Dear Prudence


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Post-recession consumerism comes out to play—as simple financial prudence shifts to include the things customers hold dear

We don’t often think of the Beatles as financial prophets—their “Tax Man” notwithstanding. In their 1968 song, “Dear Prudence,” the Beatles invited the star of that song to greet the new day, and indeed, prudence has come out to play. But it has arrived in a form that marketers may not have anticipated.

Call it prudence, frugality, thrift, or austerity—whatever term you choose to use, it’s clear that as we greet a brand-new decade, the wild spending of the pre-recession seems like just a faint memory. For today’s consumer, restraint rules.

As the unemployment rate continues to hover around 10%, the rate of personal savings is growing: According to the U.S. Commerce Department’s Bureau of Economic Analysis, personal savings as a percentage of disposable personal income was 4.7% in November 2009, while in 2006 that number included a negative sign. While it’s no comparison to the hefty savings stats of the era of the Great Depression and World War II, when personal savings sat well in double-digit territory for years, these days consumers are certainly more cautious about where their money goes—and many believe those habits have dug in for the long haul.

A recent poll from Citi found that a significant majority of women with children—about 75%—feel the recession has changed their spending and savings habits “forever.” And survey research from Mintel shows that many lifestyle changes made as the recession began in 2008 are holding steady—for example, in October 2009, 67% of respondents stated that they’re cooking more at home to save money, and 64% stated that they’re traveling less.

“It boils down to an issue surrounding decision-making,” says Dr. Robert Leone, professor of marketing at Texas Christian University. “As things change, many consumers begin to rethink purchases and decisions that had been instinctive.”

Loyalty marketers have hardly ignored the drumbeat of consumers searching for savings and value: Many are using recession-friendly strategies to increase loyalty among frugal folk, such as grocery chain Safeway, which offers a program in which club members can virtually attach coupons from websites such as CellFire and to their accounts, lowering their bills when a loyalty card is swiped at checkout.

Other programs are offering double and triple points to rev up consumer reward power when spend is down, including U.K. grocery powerhouse Tesco, which is touting a double Clubcard points program that will last until this summer. Still other companies are turning their focus to loyal customers who are willing to spend, such as Chase’s new Sapphire card, which offers flexible rewards and points that don’t expire.

Then there are the financial services loyalty programs that specifically encourage savings, pioneered by Bank of America’s Keep the Change initiative that rounds up debit purchases, deposits the round-ups into a savings account, and matches the roundups within certain time and dollar limits. The latest such initiative is U.S. Bank’s pilot of S.T.A.R.T., which allows members to deposit savings each time they use their credit card, and to transfer FlexPerks program rewards into savings each month.

But understanding the core motivations behind these spending/saving shifts—and whether these are long-term behavior changes or just temporary deviations—is essential as companies move beyond simply surviving the downturn to working toward investing in boosting customer loyalty and attracting new customers. After all, relying on discounting and sales, the competition strategy many retailers have fallen back on, isn’t a long-term loyalty solution if consumers won’t soon return to their old spending ways. That is, unless you are, at heart, a discounter, such as Walmart or Family Dollar, retailers that have fared well in the down economy. Instead, most marketers must devise creative ways to target customers in this new environment.

“The recession has really been a trigger that affects the way consumers are behaving,” says Lerzan Aksoy, associate professor of marketing at Fordham University and co-author of Why Loyalty Matters. “And while perhaps it is a pendulum that goes back and forth at times of economic change, I think now people are really reconsidering their values. They’re thinking about what’s really important to them.”

Some experts believe the motivation of the “new frugality” goes beyond the current financial and economic crisis, and has led us to the beginning of an intrinsic cultural change, as consumers don’t work to simply stretch their dollars, but to re-evaluate what fundamentally makes them happy. Loyalty marketers, these experts say, can use what they learn about this new post-recession culture to make sure their efforts are focusing on what consumers want right now and in the future—not what they wanted when the recession began.

Dr. Robbie Blinkoff, a consumer anthropologist and founder of Context-Based Research Group, which has worked with clients such as American Express, Nike and Procter & Gamble, believes the new prudence is the beginning of a cultural transformation: “We’re going from the world being defined by us as consumers to the world being defined by us as humans—and being a consumer is just part of that.”

