Consumers are changing their buying behavior significantly as a result of the current economic crisis. It seems that they are going “back to basics” and are feeling good about returning to a simpler lifestyle.
Lee Scott, CEO of Wal-Mart observed at the 98th annual retail convention of NRF this week in New York, that every young shopper he spoke to had given up something recently, such as dining out, going to movies or going on shopping trips. And they seemed to be feeling good about giving up something! He said, there may not be an immediate desire to go back to high consumption and debt. A lot of people seem to realize the downside of living on the edge, and they want to return to a moderate lifestyle. The ratio of average debt to disposable income has increased dramatically over the last decade, and the consumer is now being forced to deleverage. This is a tough environment for business.
So what should smart companies do to be successful in this situation?
This is a great time to understand the new psyche of the consumer. Smart companies have an opportunity to serve consumer needs better. One way is to create new offerings that provide a sense of security, peace of mind and risk free trial. For example, an automotive company recently offered to buy back the car if the person buying the car, were to lose his or her job. By providing a kind of safety net, one could still encourage trial of new products. Gaining consumer insights and acting on them could lead to unique offerings that create long-term brand loyalty.
As consumers are dining out less, they are buying more frozen foods. This is one of the categories that has seen a big increase in sales as consumers look for convenient and healthy meal solutions at home. Flat panel TVs are selling fast, while the consumption of other competing forms of entertainment are declining.
If one is to stay at home more often than going out during these times, one might as well buy a higher end TV, a Magnolia home theater and a premium coffee maker!
There seems to be an opportunity to encourage consumers to spend more in specific categories in lieu of other categories that they might be cutting down on. And luxury items could be redefined as new necessities in this context. There is not only a big need for more new products to be introduced that shall compel shoppers to try but also a greater need to rethink the way the products are introduced. Innovative products could become more of a service in these times.
Smart companies shall take this opportunity to manage their business in greater detail. Managing inventories well could make a huge difference, as one of the big items where capital is invested is in inventory. Understanding demand with better business intelligence, becoming more demand-driven, having shorter cycle-times and greater accuracy becomes even more crucial now.
Leaders need to continue to make strategic investments in becoming more innovative, customer centric and demand driven during these turbulent times.