Consumers are slowly learning how to cope

As attitudes to the recession shift from fear to acceptance, marketers would be wise to follow the spending patterns set by consumers as they establish coping strategies.

This year’s budget in April took the theme of “investing in Britain’s recovery” with the Government promising to kick-start an economic recovery. Yet even as the announcements were made at Westminster, more well-known brands were falling into administration.

Against this background, it is no surprise that consumers have expressed concern about the effect the economy will have on their lifestyles.

Media agency Arena BLM ran the second phase of its “Crunchonomics” report on the week the budget was announced. The study, drawn from questioning 1,000 people across five representative groups based on age and exposure to financial risk, found that 80% of consumers were still affected in some way by the current economic situation – the same as when they were last surveyed in March (MW 23 April).

But Charlie Makin, chief strategic officer at Arena BLM, says there is more to this statistic than meets the eye. He claims that consumers are beginning to change their attitudes to the recession, not simply blaming the failures of banks and financial institutions for the downturn but also the Government’s handling of the issue.

“There is still a lack of trust in institutions, but banks are beginning to regain trust. In February 48% of respondents had much less trust in their banks, that’s now reduced to 27%,” he reveals. “Instead, consumers continue to say that the Government is doing a poor job in encouraging an improvement in the economy. The expenses scandal will only exacerbate this, and our research has symbolised this with Mystic Meg being the person most respondents think has the best idea about what is going to happen next.”

The research found that 96% of the UK’s working population feel that the Government is not dealing successfully with the economic situation. Confidence in economic recovery is low, with 39% believing it will get worse over the next three months.

The research again divides its participants equally, talking to 200 people in five sectors – young independent people, secure families, insecure families who have fears about job security, empty nesters whose children have left home and pensioners (see page 26 for consumer classifications).

“Since phase one, things have progressed,” says Makin. “For consumers, it’s no longer all about the shock and fear factor. They are now acknowledging that we are in a recession and they need to develop a coping strategy. Marketers need to tap into these strategies and recognise these trends.”

The lack of confidence has been noticeable over recent months. In its May figures, the British Retail Consortium claimed sales of non-food goods were at their weakest level since figures were first recorded in November 2008, signifying customers are pulling back on impulse buys. Only food sales were up.

Arena BLM’s data found that 57% of consumers were now more likely to consider buying own-label food and grocery products than they were three months ago. Of these, 71% were from the insecure families group and 50% were pensioners.

The research also looked at consumers who were committed to four particular brands with a long heritage – Coca-Cola, Hovis, Birds Eye and Heinz – to see how these famous names were being affected by the economy and what this might mean. All command a price premium over their own-label equivalents, so are a good test of whether brand loyalty or price is having more of an influence over purchase decisions.

It found that 34% of consumers would remain loyal to Coca-Cola, 25% to Hovis, 33% to Birds Eye products and 37% to Heinz products. But even these consumers are scrutinising the price of the products carefully, with just 22% of respondents agreeing that Coca-Cola has a great price. Hovis fared a bit better at 25%, Heinz scored 35% and Birds Eye 38%.

Makin argues/ “Brands need to reassess their consumers hierarchy of needs and revise their strategies accordingly to ensure they remain as relevant. The Crunchonomics results show that major brands are not perceived to be in touch with what consumers want.”

This type of attitude towards price is no surprise when the April study also reveals that the number of people who are finding it difficult to survive on their household income increased by 13% in the past six months to 37% of the total British population. Insecure families are the hardest hit with 58% saying they can’t cope, followed by empty nesters (35%) and young independents (34%).

Fears over job security continue to trouble consumers as the latest unemployment figures show 2.2 million consumers are now out of work, and analysts continue to forecast that it will reach 3.3 million before the labour market starts to recover. However, 53% of respondents feel the UK economy will remain static over the next three months, compared with 39% who fear it will get worse – a reduction from 63% in February. Almost half of insecure families and pensioners (49%) and 47% of empty nesters feel this the most, while young independents and secure families are less concerned (24% and 27% respectively).

Makin comments: “The changes in attitude are becoming noticeable and marketers need to take note of this. The economy can only prosper if advertisers reflect consumer behaviour and find ways of getting people economically active again.

“So far we’ve seen banks using ‘rate tactics’ and brands such as Virgin Atlantic and Marks & Spencer running anniversary campaigns. That reassurance and helpfulness has been a good, safe approach, but brands must now help give consumers the sense of escapism they crave.”

Crunchonomics also found that spending on essential items has remained stable in the past three months, but people have cut down on “indulgences” like entertainment, cars, clothing and perceived luxuries. The biggest falls in spending are on eating out (-52%), clothing (-51%) and spending in bars and nightclubs (-47%).

The recession is also seeing significant changes in consumer purchasing patterns, creating unique growth opportunities for digital retailers with 92% of the online population now using their computers to make purchases. This is true of all demographic groups and strongest for insecure families with 78% more likely to agree that “online is the first place I go to research products”.

