More evidence that we've entered an age of "inconspicuous consumption"

Today’s USA Today featured a story about the shrinking size—and reduced glitz—of the RV’s that are growing in popularity in today’s economy.  Click here to see the story.

Implications:    It is interesting to note that there are still people out there who are ready to indulge in a big-ticket purchase like a new RV.  But they’re doing it in a way that’s a little less showy, and easier to rationalize as a common-sense purchase.

Over the past few years, I’ve even heard that some celebrities are shopping on Rodeo Drive, but requesting a plain, logo-free bag to carry their purchases in… so as to avoid showing-off that they spent money in an expensive store.  Do you sell an indulgent product or service… that people would like to indulge in (but keep quietly to themselves)?

Mike Anderson, for the Elm Street Economics consumer trends blog. A service of The Center for Sales Strategy, Inc.

Who are your new competitors?

This article is about groceries… but the implications behind it are likely to impact almost every category of business.

Building on the post from last Friday (see immediately below), I saw a Lempert Report newsletter last week that discussed the emerging channels that are competing for food dollars: Including drug stores and dollar stores. Click here to see the story.

Implications: If you run a supermarket, you have competition beyond the similar grocery store down the road. The lines that define a category are becoming blurred… as drug stores get into the grocery business, grocery stores get into the pharmacy business.

The bank on the corner doesn’t just compete with the bank down the street. They are seeing loans and deposits go to the credit union, car loans go to the car dealer, IRAs sold by the insurance company, 401k’s offered by the employer, and home improvement loans taken by the big home improvement retailer.

What business are you in? And who do you compete with… besides your competitors? Have you thought about ways to preserve share, among a diverse set of new competitors? What is driving this proliferation of options the consumer finds available? And how does your marketing message need to change to fit-in to this new landscape?

Mike Anderson

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

Me-conomics, continued: Faux Frugality

We’ve all heard that it is more fashionable to be frugal. Well, some people are trying to blend in, even though they’re really not doing too bad, according to this story from Marketing Daily.

Implications: Me-conomics is the idea that some people have basically sat-out the recession. (While the wider economy has been gyrating the past two years, perhaps they live in households where incomes held relatively steady. So these folks might even be in a better position that they were a year or two ago, due to a cost of living that has even fallen in some categories, such as the cost of gas and apparel.)

Even if the widely reported recovery is indeed underway, it is important to empathize with those of your customers who need to be very thrifty. And those who do not… but who might like to appear as if they are.

Mike Anderson

Selling upscale when so many have scaled back

Here’s the story in a sentence: Be considerate in your marketing… because your consumer is being more considerate than ever, too, in the way they question how your product or service will add value to her/his life.

Like most marketers, purveyors of luxury are finding this a challenging time. The examples seem to be everywhere. Recently, Condé’ Nast announced the closure of Gourmet and Elegant Bride magazines, among other publications (see this recent story from the NY Times). In an already difficult magazine environment, perhaps few people were eager to window-shop for dining experiences they could no longer afford.

Neiman Marcus recently announced store closures and shorter hours (see this Marketing Daily report), and last month, the Luxury Institute released a survey indicating that the abundance of luxury goods on the market had turned them into a “commodity” (from another Marketing Daily story).

Maybe “lifestyles of the rich and famous” are no longer the aspiration they once were. Luxury, it seems, is not only further from reach for many consumers; it might also be less hip. Or maybe, people just won't buy luxury for the sake of luxury. (Maybe upscale buyers expect upscale value.)

CSS colleague Todd Storch sent me a heads-up on a recent special edition of the Wall Street Journal, titled, “Selling Luxury Goods in the Age of Abstinence.” Lucky for you, I found an online video summary of the story, available here (pre-roll commercial required):


To see the video site of origin, paste this URL into your browser: http://online.wsj.com/video/selling-luxury-goods-in-the-age-of-abstinence/7B6CC7EE-81FB-4842-98FA-CD2987712351.html

Implications: I, for one, do not believe the luxury sky is falling. I think expectations are changing. For the person who buys a fine bottle of Insignia wine—just like the person who buys store-brand canned vegetables—people are more closely scrutinizing the benefit they receive for each dollar spent. The dollar amounts might be different, but the Cadillac buyer will be judicious, prudent, deliberate, considerate… just like the buyer of a Chevy Cobalt.

