How are consumers reacting to the downturn?

We know that "things are going to be tough" this year and maybe
"even tougher" next year.  What should we do about it?  Opinions seem to range
from predictions of doom to a rather cosy feeling that maybe we will see it
through and it will not be so bad.

In this post we try
to apply the principles of the Growth Game to analyse the situation.  Analysis
"Growth Game" style adheres to three principles.

Stop worrying about the future, but do beware of
the Black Swan (see blog entry).  Avoid expert
predictions of what will happen and instead concentrate on strengthening your
ability to compete and the withstand future unexpected shocks.

Actively seek and acquire empirical
to understand what is actually happening.  Again try
and avoid the expert opinions.  They tend to offer qualitative observations and
are tempted to make predictions.  Instead concentrate on evidence of things that
are actually changing.  In particular look to gain insights about things that
directly affect your business.   

"interesting" and focus on "actionable" insights
.  That means
start with the decisions you need to take and then go after the insights that
will help you make them. 

We have been
reviewing some evidence
observations and opinion about how
consumers and customers will react to higher prices and lower disposable
incomes.  I have grouped them into expert opinions, hard empirical evidence,
insights and conclusions.

Example predictions/observations from

  • The cumulative effect of numerous cost increases has now reached a tipping
    point.  Consumers are really starting to feel more vulnerable and this has
    become more pronounced in the past 6 weeks.
  • With pressure on personal finances people will be less willing to pay a
    premium for "nice to have" things like more local food and food provenance;
    sustainable foods, organic and fair trade.
  • There will be a back to basics trend, grow your own food, more family
    cooking, use basic ingredients rather than ready meals and less willingness to
    pay for convenience.
  • Under financial and moral pressure consumers will find ways to reduce food
    waste (30% of food bought currently ends up thrown away).
  • People will switch more of their shopping to discount outlets and local
    shops reducing both prices and transport costs.
  • People will eat out less and consumers will switch to more take outs
  • Concern over climate change will affect what people buy.

A lot of these statements make
and some may well happen, but remember they are either
subjective or a prediction.  Remember that experts may well understand what is
going on but their predictions are usually unreliable.  Take a look at our Black Swan blog post to see the
potential pitfalls of listening to expert predictions.  We recommend you look at
the empirical evidence and come to your own view about how this will affect your

Empirical evidence of what is actually happening now (data to May 2008)

  • The polarisation of markets continues whereby the strongest growth is
    happening at the top and bottom of markets.  The highest growth rates are in
    premium added value and low price segments whilst the middle gets squeezed.
  • In Grocery the strongest growth % rates are in discounter stores (Lidl,
    Netto) and internet grocery deliveries.  The biggest absolute cash growth is
    happening in megastores situated out of town.  However, this is not a feature of
    the downturn.  These trends are long term and have not yet changed in 2008.
  • What has changed in the downturn is lower sales in eating out, clothing,
    household appliances and furniture.  Other sectors including holidays remain
  • OL share of total grocery has not increased for 5 years and as yet there is
    no sustained trend for own label to increase its share.
  • The % of volume that is offered on promotion has gone up sharply and this is
    more about multi-buys than price reductions except in Tesco who focus more on
    price reductions
  • In 2008 consumers are making fewer big shopping trips, shoppers spend per
    basket is down and there is less promiscuity between retailers.
  • Consumers are claiming to be influenced more by a number of ethical issues,
    CSR, environment, fair trade, food provenance etc.  Anecdotal evidence of sales
    growth in products with these claims suggests this is true.

What insights can we translate from this (whilst avoiding predictions)

  • Consumers are under financial pressure and are adjusting spending behaviour,
    but they are choosing carefully where to make the changes.  Indulgences and
    treats remain important, but consumers selecting which ones matter most (quality
    food and holidays seem to be doing well).
  • The fundamentals of what consumers want (the power drivers of choice) remain
    the same in slowdown or boom.  The mega trends of health, convenience,
    naturalness/food provenance and ethical concerns remain in force and continue to
    be the main sources of growth in markets.
  • There is no sign of a flight from quality.  There is some smart shopping to
    get and be able to afford the quality (promotions, discounters, local sourcing).

