How Has Consumer Behavior Changed by Recession - Essay Example

Title of Report "How has consumer behavior changed by recession?" Author and Date May 25 2009 Abstract In order to understand consumer behavior after recession the questions which were asked mainly included what causes recession, what forces the consumer to respond in recession, how the consumer does responds to the recession etc. The material was mainly taken from articles and news journals. The main problem encountered while finding the answer to the questions was that that the news journals were always pertinent to one place. They talked about a specific country, city. Most articles analyzed the behavior of a specific region and quoted examples respectively. In order to deal with such problem, thorough research was carried out. I searched for more and more articles and secondary data that would talk about the general situation globally and ways through which it could be coped with. The research questions revealed that recession can possibly result due to an inverted yield curve, a three month unemployment etc. After recession the consumer tend to behave differently due to a decrease in disposable income, increase in unemployment and increase in food and gas prices. Consumers are inclined to save more by cutting expenses on mundane items such as food, clothing furniture; they start saving more, try to deviate as much as they can from up gradation of life style and consumerism etc. The reason I think I’m confident with the conclusion is because the data that has been collected is pertinent as well as recent and belongs to renowned sources. Moreover conclusion is also backed by statistics. Table of Contents Introduction………………………………………………………………………………. 4 How consumer behavior changes in recession……………………………………….. 5 Shift towards saving……………………………………………………………… 5 Deviation from Consumerism……………………………………………………. 6 Brand Swapping- Shift towards cheaper substitutes………………………………6 Consumers Indulge in Escapism…………………………………………………..7 People stride more cautiously and worry more even if they are doing quite well..8 Maintenance of a positive self image & public impression of wellbeing is important 8 Effect of Recession………………………………………………………………………. 8 Conclusion………………………………………………………………………………. 9 Recommendations………………………………………………………………………. 10 References…………………………………………………………………………………13 Introduction “In economics, a recession is a general slowdown in economic activity over a sustained period of time, or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes and business profits all fall during recessions.” (Recession-2009) The predictors that can possibly lead to recession involve a stock market drop, an inverted yield curve, a quarter changes in the unemployment rates etc. Year of Recession is often termed as the year of reckoning by the analyst’s, reason being that it has brought along with itself massive unemployment. Consumer behavior reflects their mood. In optimistic moods consumers act accordingly and are willing to spend more and invest more as they are positive that their future is going to be better than their past. In this slump, as the assumptions about the future changes, more people tend to believe that their future is going to be worse. Anxiety is a common outcome of Recession. Everyone tries to take a step more cautiously as they cut back on spending as fear of losing their jobs rises. During recession frugality becomes a cover. Every Individual goes for belt tightening according to his needs. Belt tightening involves eating out less frequently to holding on to a car for a few months to buying cheaper meat. In all this process marketers should pay attention to this intricacy that “cost” is an essential part of every consumer decision. How consumer behavior changes in recession . Savings rate rises as net worth declines As consumers become more fearful of job losses and their anxiety regarding housing and stock declines raises more and more Americans try to save most of their paychecks as compared to before. Statistics show that “In the last year, the savings rate — the percentage of after-tax income that people do not spend — has risen to above 4 percent, from virtually zero. “(Shift to Saving May Be Downturn’s Lasting Impact- 2009) Shift towards saving The shift towards savings is a change in the behavior of the consumers after the recession. This shift tales place after every recession and the effect is mostly short lived. Once the economy starts showing signs of recovery Individuals revert back to spending more and saving less. Statistics show that “Over the last 30 years, the savings rate has fluctuated from over 14 percent in the 1970s to negative 2.7 percent in 2005, meaning Americans were spending more than they made.” (Shift to Saving May Be Downturn’s Lasting Impact- 2009) Deviation from Consumerism Americans are often termed as epic consumers rather epic up graders. In all the past years consumers are always headed towards up gradation of deals is a bigger house or a higher paying job. This is a common consumer’s urge. Till last year consumers were