Instead of simply saying, “This is the luxury you deserve,” purveyors of upscale goods are smart to get specific about how their product or service adds value to a buyer’s life.

Mike Anderson

Some problems are not caused by the recession. They are simply revealed by it.

Before we get started, I want you to know this is not intended to be a rant. It is merely a public discourse, inviting you to consider the influence customer service on marketing ROI.

After waiting patiently for her turn, a customer approaches the counter to place her order. Without taking his eyes off the cash register (and using the visor that came with his uniform to further guard against the risk of making eye contact), the employee issues the predictable quip of the fast food restaurant: “WhatcanIgetforyoutodaywouldyouliketotrythenew[whatever]combo?”

Mumbling and monotone, the clerk's words are drowned-out by his demeanor. His disposition implies--or at least it allows anyone within earshot to infer--that he is bored out of his mind, hates his job, and resents his customers.

In the interest of fair play, I’m not just picking on fast food restaurants. Similar scenarios play out every day at discount stores, big box stores, department and specialty stores. Instead of being greeted with the very basic “Hello,” or the mind-blowing, jaw-dropping, “I’m glad you came in today,” our visit is often welcomed with the over-repeated and under-rehearsed, “Would you like to save blah-Percent by opening a store charge card today.” (Same monotone delivery, different words.)

“Oh, yes!” I think to myself, sarcastically, “There’s nothing I’d rather do than be in debt to a company whose employees hold it, and its’ customers, in contempt!”

After ringing-up my order and handing me the receipt—again, without a single incident of eye contact—the cashier shoves the articles of clothing I’ve just purchased down to the end of the counter, out of her way, so she can move on to the next guest. The cycle repeats: “Would you like to save blah-Percent…”

The instant my receipt and change were slung to the counter, I was demoted. In the eyes of this cashier, I went immediately from the status of customer—which deserves at least a momentary if pretentious nod of appreciation—to nothing more than an obstacle... one that should get out of the way so the next guest’s merchandise can be shoved down the lane.

After witnessing or experiencing each of these too-frequent, robotic episodes, I catch myself wondering how much money that company has spent marketing to consumers just like me… promising they’ll treat me like a star, that I deserve a break today, that I can have it my way, that buying from them is like working with a good neighbor, that I should expect more, that I can live better! I think of the millions they have spent promoting service with a smile, satisfaction guaranteed (or at least, implied), and that working with this company is unlike working with any other!

I contemplate the brand equity that should exist after companies like these have made investments like that. And then, in my sick little mind, I hear a deep “gush,” followed by the sucking sound money must make when it has been flushed into a toilet.

A weird economy opens everything up for evaluation; why not re-assess the dynamics of marketing? Marketing is not advertising. While advertising may be an important part of marketing, marketing refers to the overall relationship a company has with its consumers. The way the customer is greeted, treated and appreciated. The way their loyalty and patronage are rewarded, and the way their transaction is conducted. Marketing is the research, product line, customer service, advertising, staff training, web site, store front… the entire relationship a company has with its consumer.

So when it doesn’t work, are we too quick to assume that consumers failed to respond to the campaign? Could it be that the marketer failed to respond to the consumer?

My wife and I relocated about a month ago. And as physics would have it, when we moved into our new home, we got a new neighborhood for free. Since we no longer live near our old providers, we’ve been on the hunt for a new bank, supermarket, dry cleaner, pharmacy, gas stations… you get the idea. Lots of companies are getting the chance to make a first impression on us right now.

We had errands to run yesterday. First we stopped for lunch, getting not just blah, but bad customer service. Then, we stopped at a hardware store, where an old-timer who seemed to authentically enjoy people took the time to find me a half-inch, deep-well socket for my ratchet-wrench… along with a half-dozen lock washers.

In the coming weeks, if I need anything that stands even a remote chance of being sold there, my first stop will be that same hardware store. But if I am hungry, I am likely to consider every available alternative before going back to that same restaurant… no matter how much money that chain might spend on advertising.

