Keep calm and shop on

The double-dip recession, with no respite in sight, has sparked major and seemingly irreversable changes in consumer behaviour – and the wealthier parts of society are no longer immune. Michael Barnett investigates the six new faces of the recessionary customer.

Keep calm

UK consumers’ disposable income is shrinking faster than at any time since the 1970s, according to data from Experian, and in the fourth quarter of 2011, the country officially re-entered recession – the dreaded ‘double-dip’. High inflation, high unemployment and flat wage growth mean most people have less to spend – and brands are suffering as a result.

The impacts of the financial crisis on the British economy have now been felt for over four years and have frightened consumers into changing their behaviour for good. In the context of this increasing pessimism, TNS has identified six typical patterns of brand interaction among consumers as a result of the economic downturn (see The Six Faces of the Post-Recession Consumer, below). They are more risk-averse, are saving more and paying off debts instead of borrowing for non-essential purchases. They are also shopping in more cost-conscious ways, according to Sainsbury’s director of loyalty and customer insight Andrew Mann.

“Customers are concerned about many things and are looking for brands to trust. They are wasting less, buying promotions and looking for value in everything,” he says.

All consumers, whatever their income, have been affected to some degree by the economic downturn. Since their circumstances differ widely, brands can’t assume a blanket recession marketing strategy is the answer, adds Mann. “Everyone is more concerned about the future but how they react is slightly different.”

Nectar card transaction data also shows that consumers are shopping across a variety of price points, continuing to treat themselves to the more expensive, higher-quality items they value most while replacing other items with cheaper alternatives

Experian product manager Danny Thompson says the change in the consumer mindset was noticeable first among cosmopolitan city-dwellers in professional careers – those who Experian refers to as the ‘professional rewards’ segment of consumers.

“Around 2009, we saw a marked change in behaviour among these urban lifestyle people who used to make impulse purchases on credit. Spending on credit went down,” Thompson says.

Similar slips in confidence have been in evidence since the UK fell back into negative growth and, according to Experian’s analysis, there are some surprising aspects to the mentality of the double-dip consumer. As might be expected, more people are visiting the websites of value retailers now than 12 months ago, but after elderly people, the second-biggest increase in visits comes from the most affluent segment of society, which the research refers to as ‘alpha territory’ consumers. These are people of wealth and influence, who might be doctors, lawyers or bankers.

Thompson says: “People think that the super-rich Audi buyers haven’t been affected by the recession. But we have seen an increase of about 5% in people from those groups going to websites such as Aldi.” He adds that the professional rewards segment, the second-most affluent group, have made 3% more visits, and make up the second-largest overall share of budget website users.

While the wealthier groups have higher levels of disposable income than other consumers, Experian’s data shows they also have higher everyday cost burdens to bear, spending more on essentials. Price inflation, therefore, has a substantial effect on them, as well as on less affluent consumers.

Because of this, wealthy consumers are just as likely to trade down to lower-cost items in their shopping as those on lower incomes. As Moneysupermarket director of consumer marketing Paul Troy says, “there’s nobody who can afford not to try to save”. Comparison websites such as his are “pushing at an open door” in this respect, and the sector is duly growing in double-digit percentages year on year, he says.

“Even though I live in a nice part of London, everyone I talk to has experienced higher indirect taxation, inflation and household bills going up.”

Data from TNS indicates that half of UK residents find it harder to meet their spending budgets now than they did a year ago, and also believe the overall economic situation has worsened in that time. TNS brand strategy director Guy Kemplay says the six reactions to the economy identified by the agency are broadly replicated across economies throughout the developed world.

“People’s emotive response to the recession differs. Some people take a more carefree attitude, with less anxiety involved – they want to push it away; others, with higher stress and anxiety levels, deal with it by planning more. Also, it is less a case of people saying there is a crisis and we have got to overcome it; it is more that there is a new order. People realise that things are not going to get better in a year or two.”

While some brands have shown resilience in the face of consumer retrenchment, the recession has hit the British high street hard and seen it experience its worst sales growth in over a decade. Chains such as La Senza, Peacocks, Game and Blacks have fallen into administration in recent months.

Consumers have also become used to employing money-saving tactics, such as using price comparison sites, seeking out deals and shopping across different value ranges for different products.

Aimee Bryan, knowledge director at Aimia, which owns the Nectar loyalty card brand, says: “UK consumers have begun to engage more strongly with promotions, both in-store and through offers sent them through mail, email and mobile phone. At the same time, the underlying trend of consumer empowerment through new technology has accelerated.”

