Recession's Lasting Effects on Consumers

A new study, entitled "Marketing to the Post-Recession Consumers," by Decitica, addresses the lasting effects of the recession in the way American consumers have internalized the recession experience. It's particularly relevant in developing "positioning" and marketing/merchandising/advertising strategies.

Dr. Val Srinivas, Principal at Decitica, says, "This research... decisively shows that marketers need a fresh lens through which to view consumers in the post-recession world..."

Specifically, this research concludes that:

  • The effects of the Great Recession on consumer behavior are so profound that many of the assumptions underpinning consumer segmentation are no longer valid; and
  • Marketing strategies that do not fully recognize the diversity of consumers' recession experiences won't have the desired potency in the post-recession world.
  • Many have accepted this radical change as the "new normal," and not just a cyclical phenomenon.
  • The recession has caused a profound, deep-rooted change in consumers' spending habits in favor a more restrained approach.

There are four distinct consumer segments emerging from the recession according to the study, identified as:

  • Steadfast Frugalists,
  • Involuntary Penny-Pinchers,
  • Pragmatic Spenders and
  • Apathetic Materialists.

Steadfast Frugalists are committed to self-restraint, engaging in prudence with unequivocal enthusiasm. They make up about one-fifth of the American consumers, representing all income and age groups.

80% of Steadfast Frugalists say the new behaviors they have adopted will likely stay with them for a long time. This is in contrast to 24% of Apathetic Materialists who feel this way.

The main characteristics of the Steadfast Frugalists are:

  • 6 in 10 are women.
  • Composed of people from all age groups; however, fewer from Gen X and Gen YThe most disciplined in their behaviors and seriously committed to self-restraint Many of these individuals deemed themselves tightwads even before the recession
  • 29% of individuals in this group considered themselves tightwads in this survey

"Marketers will find this group to be the most challenging, as they are the least brand loyal and most likely to discount marketing messages," notes Dr. Srinivas.

Involuntary Penny-Pinchers, about 29% of the population, have been severely affected by the recession, and are mainly made up of households with less than $50,000 in income, with more women than men.

This segment has been forced to embrace thrift like never before. Presently, their actual behaviors do not differ widely from those of Steadfast Frugalists. Where they drastically diverge is in their aversion to expending effort in money-saving strategies. Only 17% find buying store or generic labels to be satisfying, compared to 59% of Steadfast Frugalists.

77% of Involuntary Penny-Pinchers admit to being more scared by the recession, 81% stressed, and 87% more worried about the future than other groups. The main characteristics are:

  • 6 in 10 are women.
  • Over-represented by people in their 30s and 40s.
  • Involuntary Penny-Pinchers are the most severely affected, financially and emotionally, by the recession.
  • Their new-found frugality for the most part has been forced upon them. Half have not saved any money for emergencies
  • 38% in this group exceeded their income last year, indicating that they were not that disciplined to begin with
  • Marketers will find this group to be quite challenging to influence mainly due to their lower/diminished capacity to spend.

"Pragmatic Spenders are the most attractive group for marketers because of their higher spending power," says Dr. Val Srinivas. "While it is true that they have also curbed their spending, they are the most capable, both psychologically and financially, to willfully resurrect their past spending patterns," he added.

This group comprises 29% of consumers whose income has blunted the effects of the recession on this segment. Only 28% of Pragmatic Spenders feel the recession has changed what and how they will buy in the future, compared to 55% of Steadfast Frugalists. The main characteristics of this group are:

  • 6 in 10 are men
  • Over-represented by people in their 60s, and from the Northeast and West
  • Over a third of the people with greater than $75,000 HHI are in this group
  • Pragmatic Spenders have the greatest capacity, both financial and psychological, to willfully resurrect their past spending patterns
  • Their approach to spending is tempered with caution; they have cut back and are engaging in thrift like others but seem less troubled by the recession.
  • Pragmatic Spenders will be the most attractive to marketers given their above-average financial wherewithal

Apathetic Materialists seem least changed by the recession. They have not embraced the new frugality to the same extent as others and get minimal satisfaction from such behaviors. Only about 6% in this group find price comparison to be satisfying, in contrast to 85% in the Steadfast Frugalists camp.

The Apathetic Materialists segment has more men (55%) and younger consumers (72%) are below the age of forty. Only 8% admit to being very focused on value compared to 30% of Pragmatic Spenders and 52% of Involuntary Penny-Pinchers. The main characteristics are:

  • 22% in the population.
  • Slightly more men than women.
  • Over-represented by people in their 20s (Gen Y)
  • The least changed in terms of their spending habits and future intentions
  • More younger, single people with limited disposable income at the moment
  • Apathetic Materialists will be an attractive target for youth-oriented marketers

What makes this research particularly unique, says the report, is the examination of consumers' self-efficacy (the belief in one's abilities to successfully achieve certain outcomes) in practicing spending restraint. Evident from this chart is that Steadfast Frugalists and Pragmatic Spenders are the most confident in controlling spending, resisting the temptation to spend now and worry later, save money and stick to a budget. Apathetic Materialists have the least confidence in successfully restraining themselves,

Satisfaction from Frugal Behaviors and Self-Confidence in Practicing Restraint

Behavior

Total

Steadfast Frugalists

Involuntary Penny-Pinchers

Pragmatic Spenders

Apathetic Materialists

 

Percent Who Find each Activity "satisfying"

Buying on sale or using coupons

40%

87%

37%

34%

11%

Buying store labels

22

59

17

15

6

Shopping at discount stores

29

77

24

19

8

Surfing the Internet for coupons and discounts

30

73

24

24

10

Comparing prices before purchase

35

85

32

26

6

 

