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Friday, November 20, 2009

How fast can you re-train a consumer mindset?

Last year, deep discounts were available almost everywhere, including most luxury retail stores. At the time, merchants knew they were taking a calculated risk: If an item is promoted as “on sale” for a long period of time, it’s not really a special discount at all… but a new everyday low price. Many retailers had little choice; the Great Recession hit fast and hard enough that many business categories were stunned, including luxury retail.

In yesterday’s New York Times, there is a story about the strategy many luxury retailers are pinning their hopes on for the holiday season of 2009: Scarcity. Last year, they had a lot of inventory when the glitz hit the fan. This year, many luxury stores have kept inventories lean—even at the risk of running short of some goods—hoping that the threat of missing-out on popular items might inspire shoppers to pay closer-to-full price. (See the NY Times story here.)

Implications: Forgive the longer-than-usual analysis I’ll offer here, but there are a lot of moving parts to this issue.

The recession was officially announced on 12/1/08, and when the announcement was made, economists indicated that we had indeed been in recession for about a year. It may have taken the experts that long to figure out there was a problem… but the consumers who live on Elm Street sensed a problem far earlier, tightening their wallets by early- to mid-2007. Retailers noticed a shift in the economy, too… and in response, many began changing their tactics to woo ever-more-elusive shoppers. Often, those tactics involved some kind of a discount.

Think about that. For nearly three years now, a host of retailers have been training people of all kinds—including luxury customers—to not buy at the regular price. How quickly do you think that can be undone? Do you think price sensitivity can be unlearned in a single season, or will it take a while?

A good friend caught me off-guard, recently, while explaining the great deal she got on an item she bought at a major department store. I thought she was simply going to brag about getting the item at 60% off. But instead, she expressed anxiety… and posited this question:
“If they can afford to sell it at that price… just think how many years I spent getting gouged at the regular price!”

Of course, that is an over-simplified analysis of the experience. There are matters of floor planning, carrying costs and overhead which drive most retailers’ decisions about when to offer discounts, even if it means losing money on an item. But it’s not the consumer’s job to understand how retailers think. It’s the other way around.

While the luxury customer might be quite different than a regular shopper (in socio-economic terms), the idea that “it’s fashionable to be frugal” is very widespread right now. Rest assured that during the first quarter of 2010 (and maybe sooner), lots of people will be using hindsight to get a better picture of how the recent recession has impacted consumer behavior… and I’ll be among those people.

Have consumers learned there are a lot of things they can do without? Or will “pent-up demand” drive them to splurge on goods they haven’t been able to enjoy for a while? Will this semi-artificial scarcity drive people to pay full price? Is there a risk that the manufacturers of luxury goods will turn to alternate (even discount) retail outlets—instead of the luxury stores—out of desperation to move product? Or will alternate manufacturers come-up with even more and better "knock-offs” that can satisfy the consumer… at prices lower than the real thing? Or, is the much-heralded “experience” of shopping at a luxury retail store sufficient to justify the higher price?

Thankfully, it is not my job to have all the answers… just good questions.

[See also:
“Selling upscale when so many people have scaled back,” 10/13/09, and “Saving on one thing to subsidize another,” 11/5/09.]

Mike Anderson

Thursday, November 19, 2009

UPDATE: Caught with their hands in the cookie jar?

On Tuesday, I shared a piece here about companies that are making adjustments now, in anticipation of new rules or legislation that could limit such actions later (see, "Grabbing cookies while the lid is off the jar," 11/17/09). As one example, I focused on pharmaceutical companies that were raising prices on prescription drugs... ahead of anticipated health care reform.

This morning, the New York Times ran a story indicating that a group of lawmakers have noticed what's going on (due to widespread media reports), and are launching an inquiry. (See the story here.)

Mike Anderson

A new lease on life... for leasing?

Back in 2008, most car companies greatly reduced or eliminated leasing as an alternative; a response to free-falling consumer demand.

It’s ba-aack.

Different forces have conspired to make leasing more attractive for the industry. First, fewer people are trading old cars in for a new car purchase… and the recent “clunkers” program might also have contributed to a reduction in used vehicle inventory. So… when a leased car is turned back in at the end of the term, a more profitable price can be set on the vehicle as a “used car.” That’s according to a weekend story from Bloomberg, which you can review by clicking here.
But one might further speculate that consumers are likely to be focused on “payment size” than “price of car.”

