While the current recession has been hard on many people, especially the 10% that are currently unemployed, it’s not any where close to the experience of the Depression of the 1930’s. When the economy recovers, can we really be sure that consumer behaviors have permanently changed? Will price truly be the deciding factor?
Be Compelling
Going back to the quote we started with that people no longer want to pay full price. Have they ever wanted to pay full price? No! It’s not about price; it’s about perceived value. In the absence of a compelling reason to buy, price will win out. It’s called commoditization. All things being equal, price is the default.
Apple recently reported an increase of 47% in quarterly profits. Why? People are buying iPhones, iPods, and Macs. Apple doesn’t advertise discounts to sell its products. They create compelling product offerings.
Radio Shack, once thought to be on the brink of irrelevance, is gaining traction in the highly competitive consumer electronics industry by selling more expensive, and more lucrative, wireless products from a broad range of suppliers.
Casual dining chains have reportedly seen a significant decrease in sales and traffic, but not Chipotle. There are only three major items on Chipotle’s menu: burritos, tacos, and salads. In a U.S. News & World report article, Chipotle’s Secret Salsa, Founder and CEO Steve Ells sums up its business model in a single sentence: “Focus on just a few things, and do them better than anybody else.”
It’s too soon to know if consumer behavior is really shifting for the long-term. But it’s not too soon to improve how you do business. Lowering prices and cutting expenses is the easy thing to do. The harder work is creating a compelling product or service offering. Are you willing to do the hard work?