How changing purchase priorities are hitting home (improvement)

Home foreclosures have been a high-profile story in the news over the past 18 months, and rightfully so; it is among the most financially traumatic experiences a family can suffer. But while an inordinate number of people have gone through foreclosure during The Great Recession, even more people find themselves “upside down, but not drowning.” These are people who might owe more on their home than they could sell it for… but who are managing the payments and getting by.

With that in mind, we partnered with America’s Research Group to ask 1,000 consumers some home ownership and home improvement questions during their most recent Consumer Mind Reader™ study. We wanted to understand how the economy might be impacting the categories of real estate or home improvement.

First, we asked these 20 to 59 year-old consumers whether they had postponed selling their home; more than 10% said they had. (According to C. Britt Beemer, the chairman of ARG, this number would historically be as low as 4%.)

Then, we asked whether they had decided to delay some major home improvement. This time, some 15% said yes.

Among those who had delayed a home improvement, we asked, “What kind of home improvement project did you delay?” Their answers, in descending order of volume:
New appliances: 32.2%
Add patio: 16.1%
Replace electrical switches/items: 14.8%
Remodel bathroom: 12.1%
Kitchen cabinets: 10.1%
New Kitchen: 7.4%
Replace windows/doors: 6.7%
Finish basement: 0.7%

We wanted to know what kind of pent-up demand might exist among people who said they had deferred a home improvement. So next, we asked this group, “When the economy turns around, how likely are you to undertake home improvement again?” A promising 53.7% said, “Very likely,” and another 45.6% said, “Somewhat likely.” Only 0.7% said they were unlikely to resume home improvement.

Further, we asked “When the economy recovers, which home improvement project will you seriously consider?” Here are the responses, in order of response volume:
New appliances: 11.7%
Remodel bathroom: 8.3%
New kitchen: 7.4%
Add patio: 7.2%
Replace windows/doors: 6.6%
Kitchen cabinets: 4.8%
Replace electrical switches/items: 3.1%
Finish basement: 1.1%

Finally, we asked respondents what might motivate them to move ahead on a particular project. Here are their reactions:
38.9% replied, “Existing (room/attribute) is dated.”
29.9% said, “Return on investment.”
17.3% responded, “A change in family size.”
12% answered, “The amount of time I (we) spend in that room.”
2% replied, “I don’t know.”

Implications: In many categories, the consumer has been the beneficiary of “deflation” (falling prices). But where home ownership is concerned, consumers are the ones suffering the side-effects of declining values. The recession has obviously caused some to defer their home improvement spending. But many are ready do “jump back in” when the economy turns around.

It looks to me like one motive might be to regain some of the equity their home may have lost during the recent real estate meltdown. (More than 38% of the people who intend to resume home improvement cited the “dated look” of their existing room, and 30% attributed “return on investment.” Only 12% said their home improvement project would be driven by the amount of time they spend in a room.)

The kitchen might be an early benefactor when home improvement resumes. When you add appliances, new cabinets, or kitchen overhaul together, more than 23% of the improvements people intend to resume take place in this “command central” portion of the home.

Special thanks to C. Britt Beemer, the chairman of America’s Research Group, for inviting CSS to contribute questions to be used in the September Consumer Mind Reader™ study. (Many of you will recognize Mr. Beemer as the co-author of best-selling books like Predatory Marketing, It Takes a Prophet to Make a Profit, and most recently, The Customer Rules.) Every other month, America’s Research Group (ARG) surveys one thousand people (age 20 to 59) to gain insights about their shopping behaviors and purchasing intentions. Those findings are subsequently published in Consumer Mind Reader™ studies for the clients of ARG.

Mike Anderson

Bank on shifting financial priorities

To say that purchasing priorities and consumer behavior have changed over the past few years would be a gross understatement. That’s why it is more important than ever to “stay tuned” to the customer… constantly evaluating who your best target customers really are, and the deeper benefits those consumers hope to satisfy through the purchase of a product or service. At CSS, we recognize those two issues (Targeting and Benefits Sought) as prerequisite to a sound marketing strategy.

That’s what led us into a wonderful dialogue with C. Britt Beemer, the chairman of America’s Research Group. (Many of you will recognize Mr. Beemer as the co-author of best-selling books like Predatory Marketing, It Takes a Prophet to Make a Profit, and most recently, The Customer Rules.) Every other month, America’s Research Group (ARG) surveys one thousand people (age 20 to 59) to gain insights about the shopping behaviors and purchasing intentions of consumers. Those findings are subsequently published in Consumer Mind Reader™ studies for the clients of ARG.

Recently, Mr. Beemer invited us to contribute a number of questions to the Mind Reader survey that might inform and enhance our Elm Street Economics advertiser workshop. We were happy to oblige.

We decided that one area of focus should be on banking. From the collapse of Lehman Brothers early in the recession to the Toxic Asset Relief Program (TARP) intended to help bail-out the banking industry, plenty of coverage has been given to financial institutions of all sizes during the recent recession. We wondered what affect all that news might have on everyday consumers (the folks who live down on Elm Street).

We started by asking, “Have you made any changes in the past year, with regard to where you bank or where you place your financial investments?” Almost 24% of respondents said they had made such a change.

Next, we asked, “Where would you be more likely to move your checking account?” While 34% of respondents said, “A National Bank,” an amazing 30% answered, “Credit Union.” Another 32% indicated they would move to either a “local (22%)” or “regional (10%)” bank.

When we asked, “Do you feel most banks are pretty secure, and therefore, a safe place for your money?”... 72.3% of respondents said, “Yes.” That might sound like a significant majority—and it is—but according to Mr. Beemer, historic numbers would be closer to 85%.

Given the dramatic headlines of the past several months, we asked, “Do you expect to see some bank failures in the area where you live?” 69% of consumers said, “No.” But nearly 16% said, “Yes,” and another 15% answered, “I don’t know.”

Finally, we asked participants, “How long do you expect the fallout from the mortgage crisis to affect banks?” Just over 24% said “Six months to a year.” 31% said “two years.” Another 30% said “Three to four years.” And more than 13% said “Five years or longer.”

Implications: Every business (and every industry) suffers from customer churn… but 24% turnover sounds very high to me in a category like financial services. I spoke with a banker I know this afternoon, and he agreed, saying that anything approaching 10% would sound very scary.

Speaking of churn, it would seem that bigger is not necessarily better in today’s financial environment. While 34% of respondents indicated they would move their checking account (a primary financial instrument) to a national bank, more than 60% favored a smaller institution (credit union, local, or regional bank). Is that because the customer is perceived to have a voice in the operation? Could it be the customer wants more one-on-one contact (and fewer automated or “telephone tree interactions”) with their financial institution?

Consumers have seen plenty of news coverage about the woes facing the banking and financial services sector. And it would appear that coverage is having an impact on consumer opinion. But those are just my thoughts about what the research suggests. Did other implications occur to you?

Mike Anderson