If you’re an advertising VP or a CMO, a product designer or a market researcher, and you’d like to diagnose the biggest obstacle standing between you and your consumers… pick up the phone—incognito—and call your own company on the customer service line. Or walk into one of your stores like an average Jill or Joe, and see what your company looks like when seen through the eyes of a customer.

Implications: I think that for many companies, the greatest risk is not that a campaign will fail, but that it will succeed… and front line employees will fail to deliver on the promise it made. Everyone in your company should know that the customer is not an obstacle to get around. They are the purpose of your business; the one thing your company cannot afford to cut.

In a robust economy, it might seem easy to take sales and customers for granted. (Before you dispute that, reflect on a few of your own personal experiences as a consumer.) A recession, on the other hand, can be a time when complacency catches up with its offender… as both sales become more rare and precious, and as customers become more deliberate and discriminating. As spending contracts, the concept of “value” has a great deal of gravitational pull. That doesn’t just mean a bigger package for a lower price. Beyond the products and services we buy, consumers want the purchase experience to hold more value for the dollar. Consumers want to be appreciated.

I'll repeat the headline that opened this story: Some business problems have not been caused by the recession. They have simply been revealed by it.

Mike Anderson

Think of it as Economic Natural Selection

I was once invited to stop and think about how many different variations of Chevrolet you can buy. Today, with all of the different models, colors, styles and options, there are literally thousands of combinations and permutations; your choices are virtually limitless (and some might say, “Utterly confusing”)!

But enough about cars… let’s talk about frozen pizza. Recently, I counted-off the floor tiles at my local “Everyday Low Price format” grocer... to learn they offered 84 linear feet of frozen pizza, showcased in a row of freezers that are eight feet tall. And while there were some mild price point variations—and a couple of distinctions between thick and thin crust—for the most part, it was dozens of different brands of virtually the same pepperoni, sausage or cheese flavors.

It all begs the question, “When is enough enough?” And the current recessionary economy could well demonstrate that the current “enough” is way too much. I don’t think of myself as a futurist, but this is a matter of cause and effect. A recent story in the New York Times makes a great case for the idea that in the future, car companies will be dramatically smaller… which has the likely effect of offering a smaller menu of vehicle options. Another story—a commentary published in Marketing Daily—suggests that the downturn will (or should) cause retailers to dial-down on the number of SKUs they offer, offering choices people really want, and sacrificing those products which are merely offered for the sake of creating an image for variety/selection.

And it’s not just products that could vanish from store shelves. The shelves, themselves, are likely to disappear in large numbers, according to a recent story from CNN/Money.

Implications: If you’re a packaged goods manufacturer, anticipate volatile (if not simply higher) prices for the real estate where your product is sold (the facings you receive at retail). Merchants are disenchanted with the idea of carrying products whose only distinction is a nuance… and which inspires purchases that could be called few or infrequent. You will need to offer more than a product. You’ll be increasingly expected to have ideas about how to help the retailer sell it.

If you’re a consumer (and you are), prepare for a future that could include with fewer choices, where unusual or unique products are concerned. (Again, I offer a range of options, not a set of predictions.) In fact, you might be heading for a return to the day when shopping required, well… shopping.

If you’re a retailer, you know that catering to the nuances of different consumers can be very expensive. It means you have to stock a lot of inventory… much of it interesting to only a few rare customers. As the recession makes reducing SKUs attractive, prepare to offer your customers alternatives to products they counted on you to offer. And consider what front-end (customer) services need enhancement… as a means of offering a fulfilling shopping experience amid sometimes diminished consumer choice.

Finally—and I think this goes for all of us—anticipate a roller-coaster of price fluctuations. On one hand, when supply (inventory) goes down, prices generally go up. But in a competitive environment—where so many producers and retailers are fighting for their very survival—it could be that prices get caught in the crossfire, and are forced to stay low.

We live in an economic ecosystem where not all products and purveyors will survive. It is ironic that choice is likely to be among the most obvious casualties… where economic “natural selection” is the driving force.

