Understanding the New Consumer

The recession has had a profound impact on consumer behavior. Many studies conducted in recent months have found consumers have become more frugal, price conscious, and less brand loyal. These shifts spell trouble for marketers that are accustomed to buyer behavior following the peaks and valleys of the economy. This recession may be different; it appears that many consumers have decided to change their spending ways.

The most recent study on this issue from Deloitte titled “The New American Pantry” suggests that many consumers enjoy the challenge of saving money by using coupons, shopping for bargains, and participating in retailers’ loyalty programs. In fact, 81% of the respondents said these shopping techniques were fun! Consumers feel that they are more savvy as a result of the modified buying behavior induced by the recession, with 79% of respondents indicating they feel smarter about the way they shop.

Perhaps the most sobering finding arising from this study for brand marketers is that many consumers have regrets about their old shopping habits. The Deloitte report describes consumers’ sentiments about their pre-recession spending using words such as “remorse,” “embarrassment,” and “wasteful.” These feelings should serve as a call to brand marketers for a renewed focus on how they add value for consumers. It may not be enough to be a prestigious brand, and the perceived quality advantage national brands have enjoyed over private labels has been erased to an extent. Experience and relationship may overshadow awareness and image as marketing priorities. The key for brand marketers is to remain competitive in an environment in which brand relevance will matter more than brand image.

Marketing Daily – “Deloitte Study: Consumers Love Spending Less”

The Effects of Consumer Frugality on Marketing Strategy

The recession that began in 2008 continues to inflict pain on many consumers and businesses even though some economic indicators suggest that it has ended. The effects of the recession will last well beyond the time when economists say the economy is better. A great article in strategy + business by Matthew Egol, Andrew Clyde, and Kasturi Rangan makes the case that buying behavior has been significantly modified among many consumers. The core position of the article is that many consumers will continue their frugal shopping behaviors adopted during the recession, even after the economy returns to greater prosperity.

If the trend predicted in the article holds over time, it will trigger major shifts in marketing strategy. The pre-recession mantra of many marketers was more product benefits = higher prices = greater profits. Those were the good ol’ days! Going forward, marketers must look for opportunities to provide value in ways other than peripheral product benefits or rely on the power of their brand to justify charging price premiums. One point made that I believe is on target is that marketers need to create clear distinctions among products at different price points. In other words, sellers must have a good understanding of customers in order to develop products that serve the needs of a value conscious segment (i.e., low price), a premium customer segment willing to pay a higher price to receive greater benefits, and perhaps a segment of customers that fall in between.

It could be said that the recommendations made by Egol, Clyde, and Rangan are hardly new. The need to understand customers has always been critical to a firm’s success. However, a major, permanent shift in buying behavior has occurred among many consumers. This shift makes it necessary to evaluate how we build relationships with customers. The impact of the new consumer frugality goes beyond the design and pricing of products. It will affect how we communicate with customers, too. Brand messages emphasizing “you deserve it” will be replaced with efforts to build community and encourage socially responsible consumption. In the final analysis, the most important takeaway from this article is a reminder that a marketer’s work is never done!

strategy + business – “The New Consumer Frugality” (requires free site registration)

Transistioning to E-Readers: Old Habits Die Hard

Sales of Amazon’s Kindle e-reader are projected to reach 1 million units this year. Does this signal a trend toward widespread adoption of e-readers by book lovers? Not so fast, according to research from NPD Group. Approximately 40% of persons surveyed in the study indicated they were only somewhat interested or not interested at all in e-readers. Given Kindle’s initial price of $359 (recently lowered to $299), the cost of e-readers would seem to be the primary obstacle to gaining wider adoption. In fact, 70% of those who were not interested in e-readers cited the desire to experience sing a book in its physical form as the main reason they were not interested in e-readers.

Do findings from this study imply doom for e-readers from Amazon, Sony, and Plastic Logic? Will they become business school case studies of new product failures? The answer to these questions is probably “no.” What the marketers of e-readers do face is the challenges of creating user-friendly products that replicate the look, if not the feel, of reading a paper book. Advantages of e-readers should be touted, including their positive impact on the environment (saving paper on book production and reducing need for storage space).

The transition from books to e-readers is a much greater leap for consumers than moving from CDs to digital music players. It is because book reading is much more of a sensory experience: seeing, touching, and even smelling a physical book. A market for e-readers exists, but in the near future it appears to be focused on a segment of customers that are willing to adopt the technology for the convenience of downloading books quickly and storing hundreds of titles in a tiny space. Despite Kindle’s success to this point, the market for e-reader supremacy is still wide open.

