Retrenching: From Consuming To Saving

  • by , Op-Ed Contributor, September 14, 2009
A few months ago, an advertising trade publication ran an article by Noreen O'Leary, "Boomers Caught in Squeeze Play," which was well-researched and quite thought-provoking.

The gist: Consumer reaction to the painful reversals in the economy ... particularly that of baby boomers, "who account for more than half of U.S. spending and who traditionally have grown more affluent with age." Due to the meltdown of the financial sector in recent months, coupled with losses in the stock market and home equity, consumers, especially boomers, are reversing their spending habits and stashing their cash into savings. That could only lead to further contraction of the economy, as consumers change course.

"In one of the most dramatic reversals in post-World War II history, Americans - who in recent years have had negative savings rate - are expected to flip those patterns," wrote O'Leary in Adweek, "with Goldman Sachs now saying the U.S. savings rate could be as high as ... 10% this year." "This is a tectonic, structural shift, a global realignment," according to Havas Media Lab's Umair Haque, who was quoted in the article. Dennis Jacobe, Gallup chief economist noted that "a fundamental change is taking place."



"The last cataclysmic event was 9/11 ... It was patriotic to get out and shop," according to global client services director, JWT New York's Alison Burns. "This downfall is of our own making - greed, mismanagement and all sorts of things much closer to home. Now it's not patriotic to go shopping. It's all about being prudent, back to basics, valuing the things we have more highly."

Question is, will this shift be of long duration or not? And what does it mean for consumer product companies? When spending is cut, so is production, new product roll-outs and potential product innovations.

As boomers who are closer to retirement cut back on their spending, perhaps for good, will younger demographic groups who are accustomed to being "ever more acquisitive in a world of instant gratification and easy credit" as the article aptly states - change their spending habits? And if they don't, will their spending be enough to offset boomer cut-backs in the larger economy? These are very important questions.

Companies and marketers who perhaps expect a deeper and longer recession than usual may think they can ride this out. But the new consumer mood may dictate a change in their thinking. New strategies may be necessary to survive in this new environment.

If not permanent, many expect this current trend to be long lasting. Consumers have to spend to buy necessities, of course, but expect them to be wiser and more deliberate about everything they purchase. It's time for companies to deliver real value - rather than hype or perceived value -- to a consumer that will demand and expect to get it. But what does that really mean? Lower prices or something more?

Since consumer spending accounts for 70% of the U.S. economy, and consumers are balking at spending, what kinds of values will they respond to in future? What kinds of brand building initiatives should marketers be focusing on? Important questions for tumultuous times ...

5 comments about "Retrenching: From Consuming To Saving ".
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  1. Mickey Lonchar from Quisenberry, September 14, 2009 at 1:27 p.m.

    You're right, Ted. This new consumer mindset of "save first" and the purposeful cut in elective spending by boomers (indeed all consumers) is the #1 issue we as marketers need to live with.

    Personally, I don't believe the answer to this challenge lies in coming up with new ways to pry open the wallets of these folks. I think the real opportunity is in focusing on lifetime value. Focusing on the relationship over the transaction. Acknowledging that it is possible to build loyal customers, even if they buy very little from us (or nothing at all) in the short run.

    If we can set ourselves up as a "solution" for consumers rather than somebody who just wants to sell you stuff, our prospects for long-term success will be greatly enhanced.

    The challenge is to get C-level buy-in to the concept of "return on engagement" over "return on investment."

  2. Brent Bouchez from Five0, September 14, 2009 at 1:27 p.m.

    Don't count on boomers to become their conservative parents all of a sudden, it won't happen.

    Before the recession, 80% of boomers said they would work well into their 60's. Since the recession, that percentage has only risen. According to Ken Dychtwald, the man who predicted most boomer behavior correctly so far, the boomer reaction to the recession goes something like this:

    Cut back on spending? No way. Work ten years longer? Why not.

    "Retirement" has become a dirty word amongst boomers. This is a generation that "lived to work" and strongly believes that working and continuing to work keeps them healthy, vibrant and alive. They look at Bob Lutz and think
    "cool, I could do that too."

  3. Jan Zlotnick from the zlotnick group, September 14, 2009 at 1:31 p.m.

    Thanks, Ted. Good points to think about. My feeling is that the brand (and branding) will take on more significance than ever. Why? Because the price wars will become debilitating to even the largest, well-fixed companies, and research will show that at-the-shelf purchase decisions for greater choice at greater parity, will make impulse decisions even on higher-ticket and high-interest products and services. Time and decision-making efficiency are priority buying triggers for consumers...they may say they're saving more and reluctant to buy...and so they are...but this doesn't answer the behavioral question of how they'll purchase when they do. And no focus study report will get to this truth. Leadership brands are moving on this now, others will follow. On behavioral research and good common sense and instincts, sometimes counter-intuitive. - Jan Zlotnick

  4. Dyann Espinosa, September 14, 2009 at 1:43 p.m.

    Really think @ MickeyLonchar has the right perspective "focus on lifetime value" and become a "solution" for consumers.
    And @Brent Bouchez: Yes, boomers are working longer-they have to. And for less and less. Many who have been laid off are not able to find new jobs at any level as they are competing with the entire age spectrum of job seekers. This means they can't afford doctor or dentist visits and gradually become less healthy. And all of this affects the economy, but also the underlying culture of the US.

  5. Ann O'daniel from Experience Branding, September 14, 2009 at 7:24 p.m.

    Great comments all. It's so nice to hear there are people out there who believe in the financial value of building relationships. When brands become trusted and knowing guides for making better decisions, customer and company profitability will increase. Just ask Apple. They've built an experience brand focused on fulfilling loyal customer needs and desires and they are almost twice as profitable as other computer manufacturers.
    I'd like to know if anyone has answers to question Mickey left us with. How do you sell the C-suite on the need to nurture existing customer relationships instead of cutting prices and trying to compete on new product features? What are the biggest hurdles and has anyone had any luck overcoming them???

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