Posts Tagged ‘The New Normal’

Too Much Pain. Brands will Gain

Monday, June 28th, 2010

I spoke with someone recently who said that the key to knowing whether consumers would continue their new frugal shopping patterns was assessing how much pain they caused. If a new behavior turns out to be painless—say, driving a few extra blocks to Safeway to get cheaper gas—it will become a long-term habit. If it turns out to be disagreeable—say, forcing your kids to eat the private label cereal they really don’t like—consumers will abandon it the second they have a few extra dollars.

A recent study by comScore gives hope to brands that are worried that shoppers’ defection to private label will become a long-term habit. According to comScore, less than 50% of consumers say they are currently buying the brand “they want most.”  It varies by category, but the number indicating they are sacrificing when they choose CPG products has increased by double digit percentage points in the past two years.

If consumers had really embraced private label—its variety, its quality, its equity—they would no longer have another brand “they want most.” But, more than half of them still do.  So while some shoppers will remain private label converts for life, many will come back to their favorite brand, when they can afford it. But brands have to keep the relationship going in the meantime.

Do you agree?

The Great Recession: Great Birth Control

Friday, June 18th, 2010

The US birth rate has declined along with the economy. After hitting a two-decade peak in 2007, the number of babies born per thousand women in their childbearing years dropped in 2008 and the first half of 2009 (the most current statistics available.) Experts forecast that it continued to drop through the back half of 2009 and into 2010.

What’s more, when analysts at The Pew Research Center compared the birth rate for each state, they found that the states with the worst economic statistics had the largest declines in the number of infants. The more house prices fell, the more foreclosures occurred, the more per capita income declined, the lower the state’s fertility rate.

There’s not enough data available yet to determine if the Great Recession will lead to the same sort of “baby bust” as the Great Depression. If it does, marketers of baby and kids’ products will see a dramatic change in category dynamics in the next few years.

Do you think consumers delayed having babies in the past 12 months? Do you think they will continue to do so?

Canned Tomatoes—Key Economic Indicator

Sunday, March 14th, 2010

Experts are slicing and dicing employment statistics, retail spending data, and consumer confidence numbers to determine if Americans believe the recession is over. There is an easier way: track private label sales. They clearly show that consumers believe the worst has passed.

Down Sales Trend

In every recession since the black and yellow brand days, private label brands gain share while national brands lose. When the economy turns, the reverse happens. This downturn was no exception. Private label sales and share skyrocketed in late 2008 and 2009. Now there is clear evidence that consumers are optimistic enough to part with those few extra pennies to buy a name brand.

The CEO of Del Monte says he sees it in their canned food business trends. The CEOs of Safeway and Kroger admit their store brand sales are slowing. And Credit Suisse reports that during the past six months sales growth of private label has slowed, and branded sales change vs year ago has gone from negative to positive.

Forget about studying the Fed’s Beige Book. Look to the grocery aisles for real economic indicators.

The Consumer Trend Question of the Year

Thursday, February 25th, 2010

Will consumers return to their old spending habits as the economy recovers? Or, will there be a “new normal” filled with coupon clipping, dinner parties featuring ramen noodles, and clothing from 2007 that is deemed “classic” so nobody has to update their wardrobe?Questionmark

That is the trend question of the year. And, just between you and me, there is no answer. For every expert who predicts consumers will be so frugal that they will start reusing dental floss, there’s an equally intelligent trend forecaster who points out that Americans have never demonstrated long-term self control, so scrimping is a short-term trend.

It’s not just that trend forecasters don’t know, it’s that consumers don’t know either. If you put a group of people in a room in 2002 and asked, “Do you plan to spend more than you earn for the next 6 years?” not many would have said, “Yes.” Even when they make plans, consumers don’t always follow through. Each year, over 60% of Americans say they intend to lose 20 lbs. Most of them don’t. Finally, questions about future spending are accompanied by strong societal pressure. Would anyone dare say, “I don’t care that there is 10% unemployment. I have a job, my bank account is OK, so I’m going to spend just like I always have”? I don’t think so.

Businesses have two choices: spend the next year making themselves crazy trying to forecast consumers’ future spending patterns, or plan for two divergent scenarios, neither of which is so bleak as to involve recycling dental floss.

I’d love to hear your thoughts!

Consumers Got Smarter than Banks Wanted

Saturday, February 6th, 2010

For years bankers and financial experts complained that consumers lacked financial saavy. Not any more. Now they are complaining because consumers are showing tremendous money smarts by walking away from mortgages they could afford to pay, but choose not to. They send the keys to the bank, rent an equal or nicer place for much less money, and move on with life debt free.  The banking industry calls this growing trend “strategic defaults.”

House keys

In 2007, strategic defaults were a rarity. In 2008, there were an estimated 600,000. Experts say the number increased by 70% in 2009, and will continue to accelerate rapidly in 2010. An estimated 5.1 million homeowners have mortgages 33% greater than their home’s value, and an additional 2.2 million have mortgages that are twice their home’s value.

Research shows that three factors strongly influence consumers’ decisions to stop paying their mortgages for non-need-based reasons. First, when a home’s value drops below 75% of the mortgage, many consumers hit the “this makes no financial sense” threshold. Second, when defaults become more common in a neighborhood, consumers are more likely to proactively default. Third, the more people they know who have strategically defaulted, the more likely homeowners are to do so.

