Recession As One of the Worst Economic Threats for Organizations - Assignment Example

INTRODUCTION In December 2007, the waves of recession (economic downturn) started to hit United s of America. It was a global recession that gripped most countries of the world. Some of them faced even worse situations than the United States. The recession lasted for about 2 years, and was ended in June 2009 in United States. Many other countries faced the consequences till the year 2010. This recession was the most longer, deeper and damaging than any other recessions since the great depression. This recession resulted in many high class corporate failures that continued even after it had ended. In these times, the consumer’s preferences, their spending over products and brands was also greatly affected. People started buying inexpensive things because they did not have enough money to buy superior products. There are a few trends common between all or most consumers during recession. But one cannot assure that these trends can be true for everyone. Different consumers behave in a different way to stimuli. The uniqueness of each consumer and the collective behavior of all is what make consumer behavior an interesting subject. There is no doubt some evident trends among the consumers during recession and post-recession. It is interesting to see that many of these trends did not even change after the recession. The consumers kept on purchasing the same way after recession, the way they were during recession. The recession changed their lifestyles which continued even after it has ended! CONSUMER TRENDS Consumer preferences for products are directly affected by external and internal stimuli. The consumer black box clearly indicates how buyer characteristics are influenced by marketing stimuli i.e. Price, Product, Promotion and Placement; and environmental stimuli i.e. Economic, Political, Cultural, Technological, Demographic and Natural. In the recession, consumers are directly influenced by the economic stimuli of a downturn. In these hard times when there is very little economic activity, consumer has to be very careful in his/her spending and the choices s/he makes in terms of purchase. These purchases when continued for a longer period of time become a part of their lifestyle. In this paper we will have a look at some common trends among consumers during and post-recession. Dominant Trends Here are a couple of mature trends that have accelerated with recession and are pretty dominating. Demand for Simplicity It is a very dominant trend among consumers that they have been demanding for simpler products and services since the recession. Consumers are now tired of the stress and strains in life. Complexity in everything has made the consumers desire for simpler products that give more value. They are now cool with the idea of going back to the basics, buying things that are straightforward and simple. Investing a huge amount of money in things that give just a little more brand value, and complicate their lives is no more the ‘in’ thing among consumers due to recession. They are now in search of user friendly products and services, things that simplify their lives. This is why apple’s iPod is now popular among consumers for its simplicity and user friendly nature. This demand for simplicity was not only limited to the recession period. It exists even after the recession period is over. This trend has engulfed their lifestyles and is going to stay there for at least a few more years. A focus on the Boardroom This again is a very dominant trend among the consumers. Consumers are now being more and more aware and concerned about the corporate governance. They are now questioning the values of the organizations and keeping an eye on the corporate executives regarding their ethical policies and practices. This trend has been gaining pace since the notorious failure of WorldCom and Enron due to their unethical practices early in the decade. In this downturn, this trend has become even more dominant. Consumers try to punish the perceived sources of these consequences- the corporate executives. They are now more concerned about the salaries of the executives, the taxes that they pay, the amount they invest in corporate social responsibility. This trend has been accelerating during the recession. After the recession, these concerns are not as important to consumers as they were during recession. It is expected that within 2-3 years, this trend will slightly fade away. Advancing Trends Here are a couple of trends that are new and are accelerating due to recession. Discretionary Thrift This trend has been common in the poorer as well as the most affluent consumers to economize. This trend is relatively new and is accelerated due to the recession. The consumers now even think it’s trendy to be thrifty and is adopting it in their lifestyles. Many have linked this to their value system to avoid wasteful life. They have adopted buying used goods, have started learning many skills to do their work themselves, and have started to recycle waste material. This trend is pacing up with time and even those who can afford to buy luxurious products are satisfied with good-enough products. Mercurial consumption With being thrifty and demanding for simpler products has also made the consumers fickle minded. They can now easily abandon a product if it does not fulfill their requirements or costs more than the products that give a ‘good-enough’ value. Consumers are no more very loyal to the brands that they use and can easily switch to a more economical alternative. This trend is also accelerating even post-recession. Slowed Trends With Recession, some mature trends that were common in the pre-recession period are slowing down. Green Consumerism As much as eco-friendly products were getting popular in the market pre-recession, the consumers have started avoiding buying the premium greener products. This has not however grabbed their attention for being environmentally conscious. Consumers are now focusing on reducing waste, and recycling rather than spending extra amount of money to buy ecofriendly products. This trend has been derived from the thriftiness of the consumers during recession. Decline of Deference During recession, consumers had started losing respect for the government and other authorities. There is a huge lack of trust between the consumers and the authorities. They do not consider the information provided by these authorities legitimate and believe that they themselves can make better decisions and find out true information. Other Trends Apart from these common trends mentioned above there are some other trends that can be seen during recession and post-recession. According to a research by Nielson on April 9, there is now a greater tendency in consumers to buy large packaged sized products or bundles. About 28% buy US made products. There has been a 56% decrease in going to restaurants; these people now prefer having food at home. More than one-third i.e. 37% go to bars or clubs less often than before. Such similar trends are seen in American’s with respect to food, drinks, media, automobile, education and entertainment. (AC Neilson) Consumers are now fishing for low cost entertainment and spend more time than money on entertainment. Online gaming and social networking have become popular among consumers during recession, because they are free. People being unemployed during recession, became heavy users of internet and social media. They used these networks to socially interact with other people as well as search for jobs online. The visits to online job advertising portals increased tremendously during recession. (Pew Research Center) Consumers are also now indulged into ‘smart’ shopping. They look for bargains