By Leon Gettler
Consumers’ wallets are going to be harder to prise open, but the truth is that the spending tap has not been welded shut. People still have to spend; it’s just that they will become a lot more finicky. We examine the best way to gauge your customers’ spending touch-points.
The downturn is changing consumer behaviours. Customers for whom money was no object are suddenly needing a very good reason to buy, while even the most loyal buyers have started negotiating on every purchase. Then there are the frugal shoppers – they’ve just shut their wallets completely.
But don’t panic. Smart companies can work to understand the changing mood of their customers and build a recession-proof business plan to grab a market that seems to have become more choosy.
Every downturn has a silver lining and companies that know how to target will thrive in a slower economy.
In theory, when an economy starts to tank, discretionary spending is always the first to be reduced. But in practice, discretionary spending means different things to different people. Consumption might be going down overall, but some customers are still spending on high-end items, from cutting edge fashion to hybrid automobiles to housewares and jewellery.
At the same time, there are those always scouring for bargains. The trick for businesses is working out which end to target, and then how to do it.
Customer types
Advertising agency M&C Saatchi says the downturn has produced eight different consumer types and spending personalities:
- Justifiers; who like spending but who need an excuse.
- Scrimpers; who are trading down and going for stuff that’s cheaper, like home-brand labels.
- Ostriches; who act as if there has been no change.
- Crash dieters; who have cut all non-essentials.
- Treaters; who buy themselves special gifts from time to time, especially as a reward for their frugality.
- Abstainers; who put off buying big items until they feel they can afford it.
- Cloth-cutters; who reduce their spending on some items so that when they see stuff that is important, buy more.
- Vultures; who seem to thrive in an economic crash because there are so many bargains.
Tailoring your offer
Colin Jowell, M&C Saatchi’s planning director, uses the retail sector as an example of how different players in a market can tailor their offer.
He says discount stores like Aldi would do well with the crash dieters and scrimpers, but there is room to grow. “You could choose to stick to that message on the basis that those two segments are likely to grow in coming times. Or you could broaden your appeal to treaters too, with the message that ‘if you spend less on X, you can indulge yourself with Y’.”
Premium stores like David Jones would have a strong base with the justifiers and ostriches. “So you either need to lock in those relationships as times get tougher, or again look at broadening your appeal to the abstainers, say with a variety of deferred payment options. You’d also be looking to use discounts to attract more treaters and more cloth-cutters,” he says.
The agency warns that companies will need to think through the implication of each strategy. Fire sales, for example, would appeal to crash dieters looking to save, justifiers looking for a reason to buy, scrimpers who are trading down and bargain-hungry vultures.
But companies need to be aware that they will be hurting their brands and that their margins, at least in the short term, will look grim.
Providing a product that is an acceptable substitute (say, a cheaper imported product or a basic product with optional extras) is another tactic that would appeal to scrimpers, cloth-cutters and treaters. But it requires putting in time and money educating customers about the offering.
Treaters, justifiers and abstainers might go for places selling affordable luxuries such fashion and cosmetics. But the brand has to carry some premium. And you are turning your back on the crash dieters.
Paul Rees-Jones, the director of strategy at advertising agency Clemenger BBDO, says that while spending is down, it is not that simple. For every category experiencing a downturn, another is doing well.
Spending area that will grow
One trend to watch out for is the “feel-good factor”. Many are now escaping the headlines by treating themselves, and those around them. “A good example of this is the rise in ‘glossing up’ with increased focus on beauty products and treatments which are more self-serving and, importantly, relaxing,’’ Rees-Jones says.
That can also extend to cheap treats like a chocolate bar or video game. People are now also focusing more on family events like birthdays and celebrations, and close friendship circles.
Ritual buying decisions are becoming important. “We are still buying those brands that are fixed points in our personal rituals, be that the right brand of coffee, favourite scented shampoo or ice cream. These daily moments of ritualistic consumption are quite telling, as no one wants to give up brands that we increasingly depend on to get us through.”
Rees-Jones predicts the rise of discounts in the form of coupons or special offers to help people justify their purchases. Those supermarket petrol coupons could be a taste of things to come.
Traditionals vs NEOs
Ross Honeywill, managing director of the Neo Group and foundation director of the Centre for Customer Strategy, believes consumer behaviour is changing in two ways.
Research conducted by his group, trawling through 750,000 respondents on the Roy Morgan database, reveals that so-called “traditional consumers”, who tend to be average earners in the 45 to 50-plus age group, are on what he calls a “flight to security”.
“They are getting out of equities in the sharemarket and out of property investments and putting their money into their own property,” Honeywill said. “They are trying to make their money passive and safe.”
The group he describes as NEOs, or the new economic order, representing high income earners in their 20s, 30s and early 40s, are on a “flight to quality”.
They are moving their money from shares to high interest savings accounts. Instead of overseas trips, they are investing in their own homes. And they are making sure their personal trainers and yoga teachers are on 24 hour call. “They are spending more, but buying less,” he says.
Traditionals represent about 50% of consumers, NEOs about 24%, and the rest are “evolvers”.
Honeywill says the brands that would do well in this climate are those that seek to enrich, rather than just engage the consumer in a transaction.
“That means everything from yoga to personal exercise, right through to quality wine, quality resorts, particularly spa resorts, right through to certain car brands, that provide a lifting of the spirit,” he says.
“Brands that just continue along a traditional path and not stand for anything won’t do well.
“Businesses that are targeting traditionals are going to struggle, because they go to the wall and stop spending and the only way to get them is through sale events that are just ridiculous.”
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