Translating insights into action

Reducing waste is an insight that
could offer opportunities.  We know consumers are making more frequent shopping
trips.  This could correlate with reducing wasted food.   The other area of
waste that is an environmental issue is packaging.  May be helping consumers
reduce waste could offer opportunities for innovation.

Nielsen recently quoted a survey stating that the top 20
innovations have all been about packaging,
format and
convenience.  As marketers are we smart enough to come up with packaging formats
that reduce waste and have less environmental impact whilst still delivering the
merchandising impact and consumer convenience?  It must be worth a

The Growth Game takes these guiding
principles of getting and translating insights into the practical steps for
The process rests on empirical observations and
measurement and is all about engaging the business team to create practical and
credible ideas.  To find out more take a look here

What do philosophers and marketers have in common

We worry about things that seems not important to everyone else and can use language that is obscure and difficult to follow.

 I was reminded of this when I attended a philosophy lecture
discussing how the philosopher Richard Rorty struggled to reconcile the
fact that he was passionate about social justice and at the same time
want to be selfish and spend time on transient personal pleasures such
as the cultivation of rare orchids. It seemed that the philosopher’s
intelligence led them to worry about things that seem quite
straightforward to the rest of us.


Most of us have accepted that a part of our life may be devoted to
causes whilst other parts of our lives are around personal stuff and
other parts of our lives are economic. We know we have these different
needs. We do not struggle with needing to explain a dilemma as Richard
Rorty did.
As I left I found myself thinking that as marketers we can be seen
to worry about things that the rest of the business are not so
concerned about (e.g. brand essence, brand wheels, abstract ideas).
This makes us seem a bit detached from the day to day realities.
The second tendency marketers share with philosophers is to use
language that seems somewhat obscure to the rest of the business?
happened to me in this lecture where I felt like an outsider observing
a rather strange parallel universe in which the language of discussion
was unnecessarily complex and obscure.
Our own research has shown that marketing teams who do not
communicate internally and have less frequent interactions with the
rest of the business and are less well regarded. 
Whereas, the best market driven businesses have marketers who are
well regarded and have invested time in interacting with the whole
business so that their ideas are practical and useful and they
communicate effectively so people understand the benefits.
There are two behaviours of these philosophers that we have
observed in marketers and if you fall into this then you run a big risk
of seeming detached from reality and reducing your impact on the
Firstly, like the philosophers, marketers can spend time exploring
things that seem unconnected with the reality of getting more
profitable growth.
  I have sat through U&A presentations that
provide interesting descriptions of consumer behaviour but offer little
insight as to how the business could do things differently to satisfy
customers.  Then on other occasions there are lengthy meetings to
develop and discuss things like “brand essence” or the “brand
pyramid”.  These discussions can seem to have little to do with the day
to day business of getting more growth and hitting targets.   These
discussions have little practical bearing on the decisions about
products, services, prices, distribution and marketing communications
that will drive growth.
Secondly, like the philosophers, marketers can use words and
language that seems disconnected
from the reality of getting more
profitable growth. The use of this language can obscure the real value
that marketer’s programmes and ideas might have. So whilst the business
discusses customers, consumers, sales, products, services, reputation,
distribution, logistics, prices, profit margins, promotions. Marketers
talk about branding, brand image, strategy, awareness, design and
identity. Many of these things may well be important but the links to
profitable business growth and real practical decisions are less than
clear to your colleagues in other functions.
So I left this lecture reflecting on how marketers can avoid
behaviours that will restrict their influence and may mean the business
is less market and customer driven.  Try this instead.

1.  Use shorter words.
2.  Use the language of the business, not the language of the text book or the advertising agency.
Make sure that the ideas and concepts you discuss will help you make
practical decisions.  We call these concepts “really useful concepts”.