Implications: Do you think this renaissance of leasing will begin and end at the automotive showroom?

I’m wondering about other big-ticket purchases, like furniture, appliances, computers, boats, RVs, and the like. In a world where credit is tight, terms are less favorable, and traditional debt is out of fashion… could leasing enjoy a resurgence of popularity in other business categories?

How about other non-traditional ownership methods? Rent-to-own plans, for example, or even “fractional ownership,” where several families might pool their funds to buy a vacation home, or several guys going through a mid-life crisis work together to buy a sports car. (Don’t laugh. It’s happening.)

People who don’t want to own a car are buying the use of one, including electric cars… and even buying fractional ownership in jets. In fact, the next time your dog wets the rug, show him this story.

For lots of people, and for a long time, credit has been the American way to buy anything “just out of reach.” In the future, I bet folks will find all kinds of creative ways to afford what they can’t.

Mike Anderson

In yet another venue, cash is obsolete

Just a few years ago, the idea that a business would not accept cash for a major purchase seemed unthinkable. But my monthly newsletter from Delta Airlines (also announced at their web site), I was advised that for on-board snack boxes or adult beverages, only plastic would be accepted as of December 1, 2009. (Not true of Delta Connection routes, by the way.)

Implications: Just because a lot of people are shunning debt in favor of a pay-as-you-go lifestyle, don’t expect credit cards to become extinct. Because of the convenience, the “nice to have in an emergency” factor, and because of our increasing propensity to buy online, they remain a financial utility we can’t live without. (And Delta knows it.)

Mike Anderson

Tuesday, November 17, 2009

Another take on "post-recession consumer characteristics"

A lot of people have opinions—and survey results to support those opinions—about how the consumers we serve now are wildly different than the consumers we served before the recession.

This week, I was sent another such report by Lucy Rice at Comcast Spotlight in Portland. The study groups consumers into four basic types. I’ll offer those categories here, (along with my paraphrased understanding of who those people are).

Steadfast Frugalists (composed of people who demonstrate extraordinary self-discipline and spending restraint; might have considered themselves to be tightwads even before the recession).

Involuntary Penny-Pinchers (this group contains people whose new thrift habits have been imposed by circumstance, not necessarily because they are thrifty by nature).

Pragmatic Spenders (people who are cautious, but who know a good deal when they see it, and are most likely to return to their pre-recession spending patterns).

Apathetic Materialists (folks who were least impacted by the recession, and are therefore the least changed with regard to spending habits and future intentions).

But don’t settle for my interpretation of the terms. Take a look at the free version of the report (the full version is available for a fee): Just click here to nab the report from Decitica.com.

Implications: This is another fascinating report which provides us with yet another group of terms to describe how consumers have been impacted by the recession. What I like about these kinds of reports is that they expand our perspective—especially when informed by research—which continues the dialogue of how consumer trends will be influenced, long-term, by the Great Recession. (I have long held that the recession will be over long before the effects of it.)

At the same time, many of these studies measure consumer sentiment. And since most consumers are also humans, that sentiment can change quickly. (I applaud this particular report for noting pre-recession behaviors, in addition to measures of sentiment.)

As I’ve written in this space previously, the effects of the recession could last a while. Some people could feel the pain for a long while. Others will recover in a shorter while.

But history suggests that neither recessions nor human behavior are permanent.

Mike Anderson

Grabbing cookies while the lid is off the jar

Recently, I’ve noticed that two seemingly unrelated stories… that are very much alike.

First, much coverage has been given to the way some drug makers seem to be hiking prices now, fearing they won’t be able to later, if current healthcare reform efforts indeed become law. (See a version of the story that appeared in Raleigh’s News & Observer online.)

Second, a number of banks are hurrying to adjust the terms and rates for credit cards, as a seemingly pre-emptive move before new rules are put into place for the industry. (See a version of the story that appeared in the New York Times.)

Implications: When a company rushes to alter prices and terms—which might be prohibited or more difficult later—is essentially a way of circumventing anticipated regulation. It will be interesting to see whether and how consumers react. Will they see these price hikes as evidence that government should never get involved with the private sector? Or will they perceive these moves as evidence that the pricing strategies of these industries have been abusive, and their recent behaviors justify the anticipated new regulations?

What if you’re a pharmaceutical or credit card company that has not raised prices or changed terms? Will your organization continue to be clumped-in with the rest of the “bad guy” industry? Or is this an opportunity for your company to ride in with a white hat… ready to rescue the consumer?

