The global financial crisis of 2008 and beyond has shaken countries, markets, and individuals, in turn causing increased pessimism, angst and even anger. And yet, for those wishing for things to “return to normal”, a new survey argues that we’re in the “new normal”. What are the lasting impacts of the so called “Great Recession” and how should marketers respond?
Almost every consultant hates the phrase “paradigm shift.” And in effect, because of the recent global financial crisis, it is easy to see how consumer and business sentiments have changed quite radically. At least for now, the days of freewheeling risk taking, unabashed materialism and wanton spending have been replaced with frugality, caution and spending cutbacks.
PIMCO bond king Bill Gross, would agree that “thrift” is a new mainstay. In an Atlantic article, Mr. Gross suggests that as a result of the global financial crisis there’s something different regarding investor outlook:
“Risk taking went over the edge. We are inventing something new. We’re very afraid. We know from the Depression that people who lived through it didn’t change their mentality for the rest of their lives. They were sewing their socks. My sense is that it will take 10-20 years to find that kind of risk taking in people again.”
A recent survey conducted by Money Magazine validates Mr. Gross’ positions. Polling over 1,200 Americans, the survey discovered:
* 54% report they are worse off now than a year ago
* 89% say they’ve changed how they manage money
* The top three new habits are: eating at home more often, looking for discounts and cutting back on luxury purchases
* New attitudes are emerging with 88% surveyed saying they will be more frugal, 81% playing it safer with investments and 74% ignoring advice from Wall Street
* Men seem more pessimistic about the economy than women
* 73% said in the future they will play it safer with money and focus less on materialistic gain
To be sure, the results of the survey–at least for Americans–present a new prototypical consumer who is less trusting, a bit more conscious of his or her finances, and one that is getting “back to basics.”
Whether we are permanently in a new paradigm–or not–these statistics paint a new reality that marketers must take into account. Most companies have accepted this new reality and are baking marketing strategies accordingly. But many company executives anxiously sit on the sideline, hoping that market conditions get “back to normal” so they can raise prices, increase capacity and worry less about operational efficiencies.
In statistics, reversion to the mean indicates there are driving forces towards the average, and that outliers will eventually join the “normal”. Perhaps however these changes in consumer and business sentiments are permanent–and in effect, the mean has moved.
Questions:
* Longer term (in the next four years) will you be better off than today? What’s your outlook–optimistic or pessimistic?
* Target commercials show your home patio deck as the new vacation spot, a “Slip and Slide” as the new water park, and playing with a Wii as the new dance club. What do you think of these commercials? Does Target have their messaging right?
* Do new attitudes of frugality and safety have staying power? Once the recession ends–and it will–is it back to the past, or is this the new reality for consumers and businesses?
Related post: Advice on Altering Your Message, Product, Brand
Related posts:
- Is Inventory Still Evil?
- Guest Post: How One Savvy Nonprofit Is Leveraging Social Media (Even During the Great Recession)
- Q: How Do I License This Great Idea?
- Perishing for Lack of Vision
- Don’t Forget The Turkey!
Tags: consumer sentiment, global financial crisis, mean reversion, new normal, recession marketing, risk management, statistics
Good post, Paul. Just published an article on the Brandchannel site recently about what I believe marketers should do as a result of the global economic meltdown. Consumers are still buying, but much more judiciously. They will for some time to come. Too much wealth has been lost, for one thing. For another, there’s too much uncertainty where jobs are concerned. That all points to “business as usual” being a thing of the past. Getting back to basics is a “must” if companies want to survive.
For my take on what marketers can/should do:
http://www.brandchannel.com/brand_speak.asp?bs_id=215.
“Once the recession ends–and it will–is it back to the past, or is this the new reality for consumers and businesses?” Good question, Paul. Unfortunately, this recession is not going to end for a while yet. The credit card crisis is about to hit next, as more and more consumers have defaulted on their card payments. I believe that with every financial sector crisis comes a reinforcement of the new consumer attitude: stop buying, save money and pay down debt. Positive in the long run but difficult in the short term since over 70% of our GDP is based directly on consumer spending and it continues to contract. When this recession does end, many will have learned some hard lessons that will likely stay with them for a long time.
