The Recession has Changed Consumers--Perhaps Forever

This recession has been the first time since the WWII-Depression generation that we have felt totally vulnerable financially. My parents, perhaps your grandparents, felt very vulnerable. They lived through war, rationing of food and goods, and a depression that wiped many of them out. They never forgot these hard lessons. They always had an aversion to risk--they knew that things could change quickly.

The "Baby Boom" generation that I am part of and the generations that followed, were raised on affluence. We bought houses that we thought would always appreciate in value; we bought things we didn't really need but which made us feel better or made us look better to others; we spent and spent. We never believed that things could go any other way but up. We had minor recessionary setbacks and inflation and even "stag-flation", but we always knew things would get better.

This recession has hit everyone hard. It had impacted ever sector of the economy. Virtually no one is unaffected. We all know someone who has lost something--money, a job, etc. It is the first time that we realized that everything we had could disappear quickly. Even if we have regained our wealth in the stock market, we feel reluctant to spend since "conspicuous consumption" is being frowned on. There is actually a new cottage industry of personal shoppers who buy the expensive things that the wealthy want so that the actual consumer will not be seen shopping "inappropriately".

While this has not been as severe as the Great Depression, it is a Great, Worldwide Recession. It will leave us scarred in a similar way the 1930s and 40s left that generation scarred.

McKinsey & Co, did a study and found that perceived value is changing. If we were to develop a matrix with one axis being perceived price and the other axis being perceived customer value, we always knew that those who exceeded perceived value relative to perceived price would win--price would become less of a factor. This recession, though, has caused a lot of people to start to question their own buying patterns and they are trying the brands they by-passed previously. Those brands that were just nice-to-have and do not have the solid, binding, necessary attributes of value, are losing perceived value.

Companies, not only those in the consumer packaged goods business, need to reassess their attributes and positioning and assure themselves that they are part of the needs-based set for customers. Those who sold on exclusivity or "show" of wealth or taste, are finding themselves undercut by a climate that questions these values. People are "settling", something we never have done in the past 50-years. True, there will be BMW and Mercedes buyers; there will be those staying in the Ritz Carlton; there will be those buying the latest and most expensive fashions. There has always been a segment that wanted and was willing to pay for the "best". But, these people are shrinking in numbers as more ask the question of themselves: "do I really need this?" More people are asking this question than ever before.

There are many businesses banking on the fact that the consumer will return to the way they were before the recession. Read the McKinsey report or the work of John Quelch at Harvard Business School. I do not believe we will return to the way we were. We are a mini-version now of the generation that proceeded us. They never returned to previous buying behaviors and will not either. As risk increases in people's minds and buying decisions, more and more people back off decisions and "settle". We will be in this mind-set for the long haul.