What if you’re a pharmacy retailer—a drug store—who must break the news about price hikes to the consumer, over which you had no control? How will you explain the changes to customers, in a way that keeps you from bearing the brunt of their frustration?

Often, when circumstances that might change the status quo can be anticipated by the players involved, those players move to protect their status, before anyone changes their quo. Moves like this can spark some interesting consumer responses… so stay tuned.

Mike Anderson

Friday, November 13, 2009

Down-sizing the dream home

In this morning’s Wall Street Journal, an article indicates that the average size of new homes is falling, in response to an economic frame-of-mind that has people (and builders) re-thinking what they can live without.

Implications: There are some super-sized implications for smaller living spaces. Some of the potential impact: Smaller rooms, smaller furniture, and the expectation that furnishings and appliances will be expected to do more than one thing or satisfy more than one need to earn a place in the space.

Mike Anderson

From dangerous spectacle to manageable rush

A story in the New York Times this week illustrates an interesting paradox for retailers hoping to attract throngs of people on the biggest shopping day of the year: How do they keep the crowd from hurting itself and their employees on "black Friday?"

We approach the first anniversary of a tragic stampede, in which shoppers at a major discount store trampled an employee in their rush to grab limited quantities of sale items.

Implications: Competition for retail sales is very high right now. But as a backdrop to all of their strategic planning about "lost leaders" and door-buster savings... wise companies are also asking, "What if we get the crowds we hope for? Are we prepared to handle all those people in such a short time?"

Aggravating the risk of “extreme shopping” is that in an economy like this, stores will be even more compelled to sell, and shoppers will be even more compelled to save. So both vendors and buyers could be seen as “motivated” to offer/pursue door buster deals this year. Also, retailers have been learning to manage the recession for more than a year now,* so inventories have been kept low, and popular items could be in short supply. Rarity can contribute to the “rush” mentality.

Mitigating the problem: Economics have driven consumers to spread their holiday expenses over a longer period of time… easing the pain of working through those gift lists. By “black Friday,” at least some consumers will be far along with their holiday shopping… less driven by the urge to grab hours-only bargains. Their desire to start the holiday shopping season early has been answered by many retailers, who have been discounting heavily prior to Thanksgiving. Another element that could have a calming effect on shoppers on "big Friday morning:" The likelihood of press reports that will remind shoppers of last year's tragedy.

Catastrophe is not the only risk of getting massive response to an offer. If the marketer cannot fulfill on the offer in the manner consumers were led to expect, it doesn't take long for the "big event" to go from high drama... to customer service trauma.

Mike Anderson

Wednesday, November 11, 2009

The good news/bad news dilemma that could affect your recovery

Not long ago, a story in the New York Times announced that union members had voted-down Ford Motor Company’s request for help in achieving further cost savings. Essentially, the union membership said, “Sorry, but we’ve given enough.”

As a backdrop for this development, recent marketing messages for the company have celebrated increasing quality and customer satisfaction scores, increasing sales, and increasing profits. It all sounds like a lot of great news… in an industry that’s been going through a very tough time.

Implications: I write this blog entry not to single-out Ford… but to recognize it as perhaps an indicator of things we might expect, as (hopefully) the recovery continues to build momentum. On some scale, many companies will eventually go through the conundrum that Ford is now facing.

Lots of companies asked their labor pool to “share the pain” as they navigated the deep recession of 2008-2009. That pain was distributed in the form of pay cuts, furloughs, reductions in staff (resulting in a higher workload for remaining employees at the same or often lower pay), and the trimming or elimination of employment benefits.

As the turn-around grows, companies might find their labor relations tested… if renewed prosperity for the corporation fails to trickle-down to the employment population.

One should note that in The Times story, Ford warns that failure to accept additional cuts could result in more outsourcing, and further reductions in domestic factory employment. These possibilities notwithstanding, union members have drawn a line in the sand. Perhaps that conflict can be attributed to a company whose workers have heard woeful news internally, compared with messages of prosperity and hope in external marketing… and are now having difficulty reconciling the two.

Because the employees of a company ultimately determine the quality of goods produced, or the quality of the service customers receive... this could be an imminently relevant consumer trend. Happy customers are seldom produced by unhappy companies.

Mike Anderson

Monday, November 9, 2009

The purpose-driven purchase

Remember “keeping up with the Jones',” or the idea of buying something as a “status symbol?”