Percent Who are Highly Confident in their Ability to Practice Restraint

Resisting the temptation to spend now and worry later

53

87

46

73

5

Saving money

35

70

18

54

5

Sticking to budget

44

87

46

73

5

Source: Decitica, November 2009

Self-Efficacy Income, Gender and Age Differences

  • Age is positively correlated with self-efficacy in controlling spending
  • Both men and women 40 years or older, irrespective of income, are significantly more confident about restraining spending
  • 40+ women with greater disposable income are the most confident about resisting the temptation to spend now and worry later, indicating they are more long-term focused
  • This finding is not good news for marketers whose traditional audience are mainly boomer women

Percent Who are Highly Confident in Controlling Spending

Income Group

Gender

Age

% Highly Confident

>$75K

Females

21-39

37%

<$75K

Females

21-39

42%

<$75K

Males

21-39

43%

>$75K

Males

21-39

47%

<$75K,

Males

40+

57%

<$75K

Females

40+

58%

>$75K

Males

40+

60%

>$75K

Females

40+

61%

Source: Decitica, November 2009

 

Percent Who are Highly Confident in Resisting the Temptation to Spend Now and Worry Later

Income Group

Gender

Age

% Highly Confident

<75K

Males

21-39

37%

<$75K

Females

21-39

41%

>$75K

Males

21-39

41%

>$75K

Females

21-39

43%

<$75K

Females

40+

63%

>$75K

Males

40+

66%

<$75K

Males

40+

67%

>$75K,

Females

40+

72%

Source: Decitica, November 2009

Price has become the dominant consideration in the purchase of all kinds of products, concludes the study. Of considerable significance is the fact that half of Pragmatic Spenders are looking at price before other features and one-third say that brand name products are not worth the extra price, heralding what will likely be a long uphill struggle by marketers to shift the focus away from price, says the report

"I am the kind who first looks at price before I consider other features."

Consumer Segment

% Who Agree

Apathetic Materialists

27%

Pragmatic Spenders

52%

Involuntary Penny-Pinchers

14%

Steadfast Frugalists

66%

Source: Decitica, November 2009

 

"I have come to realize that brand name products are not worth the extra price."

Consumer Segment

% Who Agree

Apathetic Materialists

16%

Pragmatic Spenders

32%

Involuntary Penny-Pinchers

4%

Steadfast Frugalists

49%

Source: Decitica, November 2009

 

Please visit here for highlights of the report.

 

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8 comments about "Recession's Lasting Effects on Consumers".
  1. Ian Straus from VIA Metropolitan Transit , November 18, 2009 at 10:11 a.m.

    It seems to indicate that there are substantial opportunities in positioning our service as a means of beign thrifty without giving up the good life. The only thing that bothers me about following that course is the proportion who say they will be thrifty until their savings and market losses recover. Does that mean the "long term" effects are only going to be as long as the recession lasts, and that if a new boom happens such positioning will crash and burn?

  2. Stacy Graiko from Firefly Millward Brown , November 18, 2009 at 12:01 p.m.

    We have been tracking a segment called the "True Frugals" (looks like the Steadfast Frugalists) since April '09 and note that they have definitely changed over time: while in the height of the Recession they reported frugal behaviors being a part of their internalized value system and were steadfast in their commitment to be frugal, we find that many have reverted back to old behaviors as consumer confidence rebounds. The data show this trend clearly. I'd be happy to send stats on request: sgraiko@sentientdecisionscience.com

  3. Rodney Brooks from ToTouch One, Inc , November 18, 2009 at 12:19 p.m.

    It's a whole new world out there and as marketers we need to stop thinking with the old muscles and develop new marketing muscles. The consumer is a lot smarter now after this recession and we need to grow with them.

  4. Candice Seiger from Luminosity Marketing , November 18, 2009 at 3:27 p.m.

    Changing consumer spending habits and how they view those habits should induce changes to marketing messages and the research behind those messages. All of the segments noted in this post still have some level of discretionary spending which companies are now in higher competition for. This is especially true in the "little luxury" space. For more on "little luxuries," visit the Luminosity Marketing blog at http://luminositymarketing.com/blog/

  5. Gary Kromer from GRK Research , November 18, 2009 at 5:43 p.m.

    I have reviewed the methodology of this "study" available in the "highlights" PDF available from the Decitica website and have concluded the methodology used is so deficient as to be impossible to project the findings to any known universe with any degree of either statistical validity or even reliability. You can put lipstick on a pig . . . .

  6. Val Srinivas from Decitica , November 19, 2009 at 12:09 p.m.

    Mr. Gary Kromer:

    In response to your assertion that "the methodology used [in the Decitica study] is so deficient," I wanted to clarify that the segmentation in our study was derived using Latent Class analysis. The differences among segments are statistically significant and the measures are highly reliable and valid. Happy to share more details about the statistical approach if you are so inclined.

    The main point the Decitica study makes (empirically) is that there is great heterogeneity in the way consumers have internalized the recession. And these differences have not been successfully leveraged by marketers to position and communicate with consumers.

  7. Dave Skorupski from WUPW , November 19, 2009 at 12:51 p.m.

    Looking at the Income Groups listed in this post - there appears to be some duplication of demographics listed - is this correct?

  8. Val Srinivas from Decitica , November 19, 2009 at 2:01 p.m.

    Dave: There is no duplication in the demographic groups. There are eight categories based on gender, income and age.