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Friday, 24 July 2009

Conspicuous Thrift - Your 5 New Consumer Tactics

Hat-tip to none other than EU Commissioner Meglena Kuneva, whose recent post alerted me to the report of the McKinsey Global Institute on our highly effective responses to the credit crunch, at least as consumers.

McKinsey reports that a third of the decline in Eurozone GDP in Q4 2008 was the result of reduced consumer spending. That's particularly signicant because consumer spending was the single largest factor fueling GDP growth during 2002-07.

They say our spending is driven by confidence, incomes, wealth, the availability of credit and cost of living. All these currently point downward, though the cost of living is obviously less of a problem as prices fall in line with declining demand.

The McKinsey report suggests our savings are a function the type of items we target for savings, the type of consumers we are (discussed below) and the tactic we choose (replace items only when needed, control spending, do-it-yourself, seek value and shop smarter).

McKinsey also say that a "cheap is chic refrain" has inspired the 'do it yourself' tactic. This is more confirmation that the Age of Conspicuous Thrift has dawned. This may also be shorthand for moral or ethical choices - 'green' sentiment and the 'counter-Veblen' effect ("preferences for goods increasing as their price falls, over and above the traditional supply and demand effect, due to conspicuous thrift amongst some consumers"). Do The Green Thing, for example, lists seven tactics for leading a greener life:
"1. You get from A to B without any C when you Walk The Walk
2. It’s delicious but it causes more CO2 than cars so go Easy On The Meat
3. Resist the urge to buy the latest and Stick With What You Got
4. Turn down the central heating and turn up the Human Heat
5. The art of wasting nothing and using up everything: All-Consuming
6. Instead of jetting your way around the world, Stay Grounded
7. Don’t leave it on or even put it on, Plug Out"
What type of items are we targeting for the most savings?

McKinsey say that of all spending categories, eating out has taken the biggest hit. Interestingly, however, electronic gadgets rank 13th on average - we'd rather an iPhone than a fancy meal. But if incomes drop by 20% gadgets rise to the 6th most likely to be cut. The least likely area to target for savings is insurance - perhaps reflecting higher anxiety about what the future holds.

What type of consumer are you? What are you tactics?

The report finds there are 4 consumer types: "party's over", "domestic downsizers", "food scrooges" and "basic bargainers". Of all categories, most people are "party's over" types and these have the largest impact on all spending (especially eating out, clothes, booze and fags). The other consumer types cut back more selectively using specific tactics. For example, "domestic downsizers" target equipment (cars, electronics and home furnishings) by 'replacing only when needed' and make 45% of their total savings on holidays, by simply controlling their spending. Electronic goods tend to fall prey to people engaged in 'controlled spending' and 'shopping smarter'.

What's the message to businesses?

Retailers will have to think carefully about how their offerings may fall victim to these tactics. McKinsey suggests assisting people to budget, pricing competitively and transparently, highlighting usage costs, incentivising the purchase of replacements, less wasteful packaging and promoting home-use/assembly of products. Those selling consumer equipment and holidays in the UK would do well to diversify into insurance, utilities, education or groceries.

I was in a chain store today, and the cashier left her station to take me to the shelves where I could get a 2-for-one item and add something else to cut my overall bill. I was stunned. But in a good way. I'll go back there.
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