Many retailers – particularly supermarkets – have responded by discounting, and price wars have broken out between Asda, Sainsbury’s and Tesco. Morrisons has avoided the discounting scuffle but has lost sales as a result. Asda and Sainsbury’s have seen sales increase, while Tesco’s price cuts have led to a fall in profits (see supermarkets case study, below).

Even premium supermarkets Marks & Spencer and Waitrose are now competing on price. M&S launched its Simply M&S value range of foods in April, while Waitrose has grown faster than any other supermarket in the past three years thanks in part to its Essentials range, launched in 2009. Waitrose also now promises to match Tesco’s prices on more than 7,000 branded products.

MS food

M&S executive director of food John Dixon says Simply M&S “increases choice for our customers across everyday food products” and also “complements our existing ranges”. His comments suggest that M&S believes the business opportunity lies in targeting new categories of consumers who shop on value, or allowing existing customers to trade down on some items, while maintaining the premium positioning of its usual own-brand ranges and the more expensive brands not stocked elsewhere.

Initially, these moves by upmarket retailers were met with scepticism and the fear that lowering prices would lead to being less desirable. But neither Waitrose nor M&S seem to have damaged their profitability or brand perceptions with the introduction of these value ranges.

Tesco’s comparative failings suggest that being selective about where price cuts are advertised, and to whom, can be more effective and less confusing than widespread discounting on store shelves. Online vouchers are one example of a more selective strategy. According to VoucherCodes.co.uk co-founder Duncan Jennings, brands are increasingly using them to “respond to consumer demand, shift surplus stock or intensify sales of a particular line or item” without hoisting a ‘sale’ sign that might adversely affect the brand.

Figures seen by Marketing Week show that, in the first quarter of 2012, the number of codes issued by brands through VoucherCodes.co.uk increased 28% and traffic to the site increased 30% compared with the same period the previous year. Fashion has increased its use of vouchers more than any other sector, with the number of codes issued up by 60%. Jennings says this is the result of both more fashion brands offering vouchers and a higher number of vouchers being issued by each company.

Retailers that rely on bricks-and-mortar stores for the bulk of their sales face particularly tough challenges

Even with subtle discounting tactics, however, price cuts can only go so far before they become unprofitable. It is a story being told throughout the retail sector at present, and brands are being forced to find other ways to lure cash-strapped shoppers into stores, where they are at least more likely to consider making a purchase.

Some, such as John Lewis and Waterstones, are offering free Wi-Fi internet to achieve that purpose. Fashion retailer White Stuff has hosted book clubs in its stores and has also introduced sweet counters, which donate their profits to charity. While these initiatives won’t generate revenue for the companies today, they might help to generate loyalty that will pay off if consumers want to treat themselves, or when they have more to spend (see White Stuff case study, below).

It is still uncertain when this might happen: Experian suggests consumers’ disposable income will become more abundant again after 2012, as inflation drops and unemployment falls, but banking and debt crises in Europe could scuttle these hopes. Furthermore, public spending cuts in the UK are only just starting to take effect, and according to the government’s current plans, consumers will need to endure another five years of austerity measures.

Even when the economic outlook begins to brighten, brands should not assume consumers will revert to their old habits. Sainsbury’s Mann believes the deal-seeking mentality is here to stay.

“We see the trend of savvy shoppers as one that will continue. Our customers like the behaviour they have adopted and feel it is emotionally rewarding,” he says.

This opinion is echoed by brands across retail, with MySupermarket.com vice-president of business development James Foord saying it is now “fashionable” for consumers to look around for deals and to shop at a variety of price ranges in order to optimise their spending. Aimia’s Bryan argues, too, that brands and retailers will now need to work harder to secure people’s custom.

“Kantar data shows that people are cross-shopping more than ever, and everyday low pricing is no longer enough to ensure maintained loyalty. Research shows that the retail winners will be those that harness everyday low pricing, timely and honest promotions, and loyalty rewards.”

More than anything, brands are waking up to a new reality where UK consumers realise the economic situation will not substantially improve any time soon. They have accepted it, and changed their behaviour accordingly. Brands will need to do the same to remain relevant to the post-recession consumer.

Case study: White Stuff

White stuff
Sugar the pill: White Stuff thinks laterally to get customers through the door – such as a sweet counter (above) and a ‘swap shop’

Retailers have been hit harder than most brands by the double-dip recession, as consumers rein in their spending. White Stuff head of marketing Susan Crawford says the situation is as bad now for its target consumers as it was this time last year, according to its own recently completed research.

