Source: VisionMonday.com

Cover Story: Consumers Embrace A New Mindset

By Deirdre Carroll: Senior Editor

NEW YORK-Consumers are spending less. As a result, a pervasive new creed of thrift has arisen as people cope with the ailing economy, creating a new mindset and new challenges for those involved in communicating and retailing.

VM canvassed many sources, from leading research groups, consumer behavior experts and marketing observers in order to identify these changing attitudes and their implications for business.

In this special report, including a new and exclusive Vision Monday Frame Purchasing Trends in Today's Economy survey conducted by Jobson Research (see page 30) and through discussions with ECPs and retailers across the country, we explore how people are adapting to consumers' new belt-tightening measures.

This past April, the independent, non-partisan public opinion research organization, The Pew Research Center, conducted a Social & Demographic Trends survey on the effects of the recession. According to survey results, eight-in-ten adults have taken specific steps of one kind or another to economize during these bad times, while 57 percent of their nationally representative sample of 1,003 adults ages 18 or older said they are shopping more in discount stores or are passing up name brands altogether in favor of less expensive varieties.

The Conference Board, a non-profit global organization that conducts business management research, and which compiles the results of a monthly Consumer Confidence Index Survey based on a representative sample of 5,000 U.S. households, found that the Index for July this year is more than 5 percent lower at 46.6 percent than July of last year at 51.9 percent.

With the U.S. national unemployment rate at 9.5 percent in June, the highest it has been since 1982, according to the U.S. Department of Labor, people at various income levels are worried about their ability to maintain their homes and retirement accounts, and are concerned about whether they can send their kids to college.

A Philosophical Shift

This new consumer mindset doesn't mean consumers don't or won't spend money but it has changed the value they place on items they once considered necessary and the actions they take when they do decide to buy something new.

"Up until a couple of years ago, status consciousness and materialism were very prominent in the marketplace," said James Burroughs, associate professor of commerce at the University of Virginia. "The emphasis on materialism had really grown to sort of epic proportions due to a whole host of things related to the availability of credit and the ability to devise credit models that got products into the hands of consumers. This was all to a degree a house of cards that has collapsed in the last 18 months. People simply have less money. What has happened now is that people have more of a sensibility about their behavior."

"I am hearing from many retailers that people are just refusing to pay full price for anything," added David Wolfe, a creative director for The Doneger Group, a global market trends and merchandising consulting group. "We're seeing a time of great disenchantment on the part of the consumer who is feeling that they've been ripped off and are now finally waking up to the fact that if there is a celebrity's or a designer's name on something they are probably paying for that name. One of the results of this wake-up call is the fact that so many designers are now feeling compelled to lower their prices without sacrificing any of the quality. People are no longer intrigued by novelty and they've turned off their blind faith in brand or designer names."

A Question of Value

This return to frugality or "sensible" consumer behavior triggered by the recession has caused consumers to start to question their purchases like never before.

Burroughs explained, "There has been a change in the psyche of the consumer, a change in the mindset. What's happened is people are more introspective about their consumer behaviors. They are asking themselves questions like, 'Do I really need this?' And [they are] finding the answer is probably not. So what's happening is people are starting to take inventory about what really matters to them and are becoming much more conscientious and selective in their purchasing. It isn't that they won't spend money, it's that they are thinking more about what they are spending their money on and what it is really going to buy them."

"It is a matter of perceived value," continued Wolfe. "For consumers now it's about the relevance of the utilitarian aspects of a product. You have to convince them they will really use it, that they need it in their life and that it is going to improve their life on a long-term basis. You have to do a real selling job about the quality of a product, its usefulness and how it is going to function in someone's real life."

But Will It Last?

According to the experts we spoke to, in short, yes. These cost-cutting measures and recession-era re-evaluations are not going away anytime soon.

"The million dollar question is to wonder if consumers will eventually revert back to their old more materialistic, consumptive ways or if this is a catalyst that will cause a more permanent, long-term change in people's mindsets," acknowledged the University of Virginia's Burroughs. "I don't know that we will ever go back, at least not anytime soon, to what we were seeing four or five years ago in terms of the excess in consumer behavior."

Doneger's Wolfe concurred, "This is a huge sea change. We are going to see a whole new paradigm of consumerism. I really think it represents the end of what has been a growing shopping binge that began after WWII. We've had this enormous spiritual/financial awakening and I don't think the kind of consumerism for the products we've been driven to consume is going to return when the economy recovers. There is a whole different psychology out there because the consumerism that has been driving our society for the last 50 years really was not about consuming for yourself, it was about consuming so that others perceived you as a more valuable or more successful or more powerful person."

Children Are the Future

We can look to the younger generations as a barometer for this attitude change and for indicators into why this new consumer psychology will be here to stay.

"I have noticed that younger people are far more socially conscious than the last few generations. They are more altruistic and they are less motivated by money," confirmed Burroughs. "The work-life balance concept has become much more of a priority for them and they recognize that you cannot have it all. You can't have all your time and also have endless money as well, so consumption, by necessity declines."

"I think one of the reasons that it is changing, and will continue to change, is how young people have embraced social networking," stated Wolfe. "If you spend all of your time making friends on Facebook it really doesn't matter if you have the latest handbag and watch or what kind of car you're driving because they never see you."

What You Can Do

Believe it or not, these changing consumer values and habits are creating opportunities for companies, brands and retailers to win new customers and strengthen their relationships with existing ones if they can quickly adapt their strategies to fall in line with these shifts in consumer perceptions.

"Consumers are looking for information on the products they are anticipating buying, so it's about much more serious selling really," explained Wolfe. "Now people are thinking that every amount of money is a serious amount of money whether they are buying a loaf of bread or a new winter coat.

"Retailers probably have to realize that they are not going to build empires based on consumerism the way it was possible to do in the past, so anyone who is creating or selling a product has to lower their expectations about the possibilities of selling something unless it is truly something new. People do gravitate to something if it is functional, interesting, exciting and genuinely new," he concluded.

"Brands need to have a very distinct meaning that is well understood, simply conveyed, that doesn't change and is not complex," added Burroughs. "They need to ask, 'If consumption is becoming less important, what is becoming more important and can I tie my brand to that?' Figure out what other things are becoming important to people and if there is a natural connection between the way they position their brand and what their product is all about with that. Because people buy products that reflect who they are and what's important to them," Burroughs said