How ironic that seems now, in an age of Conspicuous Responsibility, where so many consumers have realized that money is indeed an object. Now, the idea of an impulse purchase (at least, of any meaningful size) seems a distant memory.

I’m going to offer a link to a story that I’ve shared before, having to do with the back-to-basics, brown-bag lunch attitude being demonstrated by so many consumers; it came in a Research Brief from Media Post. Among other illustrations of thrift, the story cited research showing more people are trading in bottled water for the very similar product that comes out of their faucet.

Implications: There’s a reason I’m coming back to this issue, beyond the attention I gave it in last week’s posting (“Saving money on one thing to subsidize another”). And that is to offer a reminder that price is never the only issue--and that it is seldom the most important issue--affecting the purchase decisions consumers make.

If I sold bottled water, the period from the 1980’s to 2007 treated me pretty well. People thought of bottled water as pure, healthy, delicious… and maybe even sporty. But among all of the reasons people bought bottled water, this was one of the biggest: Why not?

Allow me to over-simplify. During periods of relative wealth, people didn’t need a really good reason to buy stuff. In fact, they really only needed an absence of reasons to not buy stuff.
These days, we need sound, justifiable reasons to make a purchase.

If I sold bottled water today, I’d be analyzing whether my marketing was more style (hip, sexy, cool) than substance (benefits associated with the product, such as purity, flavor, etc.)

One of the big reasons for bottled water is convenience, and I’d be talking about that. Walking, running, hiking, driving… let me count the ways where carrying a “glass” of tap water is inconvenient. If my water was packaged in a recyclable, environmentally-friendly bottle (aren’t they all?), I’d be talking about that. If my bottle of water provided essential vitamins, I’d be talking about that. And since thrift is one of the big reasons, currently, to NOT buy bottled water… I would give thrift a new context. “When you break for your brown bag lunch at the office, why buy your soda or bottled water out of a machine (which usually comes at a higher unit cost)? Instead, buy [name] bottled water by the case, where ever you buy groceries… so you can have a convenient supply at a reasonable price.”

Whatever you sell—from bottled water to backrubs, from automobiles to education, from furniture to sportswear—realize that the economy has provided consumers with a very big “why not” to buy your offering. Fewer people are in a position to buy for no reason. It’s time to get re-acquainted with the real benefits that are satisfied by the product or service you sell.
Mike Anderson

Friday, November 6, 2009

UPDATE: Don't be surprised by economic mood swings

This morning’s news is filled with evidence to support a notion we’ve offered here on several occasions: Just as the recession hit some people (and companies) harder than others, economic recovery will move farther and faster for some people (and companies) than others. (See “Saving money on one thing to subsidize another,” or “The (effect of) the recession is (not) over.”)

Last night, there were several reports of improved retail sales for the month of October, primarily at discount, club, and mass-merchandise stores… but also for some more upscale retailers. (Click here to see the story that ran in the Wall Street Journal last night; to see a graphic about monthly year-to-date sales comparisons, click on this link to the New York Times.)

This morning, though, news that unemployment had hit 10.2% in the U.S. dampened that positivity, though. By 8:15 a.m., the Minneapolis Star Tribune had published an Associated Press story about a resulting drop in worldwide stock prices.

Implications: First, with regard to retail sales, October sales results indicate that the middle might be a tough place to live, for a while. Sales were up first and continue to perform at discount retail… and now, there are finally signs of improvement at many upscale stores, too. (If you live in the middle, with a less defined position, it seems like the verdict is still out.)
Secondly, this collection of news reports reinforces that an economic recovery will likely include numerous ups-and-downs (as we have offered here
as early as last June and as recently as last month.)

That said, I’m surprised at the stock market reaction to the unemployment news today; the double-digit number had been predicted for months. People knew it was coming. Hopefully, an “Oh yes, we’ve talked about that already” attitude will prevail soon… allowing investors to calm and markets to rebound quickly.

For those who are unemployed, or whose incomes are otherwise impacted, times are still tough. For those families who have been doing fine all along, it seems like they’re finally starting to feel like they can return to shopping, to some extent, and not feel bad about it.

Mike Anderson

The walking unwell

A rough economy can make some companies cut benefits… like the amount of paid sick leave their employees receive. A rough economy can also make people nervous about taking advantage of the paid sick leave they have earned; either because they don’t want to been seen as a slacker in an extremely competitive job market… or because they know times are tough and their company needs them.

