Every business around the world, whether big or small, knows exactly
what happened in the Great Recession: consumers became (understandably)
spooked by the global collapse of once-solid financial institutions and
stopped spending.
A new report by WPP, the
world’s largest communications services group, concludes that, despite
widespread hardship over the last 18 months, the sky did not fall. (Full disclosure: WPP is an investor in the start-up I’m at, Yield Software.) And
better yet: consumers know it. Playbook 2: The Sky Did Not Fall, the second report in a series developed by WPP’s global retail practice The Store, concludes “wallets are open.â€
“But only a crack,†said David Roth, CEO of The Store for Europe,
Middle East, Africa and Asia. “Consumers are purchasing primarily to
fill basic needs. They’re tentative about the state of the economy and
are ready to snap their wallets shut at the least provocation.â€
In its first report, published last winter, The Store research
concluded that consumers were moving through the three stages of grief:
(1) acute distress, (2) acceptance, and (3) moving on. Last winter,
according to the report, consumers were still in stage one, which was
characterized by anger and sadness. The current report concludes that
consumers are now solidly in stage two — indicated by the fact that
they are shopping again and relieved that the sky did not fall. But
though the world avoided a total economic meltdown, consumers are
nevertheless chastened.
According to the report’s findings, consumers apparently understand
that they now must make tough choices governed by resources available
to them today. Whereas in the past, consumers would ask themselves
“What credit card should I use?â€, they now ask “Which product should I
buy?â€
As consumer attitudes and behaviors shift, retailers are quickly retooling to match the new reality in two important ways:
First: Retail, the report says, is being re-engineered to be simpler for the supplier, retailer and consumer.
Second: In an effort to increase efficiency and control costs,
“smaller and less†is replacing “bigger and more†in terms of store
size and product range.
Other take-aways from the report include:
New purchasing mentality:
Consumers have learned that sometimes the cheaper brand is good enough.
Unless they are convinced that a product is tangibly or emotionally
better, they will select the less expensive alternative and pocket the
difference.Expanded presence of online:
The decline in the product range found in stores will be accompanied by
the coming of age of online and mobile retailing as more consumers
click for product research, broader selection and the purchase
reassurance found in online customer communities sharing product
reviews and evaluations.Greater reliance on brand strength:
Discount is thriving in this economy, which is no surprise. The most
important determinant of success, however, is not the sector served but
the strength of brand equity.Accelerated growth of new media:
The fast-fragmenting media world offers new opportunities—and
dangers—for brand promotion. Mass merchant customer databases and
direct access to consumers positions mass merchants to become
influential media owners at the expense of traditional players.
Bottom-line: even as the economy continues to strengthen, the shift
in consumer attitude and behavior won’t be easily reversed. The old
adage, “once burned, twice shy†applies to both consumers and the
retailers who are adjusting to better serve them. The new consumer
reality will be with us for some time to come.