In a new quantitative version of Context-Based Research Group’s 2008 study, Grounding the American Dream: A Cultural Study on the Future of Consumerism in a Changing Economy, 43% of respondents said they believe the recession has had a positive impact on their lives—the research suggests that Americans will keep a tight grip on their pocketbooks while they find enjoyment through more meaningful, less purchase-centric activities. For example, four-fifths of respondents plan to spend more time with family and friends this year compared to recent years.

“I think people are realizing that you can’t shop your way to enlightenment,” says Blinkoff. “The response to 9/11 was ‘shop,’ while the response to the recession is ‘don’t shop’—so now people are turning to non-consumerism behavior because people realize that the way to really be happy is to connect with others.” Blinkoff is quick to point out that that doesn’t mean people are going to stop shopping—but they are going to shop differently. “A big part of the way we spend will be spending that satisfies us socially—so it’s really about evaluating your purchases in terms of the social value it will bring to you.”

Recent research from Mintel supports this contention, particularly as it applies to social spending at home and online: More than 30% of survey respondents said that entertainment activities like watching movies at home, cooking dinner, watching TV, and reading have become more popular during the recession, while more than 10% reported spending “much more” or “somewhat more” time on social networks and reading blogs or researching online.

“These are all cheaper alternatives to going out to dinner or to a bar, but it’s also about when people actually do make discretionary purchase,” says Chris Haack, Senior Analyst at Mintel. “It has to be more meaningful and viable.”

Loyalty marketers can take these research results and make sure their efforts, whether through a traditional loyalty program or through other enterprise loyalty tactics, line up with the statistics. After all, according to Fordham University’s Lerzan Aksoy, brand loyalty is already facing challenges as price-challenged customers consider switching to more affordable brands. But in addition, these statistics also shine a light on the consumer shift from simply acquiring tangible things to focusing on experiences—spending a larger portion of dwindling dollars on experiences that can be enjoyed with other people.

Making experiences attainable
Loyalty marketers who can strategically respond to this new consumer focus on experiences may find renewed success and increased loyalty, Aksoy says. “For example, a drinks manufacturer recently came up with displays to teach people to mix cocktails at home rather than go out to a bar,” she says. “Instead of reducing their prices, they were able to market in a way that helped preserve their customer’s standard of life at an affordable price.”

Robert Leone points out that loyalty programs that offer a special experience or something beyond a discount makes people believe they are getting more bang for their buck as they choose their purchases wisely and carefully. “They’re stretching and shifting their choice sets—so, for example, they might pick a different family vacation if one offers some value-added component.”

If not a family vacation, then maybe a chance to win a professional family photo, as offered by the Huggies’ Enjoy the Ride program. Or something personally fulfilling like private cooking lessons or thrilling like the “fighter pilot experience” offered by the choiceprivileges program from Choice Hotels. Or something relaxing, as simple as Optimum Rewards’ “Meal and a Movie” discounts to share with a loved one.

For Robbie Blinkoff, the new thinking is all about the ‘grounded consumer’—who is more strategic and more thoughtful, who thinks about the social and the emotional as well as the rational point of purchasing. “They think about Value with a capital V,” he says. “This is definitely a post-recession consumer—83% of the consumers we studied said they are spending differently, really thinking through their purchases. Even if some of those people are saying one thing and will behave differently, it’s still a big difference. What may come out of this a couple of years from now is that people will be spending a lot of money but on less stuff, because they’ll have a very clear sense of what products they want in their life.”

The products and services consumers will welcome, say experts, certainly depend on a company’s category, its target audience, and its customers’ level of price sensitivity. However, experts say offers also require new thinking by loyalty marketers as they negotiate a changing consumer mindset.

“You have to think holistically about your customer offering,” says Leone. “Even as we move toward an upswing, people have changed the way they think—they have learned that there is value in reconsidering and reevaluating what they purchase.” Because brand stickiness can no longer be counted on, marketers must offer a strong motivator to buy, he says, whether an economic motivator such as double points, lower prices or delivery options, or a psychological motivator, such as a sense of experiential value when redeeming rewards.

The crux of all this, explains Blinkoff, is that the new post-recession consumer doesn’t think of himself or herself as one, requiring a new approach from marketers of all stripes. ” We believe retailers must gently nurture customers rather than aggressively targeting them as they may have in past years,” he says. “To see the world right now through a marketer’s eyes with only those lenses is a professional problem right now.”


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