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A “new frugality,” born of The Great Recession and evidenced by two consecutive years of declining per capita consumption, is now becoming entrenched consumer behavior that is reshaping consumption patterns in ways that will persist even as the economy rebounds, according to a new survey of 2,000 U.S. consumers from Booz & Co.
This new consumer spending report, the second issued by Booz since the early days of the recession in October 2008, confirms a picture of pervasive retrenchment in consumer spending that spans a broad range of consumer product categories.
And that picture is not likely to get better any time soon, based on the latest consumer confidence report by The Conference Board. The New York-based group said its Consumer Confidence Index fell “sharply” in February to 46.0, from 56.5 in January. The index is at “historically low levels and is the lowest since April 2009,” according to the researcher.
Even worse, consumer expectations for the future also nose-dived in February as the measure of consumer outlook for the next few months fell to 63.8, from an upwardly revised 77.3 in January. Only 16.7 percent of consumers expect to see an improvement in business conditions over the next six months, down from 20.9 percent the previous month. And 15.3 percent said they expect business conditions to get worse.
The Booz & Co. survey suggests that frugal behaviors are “sticky,” and unlikely to quickly change as the economy shows signs of improvement. For example, in the next 12 months, just 9 percent of consumers intend to spend at pre-recession levels on household products, 10 percent on mobile phone service, 11 percent on health and beauty products, and 18 percent on apparel, clothing and shoes. Moreover, nearly two-thirds (64 percent) of consumers say they’ll shop at a different store with lower prices even if it’s less convenient for them.
“Frugal behavior is now considered trendy by many shoppers, and will continue for years to come,” said Matt Egol, a Booz & Co. partner. “In this changed environment, marketers need to develop deeper insights into shopper attitudes and behaviors in order to better align their product, pricing and marketing communications strategies.”
Some examples of changed consumer attitudes cited in the study include:
—Approximately two-thirds of the respondents (65 percent) say they now consider saving to be more important than spending, and that they frequently use coupons
—More than half (55 percent) say they would rather get the best price than the best brand
—More than half of consumers surveyed reduced discretionary spending on a range of categories, including dining out (58 percent), consumer electronics (53 percent), apparel (53 percent), and media and entertainment (51 percent)
To be fair, some of these behaviors might benefit convenience stores as, for example, less dining out at restaurants could drive more customers to c-stores for quick-meal solutions. However, it’s also clear that a store must have a “value” message to attract these newly frugal consumers.
Nevertheless, this “New Normal,” as it’s called by many retail industry experts, promises to restrain spending on many key convenience store product categories, according to the latest Convenience Store News Industry Forecast Study. According to the CSNews study, which was released last month, per-store unit volume will decline in confectionery, packaged beverages and cigarettes this year, and fuel gallons pumped will also decrease. And CSNews’ research partner, The Nielsen Company, notes: “Conditions are tough but moderating, and the free fall in GDP and consumer spending appears to be over. Consumers are accepting their fate, but we have seen a fundamental shift in consumer spending, and restraint is clearly the new mantra.”
The Booz & Allen study describes how these new attitudes are translating into strong behavioral change going forward:
—Nearly two-thirds (64 percent) of consumers say they’ll shop at a different store with lower prices even if it’s less convenient for them
—Only one-third (32 percent) of respondents believe that their household financial status over the next 12 months will change for the better, reinforcing focus on frugal shopping behaviors such as deferring spending, trading down to lower price points, or buying their favorite brands during promotions
Several other consumer behaviors characterize the “new frugality,” according to the report. Shopping itself is less impulsive and more disciplined. Recession-habituated shoppers are more inclined than ever to do research before going to the store. This was especially true, the survey revealed, in three categories: health and beauty (83 percent), household products (82 percent), and food and beverage (79 percent).
Another study conducted this past fall by Booz & Co. in collaboration with the Washington-based Grocery Manufacturers Association (GMA), “Shopper Marketing 3.0,” found a comparable proportion of shoppers conducting research before they shop, with a focus on finding the best prices, clipping coupons, and reading circulars for what’s on sale. The “Shopper Marketing 3.0” study also found that many shoppers use price breaks to justify buying the brands they love.
The shift to private label products has accelerated and shows no signs of slowing down. In fact, Booz & Co.’s analysis shows that private labels are likely to continue to take share from brand names. Said Egol: “Retailers are unlikely to give brands back the shelf space that private label has taken, given their dependence on private label for profits. In addition, consumers are reporting generally positive experiences when trying private labels, so for some consumers, they are becoming preferred brands.”
However, the move to lower price points overall, while pervasive, isn’t universal. Generally, shoppers are opting for lower-priced brands in apparel, household products and food. But they’re less inclined to “trade down” when purchasing alcoholic beverages, tobacco, and health and beauty products.
Not surprisingly, big-ticket items will continue to see the biggest household spending cuts: in the past year, consumers continued to defer expenditures for items like consumer electronics (only 22 percent made purchases) or home improvements (23 percent made purchases). These behaviors will continue in 2010; only 13 percent and 17 percent, respectively, said they would revert to pre-recession buying habits in these categories.
Implications for Marketers
The Booz & Co. survey sheds light on the challenges faced by consumer marketers and retailers emerging from the recession. Specifically, faced with the same basic economic trends, consumers are behaving differently with respect to their attitudes toward value and loyalty. Booz & Co. identified six distinct new consumer segments that can help interpret how customers shop in terms of brand loyalty, retail format loyalty and online behaviors. These segments range from “Shopper 2.0” — young consumers who tend to buy online, regardless of product category, and who are price sensitive with few brand or store format loyalties — to “Loyalists,” largely male, who are loyal to both brands and the stores where they shop, but are also avid users of the Internet for research and buying.
For retailers and consumer products manufacturers, Booz & Co. identifies specific areas to spur growth and profitability coming out of the downturn:
—Building marketing strategies and tactics that address where and why consumers shop, rather than relying too heavily on demographics-based approaches used for advertising buying
—Determining differences in consumer behavior across product categories, offline vs. online shopping occasions, and specific retailers/e-tailers
—Differentiating marketing messages and promotional offers to more price-conscious consumers vs. those who place greater value on brand or convenience
—Engaging shoppers along the full path to purchase, rather than treating online and in-store interactions as silos
The survey polled 2,000 U.S. consumers, with a sample that’s representative across demographics, geographies, product categories and retail formats. The polling was conducted online during October 2009. The results of this sample were integrated with Booz & Co.’s perspectives on key trends currently shaping consumer behaviors, based on recent client experiences across the marketing and media ecosystem, and across a broad set of consumer spending categories.
The full report, “New Marketing Imperatives,” is available for download at www.booz.com.