I was inspired to think about this issue after reading a recent story in the New York Times which raised serious questions about the consequences (and complications) of people who work while sick… during the H1N1 pandemic (aka “swine flu”).

Implications: Employees who strive to courageously “play through the pain” for the good of themselves or their company could actually be doing far more harm than good. First of all, the H1N1 virus is to be taken seriously for your personal welfare. And you’re not doing the boss or the company any good by helping the virus spread farther and more quickly through the company workforce. So what are the alternatives?

I can’t believe that I haven’t seen this topic addressed, somehow, by companies who sell personal and home office equipment such as computers, networks, smart phones, etc. H1N1 presents a great argument in favor of telecommuting.

It has seemed particularly difficult, this year, to find out where and when vaccines are available (for both the seasonal and H1N1 inoculations). With so many pipelines of communication open these days (traditional media, the web, social networking), I cannot imagine why that information is so hard to come by… except that the vaccines are simply not available in enough locations. But one solution might be having the HR team at your company do some research about where employees can become protected against these illnesses, and post that information conspicuously throughout the workplace. (This isn’t too tough. Just visit Flu.gov.)

Another might be to partner with a local healthcare organization to bring the vaccines right to your workplace.

In an upcoming staff meeting, tell the workforce you take their well-being seriously… and you hope other workers will help pick up the slack, as you encourage sick employees to stay home.

Mike Anderson

Thursday, November 5, 2009

Saving money on one thing... to subsidize another

Sure, “frugality is in fashion.” But is it the only thing people are wearing this year? The aggregate of media reports might even lead one to believe that thrift has become absolute.

I don’t think so.

Among my morning mail today, there was a Research Brief from Media Post, noting that consumers have been brown-bagging for lunch at work, and trading in bottled water for tap water with remarkable frequency. The newsletter from Phil Lempert (see The Supermarket Guru site) indicated that if-and-when people entertain this holiday season, they’re more likely to have a pot-luck party, and more likely to use generic or store-branded ingredients when they bake or cook. So people are cutting back at every turn, right?

Not so fast.

The same Lempert report indicates that more than two-thirds of people said they will contribute to a party they attend, just to help out the host.

And this week, a New York Times story cited evidence that retail sales began to rebound in October.

Implications: At first, this set of observations seems to be at odds with each other. But upon further review, I think it is greater evidence that people are more likely to be judicious, deliberate, and calculating when they spend. One might say they are cutting-back in lower priority (commodity) purchases, to subsidize the spending that is seen as more important or of higher priority.

Have you noticed how, recently, when someone tells you of an item they bought, they feel obliged to tell you why it was such a good deal? (Translation: “I’m an astute shopper or negotiator, who knows how to find a great deal.”) Or, when that same friend tells you of an “indulgence” they recently purchased, they’ll justify it by also telling you how they’ve saved in another area of their life, so as to afford the car, trip, TV or other indulgence? (Translation: “I’ve earned this item through self-denial and sacrifice in other areas in my life.”)

Whatever business you’re in, it might be smart to ask, “Is my product or service as the affordable alternative that helps her subsidize a more important purchase, elsewhere in her life?” Or, “Is my product or service the one she is prepared to save for, wait for, or stretch to afford?”

There is no shame in either position. In fact, regardless of the state of the economy, there are companies that will profit in either role.

Before I close this posting, I’ll also ask you to consider how people are talking about their spending, more than ever, amongst themselves. Whether bragging about a long-awaited indulgence, or sharing tips about where they found the latest, greatest deal on something… there’s a lot of person-to-person marketing going on right now. Are you doing anything to harness that marketing power (i.e., electronic coupons that are easy to forward to a friend, two-part coupons--one to use, another to share--that reward one customer for bringing you another, taking a digital picture of the customer with their new product that they can then post of Facebook, etc.)?

Mike Anderson

UPDATE: Giving credit... a little differently

Last Wednesday, I wrote about “Giving credit where credit is… making people nervous.” The article suggested that while financing remains an important resource for consumers—and an important profit center for many businesses—the way credit is offered should be placed under review. (Some folks are just plain tired of having credit cards thrust upon them through offers that seem too pushy.)

Over the weekend, Marketing Daily published a story citing research from Mintel… indicating that direct mailings from credit card companies were down more than 70% in the third quarter, compared to last year.

I just found that interesting, and wanted to share it.

Mike Anderson