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Friday, March 14, 2008

Trading down... or sideways

Over the last sixty years, consumers have enjoyed an age of considerable abundance, in which they not only purchased enough goods and services to drive an entire economy… “Trading up” or “upgrading” has been the norm. But even during these decades of relative abundance, there have been periods of economic stagnation or recession.

No one has yet established that the U.S. is officially in a recession… but certainly, we can agree that consumers are a bit uptight. There have been job losses, higher gas prices, a devalued dollar, a credit crunch, and higher costs at the supermarket. The consumer response, in some cases, has been the practice of “trading down.” And some companies, having long served consumers who have prioritized quality over cost, and premium over price, are now trying to figure out how they should respond (see this Marketing Daily article; a free subscription may be required).

The question is, “How long might this phase of consumer conservatism last?” That’s the billion dollar question. But it’s one that needs to be asked. After all, with crude oil flirting with a new benchmark of $110 per barrel, a chain reaction might be set in motion. Not only are gas prices higher for commuters, but it costs more to manufacture the products we buy, and to transport them to the stores where they are sold. And those higher petroleum prices are causing bio-fuel alternatives to increasingly compete for some of the same commodities that used to be thought of as “groceries.”

Want to get rich? Be the first to figure out whether this is a short-term tremor, or if the supply and demand ecosystem is going through a tectonic shift. Or, consider how current consumer attitudes might impact people as they consider the purchase of the product or service you sell.

Implications: If you’re a grocer or food producer, can you now regain some of the market share that had previously gone to out-of-home dining? If you’re a restaurateur, can you position yourself as a “well deserved reward” for a week of hard work and self-denial? If you’re a car dealership, should you be selling new vehicles… or selling against the high cost of maintaining an old one? (Fuel efficiency isn’t the only factor involving cost!)

Consumers can be expected to proceed with caution, and while they might make some of the same decisions and purchases, they might contemplate their actions within a different context over the next several months, or even years.

Mike Anderson

Nobody's Perfect: Selective Correctness

Much has been written and said about the increasing pressure to buy in “Socially Responsible” ways. Today’s consumer has been told—again and again—to buy products that are green, organic, renewable, recyclable, and sustainable… which are produced in accordance with the values of fair trade while consuming zero carbon fuels and producing almost zero greenhouse emissions.

In some ways, consumers are beginning to say, “Enough already!” A certain level of fatigue is beginning to set-in where “responsible consumption” is concerned.

I’ll give until it hurts. People don’t mind buying canvass totes to replace the plastic shopping bags they used to get for free. And they don’t mind buying one CF light bulb for the same price as they used to pay for a six pack of incandescent bulbs. But look around during your next morning commute: Count the number of big SUV’s which are being driven as if they are commuter cars! (And many with only one person inside… not exactly what you’d call a “car pool.”) Almost everyone has a few indulgences which they’re reluctant to give up.

Conspicuous compliance. People like to buy “green” products, drive hybrid cars, and faithfully roll the recycling bin down to the curb on trash day. These are activities one might consider to be “top of mind,” or “high profile.” It’s easy to get caught doing the right thing. But some of these same folks will toss a CF light bulb or set of dead alkaline batteries into the kitchen trash bin… even though both of these products represent hazardous waste. (They contain chemicals which have the capacity to contaminate ground water in and around landfills.)
Even when we try to buy at our environmental best, nobody is perfect… at least, not all the time. Consumers can find themselves having to “pick their battles.”

Implications: Offering a “socially responsible product” is often not enough. Should your company explore ways of selling the consumer on why this issue should be a priority, and how your product addresses that issue? In what ways can you help the consumer be rewarded for embracing your socially relevant campaign? (In other words, how can you help them get caught doing something right?) Are there ways you can make the desired behavior easier for the consumer? (After giving a presentation to a group of business owners recently, the head of a retail chain approached me to say he was going to install “battery bins” at the entrance of his stores, to encourage proper disposal of depleted batteries.)

Mike Anderson

Thursday, March 6, 2008

The retirement surge

A recent briefing from MediaPost and the Center for Media Research reminded us that retirement is “booming.”

17.9% of Americans are retired now, a number that has increased by 6% over the past five years, and which will grow even more dramatically as boomers approach retirement age. But the demographic group known as “retirees” isn’t just growing in size. It is growing in individual economic stature.

Today’s retirees look much different than those of a few years ago… they have remarkable spending power. The briefing cites a Media Audit report which indicates that more than 13% of new cars are purchased by retirees. 83% of retirees own the home they live in. And 30% of retired adults have investments exceeding $100,000 in value, a higher share than ever before.
When you think of people who are “approaching retirement age,” do you picture Sylvester Stalone (born 1946, age 62)? Bette Midler (born 1945, age 63)? Jane Fonda (born 1937, age 71)?

Implications: Boomers are changing the face of retirement… if not the very definition of retirement. Boomers, who “came of age” in the 60’s and 70’s… have been life-long fans of experimentation and experiences. When you company introduces or promotes a product or service, do you consider the early-adopter mentality of today’s boomers and retirees? Do you sell features (product attributes) or benefits (lifestyle experiences)? In 2008, “upper demo” doesn’t mean what it used to.

Mike Anderson

Wants vs. Needs

One of the macro trends I’ve focused on over the past few years is the concept of “Overwhelming Abundance.” The essence of the trend: Unless she is 76 years old or older (and therefore a participant in the depression or WWII economy), the average American consumer has no idea what it’s like “to do without.” We live in an age of plenty; while we perhaps cannot have everything, most of us can have almost anything, if we consider a purchase to be high-priority, and we’re prepared to forgo other items in order to afford the things we really want.

Overwhelming Abundance is a long-term thing. But just as any other trend is faced with contradictions, the current economy is demonstrating its’ strength as a counter-trend. With oil spilling over the $105 per barrel mark, rising commodity prices, and other cost pressures resulting from intense use of consumer- and sub-prime mortgage debt, consumers are cutting back. (I won’t use the “R” word here, as it lacks relevance to this story. People are spending less freely, plain and simple.)

Small luxuries are often the first to go, as explained in a recent story in USA Today. Consumers are discovering that fewer cups of designer coffee each week can add-up to real savings. And by replacing owned items less frequently, consumers are feeding their desire to “think green” (re-use, renew, recycle) while they save cash by deferring purchases. Being frugal is no longer seen as “cheap,” but as responsible… and an attribute to flaunt, not hide.

But all of this does not mean people will cut-out all of their “little indulgences.” Often, consumers will splurge on isolated luxuries as a reward for having been frugal in other areas. (“We’ve been careful all month, for heavens’ sake. We deserve to take a weekend trip.”) Further, a tight household economy can even cause consumers to upgrade. (“We don’t want to have to replace this appliance again in three years… so let’s spend more to get the better machine.”)

Implications: In what ways can your products and services been seen as delivering on a true need, rather than just a want? If you sell luxuries or small indulgences, does the consumer see you as “the exception” to their new rules for fiscal responsibility? Can your company make a case for quality (i.e., getting consumers to upgrade to more expensive lines as a means of obtaining long-term value)?

Mike Anderson