“We were trying to gauge what our customers’ psyche was, on shopping and spending. Dishearteningly, since we did the same research last year, we are seeing that they are still affected.”

White Stuff’s customers are particularly worried about their jobs and how much they should spend, with 45% of them being public sector workers. The government’s programme of austerity means that their pay is frozen and many may be at risk of unemployment as public spending continues to be cut.

Retailers that rely on bricks-and-mortar stores for the bulk of their sales face particularly tough challenges. Not only are consumers spending less on discretionary purchases, but the entire retail industry is also undergoing structural changes as the growth of online shopping accelerates, taking sales away from the high street. Crawford says it is crucial to keep up footfall in stores, even if the customers aren’t buying as much as they were before the economic downturn.

“We are constantly challenging ourselves to give customers more reasons to shop with us. I can’t always be discounting because that’s not profitable. We are rolling out more engagement activities in our shops to give people reasons to spend more time there – not just buying clothes.”

These include sweet counters, book clubs and swap shops, the latter which White Stuff has been running since last year, ahead of Marks & Spencer’s similar ‘shwopping’ initiative. Customers can return a used item of White Stuff clothing to five locations and trade it for one brought in by someone else, or for a used sample piece. The store simply asks for a small donation to a local charity if the shopper takes something from the swap rail.

“It’s not directly making us money but it is driving footfall, and we hope that while in store they will look at our new range,” says Crawford.

In addition, over the Queen’s Jubilee bank holiday weekend, the retailer held picnic parties and, in three stores, miniature farms for its customers, who are largely people in their mid-30s with young families.

These activities are intended to keep the White Stuff brand prominent in the minds of its loyal customers, says Crawford, so that when their disposable income rises again, they will choose to buy from White Stuff first.

Case study: Supermarkets

nectar
Sainsbury’s: Uses transaction data collected through its Nectar card to spot trends

The double-dip recession has been accompanied by a brutal price war between Britain’s three biggest supermarkets – Tesco, Asda and Sainsbury’s. Tesco had a headstart on its discounting strategy, launching its Big Price Drop in September 2011, cutting prices on thousands of everyday items.

Yet Tesco has come off worst from the skirmish so far – its profits have fallen for the first time in 20 years. Sainsbury’s, conversely, has benefited from its alternative approach of offering coupons issued at the till. These let customers claim back the difference on their next shop if they buy branded items that would have been cheaper at Asda or Tesco. Last month, Sainsbury’s announced a 7% rise in full-year profits.

Revenue growth for Sainsbury’s – as with the supermarket sector as a whole – is coming mainly from the two ends of the price spectrum. Sales of its Taste the Difference premium range grew 8.7% in the 12 months to March, while its Basics range grew by 6.8%.

Whether the supermarkets can continue competing on price is doubtful, but Sainsbury’s director of loyalty and customer insight Andrew Mann believes the change in consumer behaviour that prompted the discounting is here to stay.

With competition between the supermarkets so strong, the role of customer data has become fundamental in both matching Sainsbury’s prices to its competitors’ and tailoring its products to customer needs. The company uses transaction information collected through the Nectar loyalty card to spot trends.

“Past behaviour is still the best predictor of future behaviour and we use this data to adapt promotions, ranges and develop new products,” says Mann.

He gives an example: “From looking at our Indian ready meal data, we noticed that people were buying a medium curry together with hot chilli and chilli powder. As a result, we developed a super-hot curry, which is now one of our most popular ready meals in the range.”

Nectar card transaction data also shows that consumers are shopping across a variety of price points, continuing to treat themselves to the more expensive, higher-quality items they value most while replacing other items with cheaper alternatives. People are buying premium and budget products “side by side”, says Mann.

He cites an example of this behaviour: “Using our Nectar card data we have seen that our ‘confident cooks’ customer segment buy Taste the Difference Jubilee tomatoes, pak choi and our basics range aubergines all in the same basket.”

The six faces of the post-recession consumer

In a series of focus groups with consumers from seven developed countries, research from TNS has identified six typical types of consumer response to the recession:

Resigned
Initially in denial about the effects of the recession, these consumers were slow to realise its impact on them. They are now resigned to it and have adapted to continue enjoying life. Brands such as Coca-Cola appeal to them because they are optimistic and provide escape.

Stabilised
Arch-pragmatists, these consumers were positive from the start, and now use careful planning and co-operation to minimise the long-term effects on their finances. Levi’s has won them over with democratic messages that reinforce relationships.

Defensive
These consumers reacted anxiously to recession, craving security and peace of mind. They now defend what they value most, though they no longer view the situation as a crisis. De Beers has given them reassurance with messages of unchanging values.