aiming towards a better version of life where they could get a better deal for eg if they were buying a TV they wanted a bigger and a thinner TV that sounded captivating even though the consumer had no idea what it did. However due to the prevailing recession the current ambition of people is to avoid the downgrade. This ideology is very difficult to implement since much of the consumer culture is built around the temptation of the better. Brand Swapping- Shift towards cheaper substitutes With an increase in gasoline and food prices people have started finding creative ideas to cut costs on mundane items such as clothing and groceries. Statistics around the world show that middle and working class people have started switching from name brands to cheaper substitutes and alternatives. Preference is now given to eating in rather than dining out or flying at odd hours to save money on airfares. Although this shift seems minimal but daily tradeoffs show that people now prefer pasta to red meat, more video rentals to lesser movie tickets. With this kind of scenario individuals are being forced to tighten their belts and swap brands when the economic forces are pinching their budgets or leaving them in a little mood to indulge. “Microsoft set the wrong kind of record, as it reported the first year-over-year quarterly revenue decline since it first sold stock to the public in 1986”( Microsoft Profit Falls for First Time in 23 Years-2009). Microsoft’s windows franchise finds itself under exceptional pressure as an increasing number of businesses and customers have started pulling away from new computers and have started purchasing new machines. Microsoft rumors that its revenue has fallen to 6 percent, to $13.65 billion, from $14.45 billion. Consumers Indulge in Escapism “Escapism is mental diversion by means of entertainment or recreation, as an "escape" from the perceived unpleasant aspects of daily reality.” (Escapism-2009) Consumers who feel deprived during the recession may look for solace in entertainment which is affordable such as liquor, beer and movies. These items tend to do well in hard times. Even though it is true that consumers tend to save by staying indoors more, however there are some activities that will tempt them out of the house. Cinema advertising association in January 2009 stated that admissions hit a five year high even in economic turmoil. People stride more cautiously and worry more even if they are doing quite well. “The Research conducted in march 2009 for online consumers showed that the current recession is likely to have a long running effect on consumer habits”( Survey finds online shoppers may be moving toward "spending cautiously"-2009) Seventy one percent of the surveyors said that they would keep on looking for alternatives that will allow them to save even the recession will start ebbing away. Moreover the consumers said that they will turn to internet more often. Majority of the consumers interviewed said that comparing online prices gives them the assurance that they are using the best deals. Ninety one percent of the consumers also confirmed that shopping online in this rough economy as searching for products online made them more confident about their purchases. Maintenance of a positive self image and public impression of wellbeing is very important Recession analysts state that it is the rich who are loosing more in the current prevalent crises. The slump has brought a negative decline even in the consumption of the wealthy. However consumers are trying hard to maintain their image by deciding between tradeoffs. Effect of Recession Low level of unemployment can reduce customer confidence. It inculcates the fear of loosing a job in an individual who see a friend, a family member, a colleague or a neighbor loose their job reign. It is also responsible for creating a depressing effect that ends only after the end of the recession. Statistics show that “1990s recession officially ended in Q3 1992 however in early 1995 businesses still wondered when consumer confidence and spending would return to some sectors of the economy.” (Looking back to the future: consumer behavior in previous recessions can tell us about prospects for the coming one, with the jobs market and unemployment figures crucial to confidence-2008) Peoples confidence has been shook especially that of Americans who were once considered to be bringing a new level of affluence. Recent surveys regarding Americans confidence show that they feel it might take them seven years or more to come out of the slump and enjoy the economic growth again that enhanced the lives of so many families. Conclusion Recession can change trends of products irrespective of the fact whether they are essential or not. Consumers try to cut their expenses in whatever way they can and look for more value for their money. They splurge into saving and escapism through affordable entertainment to overcome anxiety and depression. All business owners are very much concerned regarding the worlds economy as it takes up a swing for the worse. Recommendations All