in their free time. They have also started buying heavily from the internet because there they can easily get these bargains. Overall there have been many changes in the buying decision of consumers. Their preferences have changed and they have adopted new lifestyles with the need of saving and spending economically. IMPACT ON COMPANIES AND MARKETERS In Recession, as much as the consumers faced problems, the companies and marketers faced huge problems while continuing their businesses. Many companies had slow growth; some could only reach break-even, while others faced heavy losses. But interestingly there were many businesses that even flourished during the recession for example, companies who offered ‘good-enough’ products and services. Also the online shopping stores and online games had a boom in their sales during recession. There have been different challenges that many organizations faced. Let’s have a look at what problems they faced, and how some companies tackled these problems. Increased Expense Cost The recession had gripped everyone around the world. From suppliers & retailers to consumers and to organizations, everyone faced challenged in these tough times. The suppliers had also faced increased costs, which their dealers have to bear as well. At these times, many organizations apply different strategies for cutting costs. Some organizations cut the bonuses given to the employees; others even tend to fire some employees. A few organizations cut their costs by cutting the different unnecessary perks of everyday. For example, global leader in shipping industry, Maersk cut its costs of providing mineral water bottles to each employee every day. Many other organizations have adopted such strategies in these tough times. Changing Consumer Trends Changing consumer trends have been the biggest threat for many organizations whereas bliss for some. As mentioned before consumers are now moving to good enough brands, from the premium or superior brands. One such example can be seen that Starbuck’s consumers started shifting to its good enough substitute Dunkin Donuts. A research by New McKinsey, found that an average of 18 percent of consumer-packaged-goods consumers bought lower-priced brands in the past two years. This was applicable to any give category. Of the consumers who switched to inexpensive brands, 46% affirmed that they performed better than they had expected them to be. This resulted into about 34 % consumers preferring these cheaper products over higher priced products. However this varies from category to category. This wasn’t true for the beer buyers, where only 12% switched to cheaper brands and most of them did not feel very positive after using cheaper brands. Whereas among the buyers of cold and allergy medicines, more than 20% tried the lower priced options and many of them said that the experience was better than expected. Another example of decreasing sales post-recession is McDonalds. McDonalds upgraded its stores, cleaned them up, made the menu and payment easier for customers and improved its public image. In result of all this, during the period of 2003-2008, they had a massive corporate growth. After recession, they started increasing their prices to receive high margins. This did not prove out to be well for McDonalds since consumers were very price sensitive in this time when unemployment was at peak and price of even commodities very high! Restaurants have faced greater reduction in their sales because consumers now prefer homemade meals. Casinos and bars have also been in losses because consumers now prefer to spend time rather than money on entertainment. Similar problems were face by the property management firms. Low Employee Morale Recession has also affected the employees badly. Employees are demotivated and they demand for more salaries in these tough times. Organizations on the other hand find it difficult to retain all employees and usually lead to firing of employees to cut costs. This made the employees or many organizations even more uncertain about their organization’s stability as well as their own professional stability and growth. To counter this many organizations tried to invest more on their employee training and motivation. Employees are the key assets of any organization and therefor organizations have to take care of them even in these tough times. CONCLUSION Recession is one of the worst economic threats for organizations and customers alike. In these times consumers adopt different lifestyles, follow different trends, and behave in a different and unique way than in normal times. Organizations also being affected by this threat react to this stimulus in different ways. One thing that organizations need to realize is that recession will eventually end. They need to know whether it’s best to operate or cease their business activity during recession. They also need to invest in research and find the different patterns in behavior of consumers. They need to come up with products and services designed to satisfy the needs of the consumers and should also economically uplift their consumers. BIBLIOGRAPHY (2009). Top 10 Emerging Consumer Behavior Trends in Recession. June 10. Memo Sponge [online]. [Accessed 19/03/11]. Available from: . Betsy Bohlen, Steve Carlotti, and Liz Mihas (2008). How the recession has changed US consumer behavior. Consumer Packaged Goods Practice[online][Accessed 18/03/11 ], p... Available from: . Bill Conerly (2009). Business Challenges After the Recession. April 23. Businomics Blog [online]. [Accessed 19/03/11]. Available from: Flatters, Paul and Willmott, Michael (209). Understanding the Post-Recession Consumer. Harvard Business Review [online]. 87, [Accessed 19/03/11 ], p.106-112, 7p. Available from: . Kenneth Zenger (2009). Chicago Business Examiner [online]. [Accessed 18/03/11]. Available from: . TrendsSpotting.com (2009). Consumer and Market Trends during Recession - Cross Industry Research Report. -.http://www.slideshare.net/TrendsSpotting/consumer-market-trends-during-recession-cross-industry-research-report-by-trendsspottingcom. [Accessed: 21/03/11 ]. INDIVIDUAL REFLECTION It was a very wonderful experience working with 3 other group members on this project of Consumer Behaviour in the light of recession. All four of us group members worked closely on the project, searched for the material required to complete, looked up for researches in the market, and discussed the details. We divided the tasks into four parts. The first part including the introduction, Dominant Trends and final compilation of all other parts by other group members was done by me. Everyone put their individual efforts and I combined these efforts to come up with a single paper comprising of all the details required. Working in group for this project gave me an experience to work in well gelled team. There were many different of opinions amongst our group members, but by the end we tackled them all. These differences in opinion were due to the immense dedication we all put into it and the reason that we wanted our paper to turn out excellent. Apart from learning of team work, I learned much more about consumer behaviour and the economic stimuli, especially recession than I had learned in class lectures. This was a very applicative learning of the theories and concepts we have covered in class texts. After completing this project, I know much more about the concepts and have deep understanding of these concepts. I have also learned how to work in teams, how to communicate your message to other team members, how to respond when there are difference in opinion and how to support each other while working on the project. I feel such projects should be given in our courses to increase the level of understanding amongst students. Read More