Online Media Daily – “Consumers not Convinced They Need E-Reader”

Motives for Going Green: Status and Savings

The green movement, coupled with the current recession, are considered by many observers of consumer behavior to mark a permanent, significant shift in how and why we buy and use products. Have we realigned our values to reflect new priorities that promotes the greater good over our personal well being? Sounds good, but we may not be there yet!

According to a study by Communispace Corporation, consumer motives for green behavior are driven more by status and frugality than altruism. For some people, their efforts to recycle become a badge of honor, something they can talk about in conversations to score points among their friends. For other people, green efforts may be more about saving money (e.g., reusing sandwich bags, drying paper towels and reusing).

Do the results of the Communispace study mean that we should look down on those people who are engaging in green behaviors for non-altruistic reasons? Not at all! These candid insights open possibilities for involving more consumers in the green movement. Just as we buy cars, shoes, and everything else we consume for a variety of reasons, encouraging green consumption should take a multi-pronged approach. It is not all about making a difference; many people find it difficult to believe their efforts alone can make a difference. So what do they do? Nothing. Green marketing campaigns should consider how to appeal to different values consumers hold beyond saving the world. If the bottom line is getting more people to engage in more environmentally responsible consumption, it should not matter that multiple routes are used to get to the destination.

Media Post Marketing Green – “Frugality and Social Status Trump Altruism”

Finding a Tipping Point for Digital Books

The book industry is beginning to observe the effects of digital books. The trend, led by the popularity of the Amazon Kindle digital book reader, presents a dilemma for the publishing industry. About 10% of all book unit sales in North America during the first quarter of this year were in digital format. Kindle revenues alone are projected to be about $400 million this year and over $900 million in 2010.

So, what is the dilemma facing the book industry? Price. The cost of entry for consumers is high as the Kindle begins at $359. Moreover, consumers’ perceptions about the price of digital books is that they should be much lower than print versions. In their view, a significant portion of book costs must be in manufacturing and distribution. Publishers would be quick to point out that the editorial process and marketing budget contributes a great deal to a book’s price. Any cost savings realized from not printing and shipping books are not so great that book prices would fall drastically.

Lower prices for digital book readers will likely aid in the adoption of digital books, just as falling prices for Apple iPods and other digital music players contributed to the growth of digital music distribution. Price played a key part in music distribution, too, as the 99 cent price point proved to be magical. Is there a magic price for digital books to be successful, yet profitable? Amazon has used the $9.99 price point with great success; that could become the standard “hot price” for digital books.

One major difference between digital music and digital books is the behavior change required to become an adopter. Digital music players were an evolutionary product introduction, flowing from portable radios, cassette players, and CD players. Digital books, in contrast, are a significant departure from the experience of holding a paper book in one’s hand. The colors, smells, and touch of a book contribute to the enjoyment of reading a book. Will the trade off of being able to download books quickly and at a lower price be enough for book enthusiasts to give up print?

Link: E-Marketer Daily – “Will Digital Books Turn Paper Books to Kindle-ing?”

The Semantics of Sales: What Motivates Consumers

I recall a conversation more than 20 years ago I had with a men’s clothing buyer for the department store where I began my marketing career. We were discussing different approaches for promoting sales on men’s suits. What was more effective: 50% off or advertising the specific price point that reflected a 50% savings? If I recall correctly, the buyer opted to use the percentage discount as the method for framing the promotional price.

Fast forward to today, and the same questions are being asked. In this tight economy, what are the magic words that will prompt consumers to loosen their purse strings and buy? A recently released report by Information Resources Inc. suggests consumers are motivated to scour retailers’ sales offerings in the quest for deep discounts. Furthermore, frequent discounting by retailers has left consumers longing for more, more in terms of deeper discounts. Retailers are responding by stretching the upper limits of their price discounts. Claims of “save 50%” are increasingly being replaced with claims of discounts of 70-80%. In other words, the wow factor of a 50% off sale has been diminished by overuse; deeper discounts are needed to create the desired impact.

Going back to the original question: what’s the best way to frame a discount? It appears the answer is promote the percentage savings, but unless it is an eye-popping figure, consumers may sit on the sidelines and wait for a better deal to come along.

Link: The New York Times – “Never Mind What it Costs. Can I Get 70% Off?”