Despite this stay-at-home trend for most of the year, demand for holidays remains high, though 54% of consumers now say they will book their holidays nearer to their departure date. This approach has been noticed by travel marketers who have been unveiling new campaigns aimed at enticing travellers to book with them. Virgin Holidays has invested heavily in an integrated campaign under the “Sparkle” banner and Sandals is offering half-price luxury holidays. Meanwhile, Eurostar has enhanced its £59 trips to Paris offer.

Makin says: “Consumers still view their holidays as a staple requirement and marketers will have to adapt their strategies to ensure they remain front of mind among the late bookers.”

He adds that this can’t simply be centred on price reductions, which are considered the norm whatever the economic circumstances. “Market conditions continue to change and brands and their marketers must change with them in order to stimulate the economy – it is pivotal, especially as life will not be the same when this recession ends. There is no going back to old ways,” he explains.

To do this, he says that marketers must become digital natives and look beyond traditional media to ensure they are being noticed in all locations. Capitalising on digital media and embracing strategies such as search and affiliates is vital. Search ads need to contain details about the value of the offer and affiliates need to make sure they drive promotions aimed at bargain hunters, seeding deals through social media such as Facebook.

Marketers are under pressure to maintain such brand exposure in these difficult times, but there are still many hurdles to overcome. As the latest figures show, consumers still expect a lot of bad news to come and it may be a while before a recovery can lift confidence.

The key challenge for brands now is to be seen as a coping aid to lifestyles, offering a glimmer of hope in otherwise dire times. Working out how to do this with reduced budgets and concerned chief financial officers will be the trickiest challenge for them when economic indicators seem to be pointing in the opposite direction.

thefrontline

We ask marketers on the frontline whether our ‘trends’ research matches their experience on the ground

Hollie Smit

Digital marketing manager, Coty Prestige

“A willingness for brands to experiment with marketing in this current economic situation really depends on the strength and reputation of a brand. For example, we would focus more on the high-end magazines and TV media for campaigns connected to Calvin Klein, but we were happy to use digital and create a microsite with MSN to promote the launch of the new Joop! fragrances. It’s all about connecting with your audiences in the right place at the right time and catching their attention, while recognising their anxieties. The fragrances market relies on people wanting to treat themselves, so we have to convey this in our messaging and plan our strategy based on this.”

Richard Kanareck
Communications director, eBay

“There are several key trends we’re seeing in the recession. People are staying at home more. Sales of everything from home entertainment to furniture, homewares to DIY tools, sewing machines to kitchenware are all shooting up. They’re making savvier choices about what to buy. Why pay the full price on the latest model TV or digital camera when the “just out of season” version has the same spec at half the price? There are warehouses full of excess retail stock that are finding their way onto places like eBay. We’re seeing growth of “shopping neutral” and “profit shoppers” – people using sites like eBay to sell as well as spend to balance their budgets. It also means consumers actively considering resale value when purchasing new items.”

Mikah Martin-Cruz
Marketing director, Samsung Electronics UK

“It is the responsibility of marketers to engineer emotional experiences with every campaign that they run, in whatever media they choose. It’s far better to have a customer-centric approach, than just a product focus. We always aim to create and stimulate a level of demand for a brand and deliver this to the consumer. If you go down this route, it is much easier to prove a return and justify the approach. Social media is pivotal for this because a large number of people online use social media and it is a great engagement tool. Listening and reacting to customer demand isn’t just about being a coping strategy, but is essential for every day a business is being run and aiming to build a real community of brand loyalty.”

How things have changed for the groups in the past three months

Insecure families (about 4.4 million UK citizens): More than 50% of this group report they are “not happy with their life at the moment” and 58% are finding it difficult or very difficult to cope on their current income.

Of these, 54% feel less secure in their jobs than they did three months ago, an increase of 6%. As a result 51% have further reduced their spending, cutting back on branded goods in particular.

Pensioners (about 11.8 million UK citizens): Of these, 62% feel less financially secure than they did three months ago and 36% trust their bank less. Although still high, this is a significant improvement of 20% from six months ago.

This is mirrored by a less pessimistic outlook, with 27% fewer pensioners believing that things will get worse before they improve. Ironically, pensioners are the happiest demographic group with 74% claiming they are happy or very happy with their life at the moment.

Empty nesters (about 10.5 million UK citizens): 82% say their life has been affected by the credit crunch and 61% feel less financially secure (18% less since February). This has had an impact on their willingness to entertain themselves outside the home, with 60% spending less on eating out and 53% reducing their visits to bars and pubs.

Secure families (about 10.2 million UK citizens): The number of respondents spending significantly less money increased three-fold, from 5% to 15%, with overall 42% reducing their spending over the past three months. At 12%, secure families are the most optimistic group in terms of the prospects of economic recovery over the next three months, an increase of 6%.

Young independents (about 9.6 million UK citizens): These are largely unaffected by the economic downturn. They have no dependents, most live in rented accommodation and, although they are as much at risk, are confident they can transfer skills and regain employment if hit by redundancy. Job and financial security have improved marginally since February but 44% are still spending less.

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