I’m quite worried about the precedents being set by Congressional and administrative busybodies.
Two overriding qualities involved with attracting business investment are liberty and the consistent application of stable principles. This provides trust in the environment that allows people and businesses to succeed or fail according to their understanding of market principles and mastery of its vicissitudes.
When the rules are unstable, the market is no longer predictable. That makes it harder to understand how the market will react to those rules. When the fruits of successful liberty is punished
– through oppressive taxes and so forth — then it further removes incentives to put money at risk.
In sum:
Volatility=Low investment
Punishment for success=Low investment
Once the rules stabilize, they will at least be more predictable, and the market will adapt to a certain degree, regardless of how heavy the hand is that suppresses it. However, the people who live under it may have difficulty identifying the opportunities lost by such suppression, and they’d be hard-pressed to correct the inefficiencies caused by them.
So it’s too early to say whether I’ll personally be “better off” or “worse off” four years from now. But in a way it’s sort of the wrong question, if all we’re talking about is personal wealth. We have to think of ourselves and our prosperity as active participants in an interconnected social and political climate.
A more useful measure for a nation is whether the environment we live in is conducive to liberty in an efficient, free market, which history and experience tell us that, in spite of its normal fluctuations, is more likely to attract useful and wealth-generating economic activity than the other kinds.
Let the debate begin.
Ted, I read your Brand Channel article and quite enjoyed it. You did mention that, “Past consumer habits and their underlying psychology are now going through a paradigm shift.” This would suggest that there’s no going back and that like what Bill Gross said, these new attitudes are here to stay.
The Money article suggests there’s a permanent change to consumer sentiments. I’d like to believe it. I must confess however, that I’m not convinced that when the global economy improves that consumers won’t get back to business as in the recent past (spending what they don’t have, assuming more risk than they should etc…). Time will tell.
Claire, thanks for commenting on this post. I appreciate it.
You said, “When this recession does end, many will have learned some hard lessons that will likely stay with them for a long time.” Do you believe these lessons are now permanently ingrained in the consumer psyche, much like the folks who went through the Great Depression? The Great Depression drastically changed how people accumulated wealth, how they spent their paychecks and what they valued.
I remember a story from a high school teacher, who as a boy went through the Great Depression. The lunch he took to school everyday, was an uncooked potato. I cannot imagine.
So in that vein I wonder if these changes in consumer sentiment are structurally permanent…
Cam, you are exactly correct in that asking the question, “Will you be better off in four years?” has much broader implications than just finances. There are, as you point out political and societal considerations as well.
Let me try and tackle one of your cogent discussion points. You said, “When the rules are unstable, the market is no longer predictable.” As you know, rules/regulations come and go over the years: There’s Glass-Steagall and then there’s degregulation. There’s SoX as a result of Enron, WorldCom etc, and then maybe in the future there won’t be. Lots of constant change, no matter which government party is in power (Rep/Democrats or Labour/Conservatives etc.)
Will the rules ever stablize? Won’t there always be cycles?
Paul,
No one knows how long this recession will last or whether or not today’s more frugal consumerism will have a lasting affect.
I was born to depression-era parents and have lived through more than a few culture shifts. To date, none of them have caused a permanent change in consumerism. As one who came of age in the ’60s, I want to remind folks that anti-consumerism protests were frequent, loud and well-attended in the ’60s and ’70s. Who were we protesting against? The materialism of depression-era generations, who generally weren’t nearly as frugal as you imply. However, they were much more risk-adverse than recent generations, beginning with Baby Boomers.
The problems we face today have little to do with run-away consumerism. They have to do with debt. Claire is correct that some are predicting a second recessionary wave when credit card debt hits the wall. I’m not so sure.
The current situation has to do with bad lending procedures and smoke and mirrors investment. Because so many Americans now are impacted by Wall Street, as our investments depend on conservative and wise decision-making. Those of us who are in the upper middle classes and higher, as well as more than a few of those in the middle class, have seen our live’s savings devastated. Hence, we have cut back on spending.
Lately, we have regained 12% of our earlier losses. When we regain 30% to 40% of those losses, I believe you might see our investment strategies and our credit allowances change as a group, but you also will see us returning to spending.
