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White Papers Changing Consumer Priorities in Tough Times
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  Presented by: Rockbridge Associates, Inc. |
Are we in a Recession or a Depression?
The news is filled with dire reports on the economy, and according to the recent Consumer Technology Pulse Survey, consumers are feeling the pain. The survey, conducted in March 2009, reveals that 72 percent of U.S. adults believe the economy is in a “recession” and a striking 27 percent believe it is in a “depression” (See Figure 1). In the same survey, 14 percent reported they had been laid off or lost their job in the past 12 months, and 78 percent personally know someone who has been in this situation. In response to the economy, consumers are cutting back their expenses, affecting a wide range of products and services such as travel, sporting events and big-ticket electronics.
Against this backdrop, a more interesting story emerges of changes in priorities. For instance, Americans are reaching out and connecting with friends and family more than in the past, but they are doing this not through personal visits (travel is down) but through social networking sites like Facebook. In an effort to save money, families are postponing a variety of big ticket purchases, and certain services that used to be considered vital, such as the landline telephone, are in jeopardy. Yet, the downturn is spurring consumers to make their homes more energy efficient. They are also saving more, and are considering entrepreneurship as an option.
How is the Downturn Affecting Consumer Priorities?
Almost three out of four adults in the United States (73 percent) are currently cutting household or lifestyle expenditures. As shown in Figure 2, the industry hit the hardest by this behavior is consumer electronics, with 59 percent of consumers making cuts indicating that they are postponing the purchase of a big ticket electronic item like an HDTV or laptop computer. Other cutbacks reflect those of a typical recession, and include postponing furniture purchases, household improvements and new appliances. Aside from these more obvious changes, other interesting behaviors are occurring:
- Almost half of consumers (46 percent) are making their homes more energy efficient. This opens the door to a range of new products and services, such as energy audits, programmable thermostats and insulation/weatherproofing. It seems that “green” may mean not only good for the environment, but good for the wallet.
- Certain home communications and entertainment services are being discontinued or downgraded. The biggest victim is cable (or satellite) television service – more than a fourth (28 percent) of those cutting back are cutting in this area. Another victim is the landline telephone. Once considered a basic necessity, this technology may be starting on the road to obscurity because of the recession and its redundancy with cell phones. To a lesser degree, consumers are cutting back their cell phone service, Internet service and smartphones such as Blackberries.
Consumers engaged in many behavioral changes over the past year and many of these changes are likely to be related to the downturn. One of the most significant is in savings, with 31 percent reporting increasing the balances in their personal savings, checking or CDs. This increase counteracts a reduction in savings in 401K accounts (15 percent reported they stopped contributing in the past year) and in college savings funds (4 percent stopped contributing). One possible explanation for saving more is that the lack of easy credit may be causing families to increase their personal liquidity to manage household expenses.
Another interesting pattern is in entrepreneurship. Only 3 percent of U.S. adults have started a business in the past year, but 8 percent have made plans to start their own business. It appears that the recession is not forcing droves of Americans to become self-employed, but a more likely result is to cause worried or dissatisfied workers to actively plan for the possibility of running a business.
Is the Downturn Affecting our Lifestyles?
Americans are spending their time in different ways vs. one year ago when the recession was starting to gain momentum. The biggest change is that more people are watching television – a third of adults (34 percent) are watching more than last year (see Figure 4). Why is this happening? A good explanation is that consumers are spending less time on leisure activities that cost money. In particular, areas where the greatest numbers of consumers are spending less than last year are:
- Dining out (58 percent less)
- Travel (53 percent less)
- Sporting events (47 percent less).
Another change occurring is in U.S. adults’ relationships with their friends and family (see Figure 4 above). Compared to a year ago, more are interacting with friends and family online through social networking sites such as Facebook, Myspace and LinkedIn. Specifically, 33 percent are doing this more, 14 percent are doing this less, and 53 percent are doing this the same; the only activity that is increasing at a faster pace is television watching. Why is this trend occurring? Though the survey did not ask directly, one likely explanation is that these services are increasing exponentially as more people, including older adults, are signing on to social networking. It is also possible that difficult times create a need to seek out and interact with loved ones for emotional support and survival advice. Social networking allows people to broaden their network of friends and interact efficiently.
Not all forms of connecting are on the rise. There is a downward trend in having or attending social gatherings with friends and family in person. For instance, while 19 percent are doing this more than last year, 27 percent are doing this less.
Clearly, the recession is having a broad impact on our priorities and behaviors. While many of the changes are in obvious areas such as cutting back on big expenditures, many reflect changes that may outlast the downturn, such as increased use of social networking, saving and greening our homes.
Management Brief: Relationships Win The study findings highlight an important trend: consumers are postponing purchases of expensive products and big ticket items such as electronics, appliances, and furniture, much more than cutting back on services such as telecommunications and cable television. This shows that sales of services are being affected to a lesser degree than sales of products. We also find that discretionary services – dining, travel, sporting events – have been affected to a greater extent. The results are not surprising and reveal the resilience of customer-relationship orientation in the downturn. Services that are more “relational” in nature, such as telecom and cable, may experience downgrading but consumers are still giving these providers a “foot in the door” that will allow the providers to ramp up sales quickly when the economy improves. Among providers of services that are seen as more discretionary – travel, sports, dining – if their relationship with their customer base has been strong, they will be able to reap the benefits of relationship marketing and will be less affected in the downturn. The results also highlight the need for service businesses (and to some extent product businesses) to review/revise their pricing to enable customers to continue purchasing. Bundled services with significant price discounts may be successful in preventing customers from downgrading or canceling. “Cash back” upon service sign-up can also help customers feel there is less risk in signing up for services. It is important to understand that in a downturn, even customers who are not adversely impacted feel the need to tighten their spending and cover the risk of being affected at a later point in time. So, it is necessary to lessen their “sense of loss” when they spend for services and products. Similarly installment payments can help customers to sign for up big ticket services through reducing the sense of loss. Continuing the relationship with customers is a key strategy for service providers as they provide opportunities for the businesses to recoup revenues through up-selling at a later point in time. Discretionary services should provide value pricing deals that appeal to customers in the downturn and keep them coming back (and thus maintain the relationship). |
For More Information on the Consumer Technology Pulse
The survey is sponsored by the Center for Excellence in Service at the University of Maryland’s Robert H. Smith School of Business and Rockbridge Associates, Inc., an independent marketing research firm.
Center for Excellence in Service at the Robert H. Smith School of Business
3468 Van Munching Hall
College Park, Maryland 20742-1815
(301) 405-8502
www.rhsmith.umd.edu
Rockbridge Associates, Inc.
10130 Suite G Colvin Run Road
Great Falls, VA 22066
703-757-5213, x12
www.rockresearch.com
Media Inquiries:
Carrie Handwerker, Public Relations Associate
for Robert H. Smith School of Business
301-405-5833
chand@rhsmith.umd.edu
| About this Study: The Consumer Technology Pulse provides timely information on topics related to technology, services and consumer lifestyles. The Pulse is based on an online survey of 529 U.S. adults age 18+ surveyed in March 2009. The sample was derived from an online research panel by e-Rewards, and the results are weighted to be representative of the adult population in the U.S. The survey has a margin of error of plus or minus four percentage points. The Pulse is sponsored by The Center for Excellence in Service at the University of Maryland’s Robert H. Smith School of Business and Rockbridge Associates, Inc., a technology research firm based in Great Falls, Virginia. |
