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