I recently read an article on recession psychology in the Harvard Business Review (April 2009,How to Market in a Downturn) that started me thinking about how I have changed my own spending habits since the recession hit.
The article offered four spending profiles based on identified patterns of behavior evidenced during economic downturns since the 1970’s. In a nutshell, the four profiles are described as follows:
1. Slam on the Brakes: Most vulnerable and hardest hit group, have responded by eliminating, postponing and decreasing all types of spending. Some are lower-income, but anxious higher-income consumers fall in this category as well.
2. Pained but Patient: Consumers who tend to be resilient and optimistic about the long term picture, but less confident about recovery in the near term. This group is also cutting spending in all areas but less aggressively.
3. Comfortably Well Off: Consumers who feel secure about their ability to ride out the recession. Their consumption is relatively unchanged but may tend to be more selective and less conspicuous.
4. Live for Today: This segment remains relatively unconcerned about their finances, unless they become unemployed. Typically urban, younger renters who spend on experiences rather than stuff.
As I look at these profiles, I can easily see myself fitting in with the “pained but patient” clique. As I reflect more deeply on how my spending patterns have changed, I realize that I have switched brands on several products, I have started buying in bulk more frequently, and the car and furniture that I was planning to buy this year have been postponed until 2010. All of this has changed, yet my household income has not changed at all. At least in my case, there is definitely something to this psychology stuff!
So what profile do you fall into? How significantly do you think that the recession has affected you personally?
Also, what profile do you think that your customers fall into? In January 2009, the Consumer Confidence Index sank to the lowest level since 1967. It seems clear that new consumer segments are emerging in this recession that marketers are going to need to address. As stated in Harvard Business Review (April 2009), “Marketers typically segment according to demographics or lifestyle. In a recession, such segmentation may be less relevant than a psychological segmentation that takes into consideration consumers’ emotional reactions to the economic environment.”
As companies everywhere are busying themselves cutting costs, reducing prices and postponing new investments, I found this article to be a good reminder that even in a recession it is still important to connect emotionally with customers. Consumers may be justifiably a bit cynical these days, but they are still looking for brands and companies that understand their changing expectations and are worthy of their trust.