Resistant
These consumers began as bargain hunters, looking for ways to win against the recessionary odds. They still exhibit similar attitudes as they fight to stave off their economic woes. Defiance is the key aspect that has endeared Diesel’s ‘Be stupid’ campaign to them.

Leader
Confident of their own ability to get through the economic storm, these consumers initially reacted with overt displays of wealth, which have receded as they have come to appreciate the suffering of those worse affected. Louis Vuitton has focused on heritage rather than luxury to emulate this shift.

Focused
These consumers learned from the recession, and now plan ahead to keep a handle on their finances. Procter & Gamble’s Ivory soap appeals to them, with its honest, minimalist messages that exude control.

Mysupermarket.co.uk

James Food
Vice-president of business development at MySupermarket.co.uk (price comparison site)

I think we are seeing a permanent shift in behaviour because it has become fashionable to be savvy, because it is so ingrained and because there are so many ways for customers to get the right information and to have control over what they are spending. It doesn’t matter whether you are an Aldi shopper in Sunderland or a Waitrose shopper in Richmond, everybody is looking to save a few pounds, and that’s another reason why I think this trend is here to stay.

Sainsbury's
Deal or no deal: Supermarkets’ claims leave consumers confused

We are seeing more customers reacting to our offer suggestions, and our suggestions to bulk-buy on certain items and buy bigger packs. We send our customers an email with the best offers and suggestions on how to save, and in the past few months we have seen those become more successful. The open rates, the click-throughs and the customers buying these products have dramatically increased.

It has become a kind of badge of honour to say you managed to find a voucher or get a deal. Customers are coming to our website looking for them, and for ways to make an expensive basket cheaper. That is very apparent this year. No one is shy about trading down to basic products, and the recession has gone on so long now that it is fast becoming the way of doing things.

The retailers’ price activity has resulted in a very confusing marketplace. The consumer hears Tesco saying ‘big price drop’, Sainsbury’s saying ‘brand match’ and Asda saying ‘price guarantee’, and is stuck with no idea of where to go. No one is sure who has got the best deal. That is helping us, because people come to our site to find out which retailer truly has the best deals.

We’re seeing the average basket value dropping, even though food inflation is rising. It is almost as if customers are using us to counteract the effects of inflation. They will have £70 and spend only that, and they want to do this not by buying fewer items, but by buying at lower prices.

Consumers are also becoming more promiscuous. They are more willing to go for the retailers that happen to have the best deal that they want that day, or a voucher on our site that they can use. They are becoming a lot less loyal and it is noticeable. The prices are relatively similar at base level, but it tends to be the deals, the loyalty plans and the voucher campaigns that are making the difference.

The other trend we are seeing is that those who we would traditionally call Waitrose and Ocado shoppers – even, to some extent, Sainsbury’s shoppers – are more than willing to make trade-offs in their shopping basket. We see them swapping certain items for lower-quality ranges. We are seeing customers optimising their spend within a store, swapping to basic items on some products so that they can carry on buying the things they know and love.

Viewpoint

Nick Steel
Director of insights and marketing services at Premier Foods

premier foods

We have begun to see over the past few months an acceptance by consumers of the long-term situation we are in. Rather than it being a recession from which we’ll come back, people think the world has changed. It is what it is and it is here to stay.

Consumer confidence is starting to come back. People think that while they’re not suddenly going to have more money in six months’ time, they need to start enjoying their lives. That might be underpinned by the Queen’s Diamond Jubilee, the Olympics and other events this summer.

Habits such as people taking a packed lunch to work are increasing a lot, and we can help with that. For example, our brand Mr Kipling enables people to buy one cake on its own for their lunchbox. It is not necessarily about the price, it is about the utility and making sure there is no waste.

People’s focus on price and value is very clear: households are looking to spend within a fixed budget and that is motivating a lot of behaviour. They are shopping around more, looking for good deals. Instead of buying lots, they buy within a budget and then top it up across more shops. Shopping trips increase to convenience stores closer to home. Over the next six months I don’t think any of these changes in habits will seem like a blip. People will continue to shop in the way they have in the past six months for the next few years.

As time goes on, we see more and more people from the range of economic groups going through the same thing. Those with less money will be shopping to a budget, but it doesn’t mean everyone across the board isn’t looking for value. We see a lot of people looking for quality while still being conscious of the price.

From our point of view, it accentuates the importance of making sure that all the products we produce meet consumers’ needs and make sense for the retailers as well. We need to do things that don’t just work for us, but grow the category as well.

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