Will Consumer Spending Change Once the Recession Ends?

Two of the big questions facing marketing managers today are: (1) when will consumers open their wallets again; and (2) will consumers behave differently when they do?

We know that consumer spending accounts for 70% of all economic activity in the US and we know that consumers are being asked to consume to kick start the economy and end the recession, just as they were asked to do so after World War II and 9/11. Once again, spending is being positioned as an act of patriotism.

But what makes this recession different from all other recessions is the extent to which damage has been inflicted on individuals: unemployment is nudging 10% (although many more are affected by the downturn in the labor market), retirement savings and college funds have been decimated, and people have lost their homes and subsequently, their sense of self worth. To hear grown men and women telling their stories, to hear the despair in their voices, the sense of betrayal they feel towards lenders and employers is revealing. Can people ever truly recover from the emotional and material damage this recession has caused?

Along with a drop in consumption, we have seen some behavioral shifts take place: consumers are taking care not to engage in conspicuous consumption, which is one of the reasons Starbucks felt the need to reposition its brand. Many consumers no longer trust big brands, which is why American Express recently began a campaign to regain consumer trust. Consumers have become a lot more value driven, which is one of the reasons why private labels are doing so well. Consumers are delaying the purchase of big ticket items, which is why the sales of new cars have plummeted. Consumers are paying attention to their carbon footprint which is one of the reasons why ZipCar is doing so well and bottled water is not. Finally, consumers are paying more attention to the source of products they buy, which is why we have seen a resurgence in an interest in self sufficiency (remember Michelle Obama's vegetable garden?).

If we take into account deep-seated cultural values, however, we realize just how hard it is to expect a permanent change. In the US for example, like many other market driven economies, business and government leaders are rewarded for generating economic growth and maximizing returns to shareholders -- often in the absence of regulations and without consideration for likely negative consequences. For evidence of this, we just need to look a the innovation and growth that occurred in the financial services sector, and the consequences of the Lehman Brothers collapse in September 2008

In the green shoots of economic recovery, it seems that there are also green shoots of behavior practices that resemble those which got us into trouble in the first place -- for example, businesses that help people renegotiate the terms of their mortgages with lenders for a fee (more like take the money and run). What this demonstrates is that there will always be ways to make money, ways that are not (yet) illegal but are still harmful to consumers.

It won't be hard to identify an increase in consumer spending but it will be more difficult to detect whether in fact consumer values have fundamentally changed. Now that will be interesting.

Jenny Darroch is on the faculty at the Drucker School of Management. She is an expert on marketing strategies that generate growth. See www.MarketingThroughTurbulentTimes.com

 

 

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Comments

[ResearchtheFacts]

As American citizens its all we have to make a statement about what's going on in our country. It's the only time our lawmakers pay us any attention. We have changed our viewpoint on our buying and spending..­.it is our power.

We can't keep propping up a financial system that simply does not work for us. In fact, it has become our burden. We read the stories and see our fellow citizens struggling wondering when our number may come up. Therefore, one less dollar we spend could make the difference. Unfortunate for us, every economic fix has some level of corruption attached to it. Therefore, there is no help for us. We have built in our own fail-safe by not spending.

[oustfan]

Both republicans and democrats seem to be under this insane notion that the problem with the economy is that we're not spending enough money.

The solution isn't to get people to open their wallets... we have nothing in there but our credit cards. Debt is what started this problem.

[tompoe]

Hopefully, faculty and experts will grasp the concept that people don't want to be consumers. Hopefully, when the recession ends, business will be conducted under concepts associated with people as customers. The author is advised to look the term up, and see if her post needs reworking to fit the times. I sympathize with her students. Oh, and no, I won't be encouraging my grandkids to attend Drucker.

[stuporman]

the consumers need jobs before they have the ability to spend...th­ose with jobs will continue to pay down debt.

[TryToBeFlexible]

Since I stopped eating lunch and supper out several times a week, my cholesterol and triglyceride levels have improved amazingly. I mean almost miraculously. Just from me cooking my meals, so I know what is in the food. I don't think I will be going back to the old ways.

Plus, when I cut way back on other discretionary income, I was able to start prepaying my mortgage so a 30 year mortgage is turning into a 5 year mortgage. And I don't miss the junk I was buying before.