The ongoing recession has been anything but democratic, with Americans falling into two basic categories: wary and wounded. Those who have kept their jobs or have the resources to live through a jobless stretch are still consuming, albeit making cautious, intentional choices. Those who suffered job losses without extra resources or have dealt with, say, a house foreclosure, are struggling with austerity. These two experiences are defining the post-recession consumer, and means current and future changes in our consuming behavior are context dependent.
While some believe consumers will emerge post-recession with a value set similar to those who lived through the Great Depression — reusing tea bags and saving rubber bands — the comparison will not hold up. The world is a vastly different place than it was in the 1930s and ’40s.
So the question marketers, economists and politicians want answered is: How much will we shift from our materialistic over-consumptive ways of the easy-money years? Will the biggest economic downturn in 70 years fundamentally change consumer behavior? The answer is yes, no and it depends.
The recession has been felt in varying degrees depending on each situation, and consumers are changing their behavior accordingly. There are three key forces:
Job loss: Lack of employment can be a deep wound lasting far beyond the loss of current earnings. A recent International Monetary Fund/International Labour Organization report suggests that unemployment creates a loss of lifetime earning power up to 20 percent less earnings two decades down the road. Add to that the possibility that some jobs will be replaced entirely by new technologies or outsourcing.
Consumers surviving the recession intact still feel the anxiety of this bigger picture. Studies show that they’re looking for goods with less-trendy styling and more lasting value (for some the latter is not price dependent). Consumers are also willing to open their wallets for exciting or must-have items like iPhones and Kindle readers — calculated splurges with trusted brands. Additionally, the luxury shopper is out of the faux-austerity closet and shopping again.
Demographic profile: Demos deeply affect an individual’s experience in the economic meltdown. The unemployment picture has been grossly imbalanced, with some groups hit more than others. For instance, as of August 2010, the rate for adult men was 10 percent and women 8 percent.
A college degree cuts those rates in half. Hardest hit were teenagers (age 16-19), at 26 percent. But African-American teenagers not enrolled in school got the worst of it: their unemployment rate is 54 percent.
The numbers are tough, but millennials (15-32-years-old) are better educated than other generations, globally aware and culturally diverse. Many were lavished with attention by boomer parents, coaches and teachers bolstering their self-esteem and optimism. And because many don’t have 401ks and stock portfolios they don’t feel that sharp pinch. They’re likely to emerge with fewer scars. Consuming will be a matter of earning an income and not a relief from economic and political pain.
Location was also a factor impacting some markets more than others. Now more than ever marketers will need to run the numbers for specific communities, identifying shopping patterns, product specifics and pricing strategies to reach consumers in ways that connect with their needs and values during and after the economic crisis.
Loss of wealth: This recession has eroded more wealth than any crisis since World War II. According to the Panel Survey of Income Dynamics, median household wealth decreased by an estimated 19 percent from 2007 to 2009. The crisis has been a massive reality check scaring consumers into economic responsibility. The notion of unlimited economic growth is now a thing of the past. While some consumers are judiciously spending again, most will also continue to save.
Home ownership has been a fundamental of the American Dream, but for many it’s now a nightmare. The loss of home values has put many plans on hold. The shame and anger suffered through losing a home will stay with consumers for a long time, but so will a bad credit rating.
For those living within their housing means, particularly during the boom years, a house is still a big asset and source of wealth. But most are worried that any day their home’s value will plummet — or drop more than it already has. This is another reason that consumers will think longer and harder about bigger purchases.
To be sure, consumers — wary or wounded — now live with a sense of fiscal cautiousness or forced frugality. Consuming patterns going forward will be based on individual situations and ability to envision the security of people’s own futures. Precise targeting and insightful messaging will be key to addressing the recession’s two consumers.
Mary Meehan is co-founder of Panoramix Global. She can be reached at email@example.com.