Consumers most likely to proactively default live in states where real estate prices have fallen the most (think California and  Florida). They also tend to have very high credit scores and perfect payment histories prior to their decision.

Do you think this trend will continue? How much do you think this will further damage the trust relationship between consumers and businesses?

Thanks for the Divorce Gift!

Wednesday, January 27th, 2010

Retailers are trying to create new, compelling shopping occasions to entice consumers to open their wallets. First off the block? The Divorce Registry at Debenhams in the UK. It’s exactly what it sounds like: a wedding registry in reverse.  man woman hands holding broken heart

The retailer figures that most married couples don’t have two sets of the essentials, from coffee makers and knives, to (depending on how you define essential) plasma TVs.  If 50% of marriages end in divorce, at some point one partner is likely to need to outfit a new home. What better time for friends to show their support by buying gifts?

Reactions to the Registry are mixed to say the least. Some feel it is crass and commercial. Others say it is nothing but practical. The suggested items are household staples not fine bone china or silver gravy boats, so they should resonate with consumers’ current back to basics approach.  What’s more, the need for gifts is likely to be greater after divorce than marriage, given how established most couples are by the time they tie the knot.

It will be interesting to see if the Divorce Registry and other new shopping occasions gain momentum. After all, Hallmark grew their business by convincing Americans that previously obscure holidays must be celebrated with cards and gifts. (Grandparents Day anyone?)

What do you think?  Can retailers capture consumers’ dollars by creating new buying occasions?

Economic Failure to Launch

Wednesday, December 30th, 2009

Television DreamsIf you’re one of the almost 1 million Americans already following Justin’s S*&^ My Dad Says on Twitter, you’re anecdotally aware of this trend: young people are moving back in with their parents, thanks to the economy. (If you have no idea who Justin is, you need a good laugh, and you don’t mind profanity, click here)

Pew Research Center recently released statistics detailing the trend.

  • 13% of parents with adult kids have had one or more move back home this year
  • 10% of adults18-34 have returned to the nest due to the bad economy
  • 12% in the same age bracket have moved in with a roommate for financial reasons
  • Now only 7.3% of adults under 30 live by themselves

Pew ties this trend to the fact that only 46% of 16-24 year olds are working, the smallest percentage since statistical tracking starting in 1948.

Marketers are split about what this means for consumer spending. Some say it increases consumption by allowing young people to continue adolescent buying patterns (focused on videogames, electronics, and entertainment) with indulgent parents footing the bill. Others say it creates yet another drag on the economy because these broke twenty-somethings can’t make the rent, so they can’t make other purchases either.

What do you think? Do boomerang kids help or hinder the economy?

Cancelled by the Recession: Marriage and Moving

Thursday, October 15th, 2009

Most of the how-people-are-coping-with-the-economy stories focus on clipping coupons, eating at home, ignoring new fashions, and eliminating ups and extras.  I know I’m in the minority, but I believe that despite consumers’ best intentions, most of these new behaviors will fall by the wayside when the economy rebounds.

stop

Consumers are making other financially-driven changes that are likely to have longer-term repercussions. According to US Census data people are postponing marriage, and now almost a third of all adults have never been married. 75% of men and 66% of women in their 20s are still single. That has huge implications for companies selling everything from china to family packs of macaroni and cheese.

Consumers are also putting off moving—the number of people who changed residences in 2008 was lower than it’s been in over 50 years. That puts a crimp in the decades long trend of migration from the center of the US to the coasts. The ripples will reach far beyond the housing and moving/storage industries.

Finally, the recession has reduced immigration in a way that fences and laws never could. The percentage of the US population that is foreign born has remained flat, as potential immigrants realize that America may be the ultimate land of opportunity, but just not right now.

What do you think? Will these changes have a long-term impact on businesses?

The New Normal is The Old Normal—Mostly

Tuesday, September 29th, 2009

I have now read 157 articles that contain the phrase “the new normal” and explain how from this day forward, consumers will always be frugal, scrimping and saving, even when the nation’s economy recovers.

I don’t believe it.

In America, saving money is like dieting. Everyone starts with great intentions and incredible self discipline. A very, very small Open walletpercentage stick with it long-term. With dieting, those who endure are the health food true believers, and people who have been told by their doctor essentially, “Do it or else.” I believe the same pattern exists for saving money. People truly committed to careful money management will continue to save, but then again, they were saving before the recession. People who have been told by their bank (or their credit card company, or Guido their loan shark) that they must pay down their loans will cut back. Those without jobs will be very frugal. But the rest will be drawn back to spending like a yo-yo dieter to birthday cake in the company break room.

We’re just not a nation that is good at abstinence and sacrifice, unless it is forced on us.

Certainly there are some new behaviors from this recession that will last. Consumers who discovered that gas is 10c a gallon cheaper at Safeway, and Safeway is just as close to their house as the traditional gas station, won’t go back.  People who realized that with one quick Google they can find a coupon code for virtually anything on the web will continue to search before they shop. But, people who cut back on clothes,  stopped eating out, and eliminated “little splurges” because they were worried, or because spending money “just didn’t feel right” will gradually return to their old habits. Just as they did with their last diet.