Consumer confidence & spending

Last week GfK NOP released their latest consumer confidence index, which showed a surprising 18 month high in the data. I say surprising, because retailers who have released sales updates in the last week or two have all talked about how difficult conditions continue to be, and of course it is only a matter of weeks since Comet was the latest retail casualty of the economic downturn.

So, what is actually going on, and what does all the conflicting data mean in relation to marketing to consumers? Can brands / manufacturers start to be cautiously optimistic, or do you still need to be just plain cautious?

The fact that the economic downturn has gone on for so long means that there has been a fundamental shift in the consumer mind-set. Gone are the days of ‘I can have it all now’. Instead consumers are more careful about their spending, adopting a range of strategies to make sure they make their money go as far as possible. So they are avoiding expensive shops or even what they might feel are expensive aisles in-store; they are cutting back on their spending, by trading down, switching to own label, or simply sticking to a clear budget; they are making sure they make the most of promotions; they are hopping from store to store to get the best deals or prices; and they are avoiding waste.

These strategies, which we first identified in 2008 as the credit crunch hit, have been put into practice by consumers to varying levels over the last 4 years. As a result, these behaviours are becoming engrained. So even if consumers are becoming more confident this is unlikely to mean a return to the boom days of spending.

What does this mean for business? Well, it means that the effort required to encourage consumers to spend is going to have to continue. The exhaustive processes developed around NPD pipelines will continue to need the additional support of marketing beyond the launch. Designing a fabulous product to then just shove it on shelf is no longer enough. Using advertising to raise awareness of a new product or an existing brand pre-store or pre-purchase is also no longer enough.

Brands and manufacturers need to ensure that marketing doesn’t stop at the store door. When the default consumer mind-set has shifted to ‘do I really need it’, every product on shelf or on a website needs to proactive sell itself. That selling can come in many forms: packaging that is designed to meet purchase needs, not just consumption needs; SRP that is designed to support a sale, not just help with shelf replenishment; promotions that upsell rather than undermine value; and POS that draws attention to the brand or product benefits.

Even if the economy turns the corner in 2013, after such a sustained downturn it is unlikely consumers will quickly return to the prolific spending levels of the past. The brands and manufacturers who recognise that consumer confidence will not directly translate into spending, and are using every opportunity available to convince consumers to part with their money, will be the winners.