As for Marketers and Marketings, the game remains the same. Adjust our strategies as market conditions change. To spend time playing a guess game about what might or might not be a new normal is time we can better use being creative and innovative based on today’s consumer behaviors.
Well articulated points, Lewis. I agree with most of what you’ve said. Just one thing: we boomers have lost a great deal of wealth as a group and we represent the largest consumer spending group. Many have stated they cannot retire as planned but must go on working. If the Federal government raises taxes and most of the states do as well, it will have a huge impact on this economy just as it is trying to recover. I’m not merely referring to income taxes, either. If taxes go up on many goods and services, energy use, etc, there will not be the consumer purchasing power that preceded these recent economic events. Therefore, I do not see spending returning to pre-September 2008 levels for some time to come.
Paul -
You’re right to say that rules are always in flux. The key is to first remember what rules are for (justice and stability), and to make changes to the rules only insofar as they move us closer to principles consistent with the immutable character of the nation.
Typically, I broadly define these principles necessary to informed, ordered liberty as *freedom* and *transparency*, but there are volumes worth of nuance that further explain how these two guidelines can be reconciled.
Lewis, thank you for commenting on this post. You said, “The problems we face today have little to do with run away consumerism. They have to do with debt.” Wouldn’t you agree that for the most part, high levels of consumer debt have a high correlation with runaway consumerism? That one is a function of the other? If the ability to get in debt head over heels wasn’t so easy (due to lenient credit terms and easy money), would we have rampant consumerism?
You also mention, “When we regain 30-40% of those losses, I believe you might see our investment strategies and our credit allowances change as a group.” This is a pretty big assumption, right? The Nikkei index peaked at 38,915 in 1989. Twenty years later, it stands in the high eight thousands.
No one knows the future. We agree on that, and one should absolutely understand/track present day market conditions. But study the past as well and see if there are some smart pointers/trends that may reflect future market conditions.
Cam, I always love and respect your idealism. Now if we could just get some “transparency” in the results of the stress tests and maybe a derivatives clearing house, that would go a long way!
Claire,
I agree. We baby boomers were slammed by this recession and we are the largest consumer block. However, the market has rebounded about 12% and I do believe that when we see our investments return to 70% of what they were (about a 40% rebound), we will begin buying again.
Paul,
My view is strictly out of the American experience. Most of us don’t respond postively or negatively to the Nikkei Index, and we definitely invest differently. I believ we will be back above 10,000 within the next two or three years.
As for debt, I don’t believe that “high levels of consumer debt have a high correlation with runaway consumerism.” The debt that is killing our economy comes from banks giving loans and credit to people unable to afford either. The debt that most of us have accrued would and will be affordable when our investments bounce back. It is that consumer spending that drives our economy and not that of those who cannot afford loans.
Unfortunately, this medium is a poor substitute for a conversation, as we are required to write in sound bites as opposed to having an intelligent give and take. So feel free to poke holes in my argument, as it is presented herein. They certainly exist.
Agreed.
Just as importantly, we ought to have the ability to evaluate those results in light of the test methodology and the conditions that led to the derivative instruments being created in the first place.
After all, if we don’t know or cannot agree about what caused the problems, how are we to avoid them in the future?
Unfortunately, doing this would require a level of self-reflection and accountability not characteristic of most Washington officials, for the answers may reflect badly on their behavior and therefore decrease their chances for reelection. It’s much easier for them to blame the banks.
This leads back to my initial point, that “We have to think of ourselves and our prosperity as active participants in an interconnected social and political climate” rather than simply a product of our own immediate selfish self-interests.
Given the flawed nature of mankind, I don’t believe we will ever reach this utopia, but that shouldn’t stop us from articulating the maxims against which we can at least judge and readjust our collective actions.
Cam, your point about living in an interconnected social and political climate is spot on. Quite frankly, we all live in a very complex ecosystem. I’m not ready to quite call it “chaotic” in terms of chaos theory, but that said, our actions do have impact on others in the ecosystem. Sometimes the impact is immediate and othertimes it’s delayed. Getting past our own “selfish interests” is something worth striving for.
