Skip to content


The Party May not Be Over, But the Guests are Sobering Up

After 15 years of steady growth accompanied by low and stable levels of price inflation, the recession delivered a real shock to the American consumer.

From 1995 to 2005, incomes and asset values grew significantly faster than inflation and real disposable incomes increased by a third in the United States, new appetites emerged, and markets sprang up to serve them.

Consumers could afford to be curious about gadgets and technology, spend on new experiences, indulge themselves with latest luxury products, and, of course,  proudly participate in socially conscious consumption.

However, this all changed in 2008, with the Lehman collapse serving as a clear indication to the nation that denial was no longer a possibility.

Consumers: Bloated and Hungover

Distrustful of Businesses and Government: The financial crisis has put a spotlight on corporate governance and consumers have become far more comfortable trusting peer reviews on websites or social networks than corporate messaging.

Distrust impacts the buying cycle as consumers’ hunger for information makes them research everything – they want to know whether a toy is safe, whether a shampoo is really unscented and whether a diaper manufacturer is environmentally responsible.

Dropping Conspicuous Consumption for Cautious Consumption: Even those who don’t need to economize are pursuing a more wholesome and less wasteful life. In fact, affluent shoppers are relentless in their hunt for good bargains and, in many cases, are more aggressive and resourceful than moderate-income consumers in this pursuit.

Even ‘green’ is suspect, as times get tough, we see that by and large, consumers are forgoing pricey green products and instead are cheaply and discreetly reducing waste.

Demanding Simplicity: Downturns are stressful and typically increase people’s desire for simplicity. Even prior to this recession, many consumers were feeling overwhelmed by the profusion of choices and 24/7 connectivity and were starting to simplify.

Mercurial Consumption Patterns: Easy access to information and friction-free purchasing is making consumers ever more agile—and less loyal. They are researching more and considering purchases longer before buying. They buy less – and when they spend – they focus on value.

Shoppers are broadening and deepening their use of retail websites: reading customer reviews, watching online product videos and paying attention to personalized product recommendations to a higher degree than ever before.

“The decline in brand loyalty is related to the rise in information shopping.” —E. Kinney Zalesne, senior consultant, Penn, Schoen & Berland Associates, March 2009

Retailers: Selling to the Sober Consumer is Not Easy

Changes are Happening Too Fast for Retailers to Keep Up: From social media to technology and web site investments, Retailers have to understand an entirely new landscape, prioritize and invest appropriately – for smaller retailers, this is especially painful.

The economy only exacerbates the challenge as short term pressures make developing a long term strategy that much more difficult.

Marketing Spend is Under a Microscope: Some 30% of surveyed retailers told Internet Retailer that they would decrease spending on paid search. Retailers are more likely now to eliminate paid search terms that do not produce enough clicks, and they are avoiding expensive brand terms by purchasing long-tail terms that result in fewer but more-profitable clicks.

The recession is leading online retailers to optimize their search engine marketing programs. SEO for organic search is a beneficiary of this trend. Some 55.3% of respondents to a March 2009 Internet Retailer survey said they planned to increase spending on SEO, compared with only 24.2% who expected to spend more on paid search.

Differentiation Beyond Pricing is Still A Challenge: Even in a recession, Web retailers must work on building a superior shopping experience. Despite the cutback mentality, smart online retailers are stepping up their efforts to provide independent-minded customers with the rich product information they are seeking. The market is too saturated for retailers to afford to solely compete by engaging in price wars and still remain profitable.

Competition Heats Up Between Multi-Channel and Pureplay Retailers: On one hand, the current economic upheaval has weakened traditional retailers, putting consumers’ wallets up for grabs. Online retailers that can fill the void through superior customer service, rich product information and greater shopping conveniences have a chance to win new customers for life.

Conversely, realizing the strong ROI of online/digital marketing, traditional retailers are increasingly encroaching on what pureplay retailers see as their territory. As large superstores bring more budget online, they will make it harder for pureplays to be successful.

When the Hangover Subsides: Retail Post-Recession
A new thriftiness and desire for simplicity will combine with pent-up demand to shape the new economy.

Catering to Consumers New Buying Habits: Consumers will still be able to buy chic brand names, but at a wider range of prices. Look for more mid-priced merchandise + “affordable Luxury”. Retailers will sell fewer brands – appealing to consumers desire for simplicity.

Seasonal transitions for apparel will probably have shorter lead times. With strapped consumers buying only what they need when they need it, it has occurred to retailers that selling swimsuits to New Yorkers in early March is not necessarily a winning strategy.

Many of the new information seeking behaviots shoppers have picked up will stick and sites will create new online shopping tools with powerful capabilities for finding, filtering and evaluating products.

Retailers will increasingly realize the potential of social networks, blogs and other social media in providing forums for consumers to share information about products and brands, and learn how to use the social web to grow more successful.

The best retailers will emerge leaner and stronger than before; others may wind up dropping out of the game: Retailers who are not the lowest price competitor will find ways to innovate and differentiate – or lose profitably entirely.

Consumers will also see even more of the exclusive collaborations between retailers and prominent designers that are so prevalent today. That will help distinguish stores as well as avoid price wars because the same items will not be sold at multiple chains.

As the idea of “constant innovation” finds its way to retail, creating a continually refreshed customer experience will become a new (and likely one of the most important) core competency for retailers.

Greater Convergence across channels: Market data show remarkable growth in cross-channel shopping. Consumers are increasingly using two or more points of contact with the retailer to discover, research, evaluate, purchase, service, and perhaps return a product:

A recent report from Forrester Research estimates that cross-channel shopping in the US will grow from 20 percent of sales in 2007 to 38 percent in 2012. During the same time, online-only sales are expected to increase more than 13 percent annually, while cross-channel sales should enjoy a stronger 17 percent annual growth rate, according to Forrester. That means by 2012 nearly 50 percent of transactions are expected to be executed with the consumer crossing channels.

Share

Posted in Business, Economics, Psychology, Trends. Tagged with , , , , , , .

0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.

Some HTML is OK

(required)

(required, but never shared)

or, reply to this post via trackback.