Businesses at the moment should set their priority to cope with current catastrophe. Most crucial is to understand consumer behavior as it is not essential that customers behave the way one might think. Businesses should spend their money wisely by paying attention to those brands in portfolio that are most likely to gain attention. It is not necessary that low price can magnetize the customer. Better service, added value or higher quality can become a selling point. In order for the businesses to improve consumer buying in recession, they should try and develop new clientele. However for this they must consider modifications in their businesses. More time should be spent listening to the consumer and the challenges they are facing. Moreover instead of being preoccupied with the end of the recession companies should focus on opportunities in business. Complimentary and substitute changes in consumer behavior should be given significance. Apart from all this Businesses should find out ways to market their products in a way that will plead to people even when they are unlikely to plan a impromptu shopping spree. Businesses should try and capitalize on new and unique opportunities. For Eg they can consider developing the packaging of the products service options etc. Due to the economic turmoil even though people have less money to spend on dining out they still have less time for food preparation. Grocery chain stores can always capitalize on this and related ideas and should tap these segments. Moreover, consumers are spending more time these days researching especially regarding durable goods. Therefore it is recommended that companies must become socialable and put online optimistic customer reviews, expert judgments and observations on blogs that can be significant in driving sales. A satisfied customer has the opportunity to influence tens of thousands of people. Businesses should also focus on being consistent. When depression strikes companies mostly jump into new mediums with no proper plan for incorporating their brand message. Focus at such time must be given importance in order to carry out deliberate and calculated marketing decisions. In order to put forward an applicable marketing plan, such marketing plan should be implemented that is based on good research, long and short goal setting, and metrics for measuring ROI. Not only a recession marketing plan should be developed but the company should also stick to it. Another recommendation is to strengthen company’s connectors. The company should look whether the customer is able purchase and find company’s product easily. Is the website trouble-free to navigate. This data can be based on different online behavior. Basic usability testing can also help recognize navigation problems that might be costing company the sales. As financial downturn ascends and family budget stiffens, customers start demanding better service ad quality for their hard earned money. Companies who excel in making it easier for the customers to find and procure their products will come out at the forefront. Lastly companies should make sure that they reach their current customer base. In times when finances are tight customers tend to pay attention to trusted sources. Relationship with such customers should be enhanced to sell supplemental products and services and product upgrades. Customer can also be offered a discount on a purchase in the future if a contended customer agrees on writing an online review of the company’s product or If they suggest your product or service to their friends and associates. References Babej,M &Pollak,T 2008 ,“Tuning Into The Recession Mind-Set”, Viewed on24th may, 2009, http://www.forbes.com/2008/02/14/unsolicited-advice-recession-oped_meb_0215unsolicited.html Rampell, C, 2o09, “Shift to Saving May Be Downturn’s Lasting Impact” Viewed on24th may, 2009, http://www.nytimes.com/2009/05/10/business/economy/10saving.html?_r=1 Vance, A, 2009, “Microsoft Profit Falls for First Time in 23 Years” Viewed on24th may, 2009, http://www.nytimes.com/2009/04/24/technology/companies/24microsoft.html Barbaro,M &Dash, E, 2008, “Recession Diet Just One Way to Tighten Belt” Viewed on24th may, 2009, http://www.nytimes.com/2008/04/27/business/27spend.html Flatters, P, 2008, “Looking back to the future: consumer behavior in previous recessions can tell us about prospects for the coming one, with the jobs market and unemployment figures crucial to confidence” Viewed on24th may, 2009, http://findarticles.com/p/articles/mi_6717/is_70/ai_n30883257/ Escapism, 2009, viewed on 24th may, 2009, http://www.123exp-health.com/t/01084375046/ Hawkins, M, 2008, “How To Profit From Recession Consumer Behavior” Viewed on 24th may, 2009, http://www.articleclick.com/Article/How-To-Profit-From-Recession-Consumer-Behavior/1056234 Klatell, J, 2009 “Survey finds online shoppers may be moving toward "spending cautiously"- Viewed on 24th may, 2009, http://blogs.consumerreports.org/reporter/shopping-in-a-recession/ Recession, 2009. Viewed on 24th may, 2009, http://en.wikipedia.org/wiki/Recession Read More