The recession is finally over. 2013 has seen many encouraging signs of increasing consumer confidence and positive economic growth. UK businesses have been told to look forward to a bumper Christmas. But don’t expect consumers to permanently return to their pre-recessionary spending habits any time soon.
There is a new normal out there, many consumers have traded down, some of them have loved it and brands that are quick to realise this will run effective campaigns that outflank their rivals.
Are you giving them what they want?
The recent recession has radically altered consumer behaviour, based on a change of personal circumstance or fear of such a change. Our research indicates that whilst the levels of financially-based fears are decreasing and consumer confidence seems to be recovering, the recession-hardy are embracing a new norm. Spurred on by advances in technology, distrust in big brands and desire for a good deal, these consumers will continue to embrace recessionary behaviours. Many have traded down and enjoyed the experience. They are frugal and proud of it! They have learned that debt leads to misery, a lesson it will take a long time to forget.
Brands that are hoping for a rapid return to pre-recessionary spending habits will need to face up to this new reality and must adjust to this transformed consumer landscape.
Positive economic signals
While the recession technically ended at the close of Q2 2012, business and consumer confidence indices bounced unenthusiastically up and down towards the back end of last year. 2013, however, seems to have brought signs of recovery.
The Lloyds Banking Group Consumer Sentiment Index reached a new high of 114 points back in July compared with an all-time low of 90 points in March 2011 and according to the latest CBI monthly Industrial Trends Survey, growth in the UK’s manufacturing sector is continuing to pick up, with orders at their highest level since the start of the financial crisis. The survey of nearly 400 manufacturers found that total orders rose for the fifth consecutive month, while exports orders also grew strongly. Meanwhile, output growth for the three months to September rose to its highest rate since August 2011. Output is expected to rise strongly again over the next three months.
You really do get a strong sense that things are heading firmly in the right direction.
Tread carefully – you might want to read further before spending the entire budget
The Opinium Consumer Hopes, Fears and Spending Intentions Tracker asks consumers to indicate their main hopes and fears for the following six months and then tries to understand their spending intentions across a number of areas. It currently shows a relative increase in confidence, or decline in fear, but no immediate signs of increased consumer spending.
Fear is a major driver of consumer behaviour; if you fear something happening, such as ‘not being able to make ends meet’, you will be more likely to change your behaviour to prevent that fear from becoming reality.
However, our research shows no significant changes in spending intentions across the three major categories we track; leisure & entertainment, eating & drinking and non-essentials. In fact the 2013 data is almost a mirror image of our 2011 and 2012 surveys, which means that although economic fears are subsiding, this is not having an immediate effect on spending intentions.
In other words, consumers are becoming more confident, however they are still not heading out on spending sprees just yet.
Getting a kick out of trading down
Our research shows that since 2007 a huge proportion of consumers across all socio economic groups planned to and eventually did change their consumption behaviours, reducing or postponing their spending, making more use of the internet to compare and select the best offers, often compromising on quality to reduce their spending. We think that this behaviour could be one of the main drivers behind the dampened spending intention levels.
Through multiple focus groups and large quantitative surveys for a variety of clients we've discovered that many consumers, from a variety of social classes, have been pleasantly surprised by what they have found on their way down the ‘frugal ladder’; some are quite proud of their achievements. Different groups of people have experienced different recessions, but there is evidence that even those on higher incomes have traded down on certain products, as finding a deal becomes the new ‘splash-out’ experience.
Research conducted on the Opinium Consumer Panel amongst 2,000 UK adults in mid-September revealed some startling insight into the mind of the post recessionary consumer.
Of those that said they had traded down to lower price brands:
Low levels of trust a concern for big brands
Consumers are still struggling to trust big business. In the 2013 Opinium Trust Survey, run for Lansons Communications, a third of UK adults said they trust companies less than they did last year. Just over fifty per cent say they are dissatisfied with how big business capitalism operates in Britain at the moment. Consumers cite corporate ‘greed’ as the main driver for their decision, followed by ‘tax avoidance issues’, then ‘poor customer service’, ‘corruption and dishonesty’, ‘an unfair society’ and ‘low levels of social responsibility’.
So here are five key themes we think you should take to your next strategy meeting:
1. The landscape has shifted. The new frugal consumer is unlikely to go back to spending beyond his or her means on discretionary purchases in the near future. It’s time to reassess who your customer segments are and how they behave. Focus on what customers want and need now; don’t assume things will ever get back to ‘normal’.
2. Price wars will only get you so far. Are you trustworthy? Are you transparently honest? Environmentally friendly? Do you provide an authentic experience? Do you provide value? Revisit the proposition you offer your customers – is it fit for purpose?
3. Your website is a crucial explanation of your brand and proposition. You know what you’re trying to say, but does your customer?
4. It’s time to get serious about service. One bad experience, one tweet, could cause a stampede. Are you on top of your customer service as well as your social media channels?
5. Are you using your existing customer data to uncover hidden competitive advantages unavailable to your competitors? If not, why not?
James Endersby is Managing Director of Opinium Research: