Consumer psychology in a recession
You may as well add “crunchonomics” to your dictionary of annoying new words like “blamestorming” and “disemvoweled.” The prolonged economic slump has produced its own zeitgeist, mostly concerned with consumers’ economic fears and retailers’ hopes at assuaging them. The term has come to represent an emotional barometer of the effects of the financial crisis on families. The first bi-monthly Crunchonomics Report, released recently by media consultants Arena BLM surveys the psychology of spending among five types of consumers: young independents, secure families, insecure families, empty nesters, and pensioners.
It will come as little surprise that secure families, young independents, and pensioners are the most secure among the groups, but they too have felt the impact of the recession. Some 68% to 78% of respondents in these most secure groups say that their lives have been “significantly” or “somewhat” affected by the recession. The most uneasy group was insecure families, with 95% feeling somewhat or significantly affected.
The crunchonomics report makes use of some other interesting statistics too. The UK’s 10 million secure families, for example are mostly public sector workers and those in strong private sector jobs like healthcare. A feeling of job security makes this group more confident than the others, but they are also making some cutbacks in personal spending. Only 6% of this group believe that the UK economy will get better in the next quarter.
At either end of the age spectrum, young independents and pensioners are less worried than insecure families and empty nesters, but both have fears. For young independents who have never experienced a recession as an adult, there is anxiety about their future careers. For pensioners, many of whom lived through the severe economic hardships of the 1930s, trust in their banks has fallen, particularly as lower interest rates squeeze their investment income.
The main fears of empty nesters – despite many of them having paid off their mortgages – is loss of a job, and fear of age discrimination should they have to find a new one. Insecure families are worried about everything: job loss, foreclosure, debt, you name it. The most affected are those who either work, or worked in industrial jobs, which have been slammed hard by the economic slump.
What does this mean to retailers? It means that the old ways of doing business aren’t working at the moment. Enticing consumers with splashy corporate ads is believed to be less effective than retailers expressing understanding about the customer’s economic worries and offering genuine value for their money. For example, grocers like Tesco are promoting the less expensive in-house brands, and home improvement chains, who have been very hard hit by the housing crash, are appealing to DIY consumers who feel a sense of achievement after having tackled a home repair or improvement themselves.
Is anybody not feeling the pinch during this recession? Indeed, a few industries are weathering the recession fairly well. With people putting off buying new cars, tire sales have remained strong. Packaged holiday vacations are doing well because people feel like they get good value for their money. In-home entertainment such as cable television is holding its own. But perhaps the biggest “winner” in this economic climate are – believe it or not – makers of game consoles like the Nintendo Wii. Examiner.com reports that the Wii is selling better than ever, and even older game titles like Wii Fit and Mario Kart Wii are selling strongly a year after their release. Nintendo, in fact, is seeing real growth during what one of the worst recessions ever.
Clearly, while consumers are as cautious as ever with their spending, they are willing to spend for experiences, such as playing video games or having a holiday abroad. While the dip for experience-based consumption is rather shallow, it is largely the consumption of things: clothes, cars, luxury items, that will have the biggest economic hurdles to overcome in 2009.