Lewis, I may not have articulated my point very well on the Nikkei. I was attempting to show that while the Nikkei hit 38,000 twenty years ago, it currently stands at a fraction of that amount. So while your prognostication of the Dow bouncing back to 10,000 in 2/3 years is as good a guess as anyone’s, my point was that we should not naturally assume it will bounce back now or in the near term future. In fact, some economists believe we’re simply seeing rallies in an otherwise tough bear market (with more “corrections” on the way).
All this to say that I believe it’s very important to identify and understand consumer sentiments across different time periods–not just today– and extrapolate when possible whether structural shifts have taken place. For example, all automakers are now reassessing and forecasting global auto sales, and determining if their infrastructure (fixed costs) must be pared down to meet a new reality. This of course, is just an example, but assuming the classic definition of marketing (4Ps), we should be front and center in the forecasting discussions.
Great discussion. BTW, this over-spending thing is primarily an American phenomenon. If we can generalize, Canadians and Europeans have not been as focused on amassing personal debt. In Canada, for example, it’s not an everyday thing to send kids away for university. One cannot buy a house without minimum down payments. And, yes Virginia, there are strict banking regulations and there’s still entrepreneurialism.
I believe that we are heading into a new era as well. One that is more environmentally conscious, socially responsible, and a bit more frugal. OMG, could it be that we’ll become more like Canadians and Europeans?
Elaine, thank you for adding to the discussion. While consumers in these regions may have been more adverse to risk, you certainly cannot say much about their governments and banks–specifically in Europe. As any Icelander, or former Soviet bloc country can tell you, they were no strangers to excesses, debt and out-sized risk taking.
Perhaps in some ways, the Great Global Recession may provide a well needed pruning. It’s just that the pruning is painful while it’s occurring!
The question of the day remains, however. Are these changes in consumer sentiment–as quoted by Money Magazine and Bill Gross–permanent? Have we really learned any lessons? And if so, how should marketers react/adjust?
Right, Paul. Government policies and spending did much to contribute to this global financial meltdown and many before this one. I’d like to also say this about Elaine’s comments. In many of the articles I’ve read in The Economist in recent months, as well as other international publications, it seems that consumer spending has been dramatically on the rise around the world. There is a housing-caused crisis in Western Europe; not as severe as ours, but it’s there. In the UK, consumers are carrying a staggering amount of credit card debt–unheard of a generation ago. In Japan, the children of hard-working, money-saving Japanese have become quite Westernized. Their propensity to save has dramatically diminished as they become increasingly materialistic. And so it goes across Asia with its new-found affluence. While the U.S. has been the chief culprit in this current economic recession, the problem is truly a global one. As is the case with every downturn, there is more than one cause from more than one quarter.
The point that is not considered is what will happen when the recession is over? Will consumers in the US return to their old habits? While this is speculative, it is important for marketers to think and make contingency plans.
Atul, thank you for taking the time to comment. When you said, “will consumers in the US return to their own habits” after the great recession, is exactly one of the key questions this post tried to tackle. I’m leaning towards a take that the lessons learned will be temporarily and global consumers will get back to prolifigate spending patterns. What’s your view?
i love the phrase ‘paragigm shift’
that’s whats happening
a chance to shake it all up and re emerge the stronger and better and more connected
I welcome it!
Paul,
There’s an interesting new article on this topic in Convenience Store News. “Exclusive Nielsen Report: Global Consumer Confidence Hits a New Low” demonstrates percentages of consumers who intend to change their buying habits even after the economy recovers. Interesting stuff and worth sharing with DF readers:
http://www.csnews.com/csn/news/article_display.jsp?vnu_content_id=1003964926
I suspect that if the recession continues to deepen, these numbers will likely go up.
Claire, great article on global consumer sentiments. Interesting to see how the global financial contagion has hit emerging economies and how that’s drastically altered consumer shopping/saving patterns.
I still wonder however, even though research shows consumers are saving more and spending less, how permanent are these changes? Will they be structural (which consumers now say is the case) or is this just a temporary blip in an otherwise linear progression? I’m inclined to believe it’s the latter.
Could you help me. Lawyers spend a great deal of their time shoveling smoke. Help me! It has to find sites on the: High quality lace front wigs. I found only this – designer synthetic lace front wigs. Movies Database since when do third world countries not exist? back up your claims of filipino supremacy nub With best wishes
, Flavian from Jamaica.