Economy in Transition

July 14, 2009
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Consumer behavior is all over the map, with shoppers of various income levels, family sizes and mindsets adopting different strategies for economic survival.

New research from Chicago-based Information Resources Inc. (IRI) describes an “upside downturn” economy in transition, marked by both optimistic and pessimistic signals. As a result, consumer behavior is all over the map, with shoppers of various income levels, family sizes and mindsets adopting different strategies for economic survival.

In a webinar titled “Competing in a Transforming Economy 4.0: An Update on Critical Watch Points,” host John Porter, a partner in IRI’s Innovation Group, said that despite modest relief in food and energy prices, the “misery index," which reflects both current consumer economic well-being and expectations of future economic conditions, remains higher today than a year ago. And more consumers in every income bracket report having difficulty buying the groceries they need.

To make ends meet, consumers said they were cutting back spending on products with big price increases, as well on non-essential groceries, and many had changed their definition of what’s essential. However, the rate at which shoppers were making those changes was directly related to income, with more lower-income consumers, particularly those with children, adopting such strategies. For example, although 78 percent of households with kids earning less than $55,000 a year had reduced spending on products with significant price increases, only 59 percent of households without kids earning more than $55,000 had done so.

Interestingly, however, low-income households with kids are more likely to treat themselves to “affordable indulgences” than same-income households without kids (64 percent versus 54 percent), suggesting that even the most cash-strapped consumers are willing to loosen the purse strings a bit when it comes to their children, Porter said.

Shoppers of all income levels also reported making more decisions about purchases at home - rather than in the store - prior to actually shopping. In fact, 76 percent of consumers polled in early 2009 said they were making most purchase decisions at home versus just 60 percent at the beginning of 2008.

In addition, “Consumers have increased their use of shopping lists, and many reported that they used store circulars or flyers as part of their list preparation,” Porter said, citing increased opportunities for retailers to communicate with so-called “intentional” shoppers via those vehicles.

Another strategy that seems to cross income levels is reliance on store brands. Although the shift to private label originated with lower-income consumers, “We’ve since seen a much larger swath of the population pick it up and include it in their repertoire,” Porter told PL Buyer. “Private label cuts across all income groups now.”

He added that store brands have a much greater shelf presence now than in the past.

“But the quality has improved dramatically as well,” he said. “So although availability has certainly increased, consumers’ usage experiences have been very positive. And that’s what's keeping private label on the shopping list.”

That’s significant, Porter added, because consumers’ definition of value has shifted to include more than just low price.

IRI’s research also identified three different types of consumers: Optimists, who believe things will get better within the next 12 months; Maintainists, who think the economy won't get any worse; and Pessimists, who think next year will be worse. But according to Porter, it’s the Pessimists who are leading the way as far as changed shopping behaviors. They’re more likely to search for sale prices (87 percent versus 82 percent for all households), make personal care products last longer (62 percent versus 55 percent) and reduce spending on prepared meals at the grocery store (61 percent versus 55 percent).

“As the U.S. economy emerges from the first half of 2009,” Porter said, “market conditions and consumer shopping behavior will be shaped by conflicting views on the recovery.” However, “Many of these changes will be permanent, as a new consumer sensibility has formed.”

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