Mike Anderson

In with the old

Elsewhere in this blog, I've discussed the increasing propensity to repair instead of replace belongings, when doing so is an economical option. And here’s more evidence that “new” is getting old for many consumers: A story in last Sunday’s Minneapolis Star Tribune spoke of the success many used car dealerships are having right now. It is worth a read if you manufacture or sell any kind of durable goods.

Implications: If you sell durable goods, your biggest competitor may be the product you sold last year. “We can get by with the one we have now” might just be the most important thoughts and words—objections—you can teach your sales force to deal with in the near term.

Further, for as long as “pre-owned” or “now owned” demonstrates such gravitational pull, the front-end purchase experience and follow-up service and support you offer will be crucial. If the consumer sees little experiential distinction or value advantage between buying old on Craig’s List or buying new from you… cheap will carry the day.

Mike Anderson

Disposing of the disposable attitude

Remember taking your VCR to a service shop so it could be repaired after your kid shoved a Matchbox car into it? I do. (Okay, now I've dated myself, haven't I.) But until recently, except for their cars, most consumers probably can’t remember the last time they called a repair man or woman. Washing machine starting to rattle? Shop for a new one! Elements burnt-out on the toaster? Stop at Target!

That was all well and good in a world of Overwhelming Abundance. But when times are tough, expect “service and repair” to enjoy a renaissance, as consumers look for lean alternatives to spending more than necessary.

A recent story from MediaPost explained how Best Buy’s “Geek Squad” is taking advantage of this gravitation toward “repair versus replace”: A website calculator intended to help the customer decide which of the two would be most cost-effective. Simple. And brilliant.

Implications: Is yours a product that can be repaired? Do you offer factory- or factory-authorized services? Do you make consumers aware of these appreciated-more-than-ever options?

Designed obsolescence, once almost assumed, may be considered and avoided in the current economic climate. Ironically, cost-motivated consumers might not shop for the cheapest alternative… but rather, the alternative that is cheapest to own (due to durability and ease of repair).

Remember the term, “modular components?” They might be something to brag about again.

Mike Anderson

Me - conomics

If a tree falls in the woods, but nobody’s there to hear it, does it still make a noise?

Likewise, if a recession is going on all around you, but you still feel secure in your job, earning a comfortable household income, and you’ve kept your car payment, mortgage and credit card debt at manageable levels: Are you still having a recession?

Within every trend, there are counter trends. And just as there are folks out there who are feeling the economic pinch right now, there are folks who are doing just fine, thank you. In fact, they might be somewhat better than fine, because of the “sale” signs on the door of almost every retailer, car dealer or housing development. If you’ve got a little extra cash and less debt than most, it’s a great time to be you!

We try to measure economics in regional terms, national terms, or even global terms. But if you’re in business, the economy can change from one prospect to the next, depending on their needs, level of interest, and whether or not they’ve been conservative about their spending over the past five or ten years.

A recent quip in the Iconoculture newsletter put it this way: “A recession is when your neighbor loses their job. A depression is when you lose yours.” When people think about “the economy,” they consider it from the perspective of their own personal balance sheet. With that in mind, consider the number of people who are not in foreclosure, not unemployed, and not afraid to spend.

Implications: If you sell vehicles, housing, appliances or other big-ticket items, it is particularly important for you to realize that the person you’re selling to today might not be the same target consumer you had five years ago (or last year, or last month). Further, the people who buy from you today might buy for different reasons than they did five years ago (or last year, or last month).

Mike Anderson

Oldies but goodies

Remember Hydrox cookies? Kellogg’s is betting that a lot of people do… and they’re about to put some money on that bet by bringing these dunkers out for an encore.

Reserve Brands is doing the same with Eagle Snacks (once owned by Anheuser-Busch, and named for the eagle in the A-B logo).

You’ll be able to wash it all down with another famous reprise: Schlitz Beer.

In an age when branding has become a very expensive proposition, some companies are eager to revive existing brands that are not so much dead as they are “comatose.” Aging boomers are often the target, as these icons conjure images of happiness and youth.

Implications: Does your company have a brand that could be dusted off for future use? Or, if your competitor has such a famous name waiting in the wings, how would you defend against a revival? Are there attributes within your existing products which have roots in a more heritage name plate… and if so, how could you exploit that bygone fame?

Mike Anderson

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

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