Even Love Isn’t Recession Proof

Good thing money can’t buy love, because Valentine’s Day shoppers are planning to spend less money this year. According to a study by the National Retail Federation, shoppers plan to spend about $103 this year on Valentine’s Day gifts and products, down from $123 last year. Findings from the study revealed consumers will still buy the same categories of products associated with Valentine’s Day; flowers and jewelry still are not expected to experience a significant decrease in terms of percentage of shoppers who will buy those products.

An interesting Valentine’s Day product I saw recently was Mattel Hot Wheels Valentine’s cars. There were different models with Valentine’s-themed designs and paint schemes. What a brilliant brand extension to capture incremental revenues for a selling event not typically associated with cars! At a price point of around $1, even the tightest of budgets can afford to buy these products for their young car fans.

If your loved one seems to have spent a little less on you this year, you can take comfort in knowing you were not alone. Indulge in some pink and red Hot Wheels cars and enjoy- Happy Valentine’s Day!

Link: eMarketer Daily – “All You Need is Love… and Money”

Consumer Budget Cuts: What Goes? What Stays?

Americans are tightening their belts more as the country’s economic situation shows no signs of improving. The latest Consumer Spending Indicator study by NPD Group finds that only 35% of persons surveyed saying they have not changed their spending habits since the economy weakened. For those of us who have changed our ways, the first category which most people have cut spending is dining out (57% said they were cutting back on this category). The next categories likely to be cut are clothing (54%) and entertainment (50%). Interestingly, the categories least impacted by changing spending patterns are toys (39%) and video games (35%).

What do these statistics say about us? We are inclined to cut expenditures for which there are alternatives (eating at home rather than eating out), and we can cut spending by making do with our current situation, as in the case of the clothing category. The categories for which less people are reducing spending (toys and video games as well as beauty products and music) are “comfort” products. Music, toys, and video games represent opportunities for entertainment in the home, making dining out and out-of-home entertainment less appealing.

Are there other product categories for which the increase in consumer “nesting” will benefit marketers? The extent to which products can add value by reducing consumers’ out-of-home expenses appear to have the potential to win favor with the cost conscious. With no end to this rough economic period in sight, there appears to be plenty of time for marketers to respond to this shift in consumer behavior.

Link: Marketing Daily – “How We Cut: Restaurants First, Video Games Last”

Youth Prefer You Tube over Boob Tube

Here’s another stat that will make traditional media properties cringe: 10-14 year-olds are spending more time online than in front of their TVs. According to a recent study by DoubleClick Performics, 83% of the youth sampled indicated they spend one hour or more a day online while the figure for spending the same amount of time watching TV was reported by 68%. The impact of this trend is not limited to parents, who are challenged to not only monitor kids’ online surfing behavior. Advertisers are affected by this tend, too.

Not too long ago, reaching youth markets was easier for advertisers as they could rely on TV to deliver this coveted audience. Now, with youth spending more time online (and on wireless devices), another audience has become more fragmented and difficult to reach. The study does point out some specific behaviors that should enable advertisers to pinpoint youth web surfers better such as the fact that over 70% visit social networking sites (especially MySpace). The trend toward greater use of the Internet by youth could be viewed as an opportunity in that online media provide ways for marketers and consumers to engage in meaningful interaction that simply is not possible through mass media advertising.

Link: The New York Times – “Preferring the Web over Watching TV”

The American Consumer’s New Diet

The squeeze put on by rising prices on many consumable items, tighter credit, and less savings is influencing a shift in consumer behavior. A recent study completed by Cramer-Krasslet found that the current financial strain felt by many is not just leading to temporary belt tightening, but rather a more permanent change in behaviors. Among the behavior changes noted are more short-term responses such as eating out less, buying more private label products, and doing less driving. But, the study found evidence of more permanent behavior changes such as more “lateral cycling” of possessions by selling on web sites such as eBay or Craigslist and a desire to simplify lives by streamlining consumption.

Another trend is shopping locally more frequently. Local Chambers of Commerce have touted “shop local” campaigns for years. I have never been a big fan of these campaigns as they tend to come across as guilt trips for not shopping in one’s community. It is up to the seller to provide good value and a compelling reason for shoppers to patronize a business. The shift in consumer behavior taking place today sets the stage for “shop local” campaigns to have greater relevance than ever before. Consumers are wanting to shop local; it is up to local businesses to deliver great service and experiences that will keep shoppers returning.

Link: Marketing Daily – “Study: Downturn Gives Rise to New Consumer Beliefs”