Every penny counts: Consumer spending in the recessionby
While it may not be surprising that consumers are cutting back on their spending to save costs during the credit crunch, even those who are more affluent are still counting the pennies. So what are the implications for businesses?
By Angela Richmond, ORC International
Reports abound of cost-cutting and more frugal spending as we remain under the cloud of the econimc storm but recent research now suggests consumers are being more careful with their money, even if they have not been directly hit by the recession. So what does this mean for firms trying to attract and retain customers?
A survey of 5000 adults by ORC International Consumer Spending Survey in March this year revealed the full extent to which consumer confidence has been dented, with 90% of consumers spending less than a year ago. This has been a necessity for some, with just over half (56%) being forced to make savings as a result of changes in their income.
But what is of greater concern for business is the number of people who admit to being more careful with their money, even though their income hasn’t yet been affected by the recession. This suggests that many consumers are simply pocketing the money they are saving on lower mortgage payments, reduced VAT and discounted goods on the high street. Only 10% of consumers feel recession-proof, and continue to spend at the same levels they did a year ago.
With inflation continuing to fall, those who do have money to spend should be getting a great deal. Families have felt the impact more than those without children and are keeping a much tighter control on their finances. But which categories of products and services have been hardest hit?
Our survey showed that over half of people have cut spending on luxuries like eating out and clothes, with women being far more likely to make these sacrifices than men. Gifts and holidays are also vulnerable sectors, with 45% of consumers spending less on Christmas and birthday presents and 42% scaling down their plans for trips away.
While the atmosphere of restraint means people socialise less or perhaps pass on an exotic holiday, they seem less reluctant to give up the smaller pleasures of life. Only a quarter named music, DVDs and books as items they are spending less on, and sales of media remain buoyant. And it seems we still need to be able to dream – very few see the National Lottery as a potential way of saving.
And what of the future? In his budget, Alistair Darling predicts that the upturn may be only months away. We make no such predictions on when the recession will end, but the survey does give us insights into which categories of spending will bounce back fastest when the recovery starts. Top of the list is holidays, with 42% stating that this would be the area they would spend more if money were not so tight – exactly the same number who have cut back.
Clothing and eating out follow, with around a quarter ranking in the top three areas they will spend more. Gift shopping seems to be losing some appeal though. While 45% have reduced spending on presents, very few see it as something they are keen to reinstate once the economy has improved. Lack of generosity, maybe, or a sign that some of us are starting to question the value of some of our more frivolous purchases?
And saving money is not just about giving things up. There is evidence that people are being more savvy with their finances and shopping around more for essentials like fuel and financial services - 29% have shopped around for car or home insurance in the past six months and many others have looked to see if they can get a better deal on utilities, with electricity topping the list at 27%.
While families are keen to save money on energy bills and insurance, younger people target their mobile phone deal.
The fact that consumers are becoming less loyal is bad news for suppliers. Energy suppliers, insurance companies and digital media providers all make heavy use of introductory rates and offers, and the cost of acquiring a new customer is high. Suppliers rarely make money from a customer in the first year, so customer retention and loyalty is therefore crucial to their business model. Either they must find a way of adding value to reduce churn or they will need to seek out new approaches to acquisition.
The web is playing a key role in helping consumers to get a better deal. Interestingly, despite all the hype about blogs, message boards and other user-created content, consumers remain wary of what they read on these. Instead, they gravitate towards commentators they know and trust, such as Martin Lewis on moneysavingexpert.com. Around half report using sites like this, while another 44% look at reviews on ‘policed’ sites like Amazon and Trip Advisor.
As well as researching online, consumers are using the internet more for shopping and around half in our survey now buy online more often than they did a year ago. For some, cheaper prices are an incentive, but for the majority (66%) the web is not just about saving money. Internet shopping is especially popular among families and higher income households tempted by the convenience and ease of shopping online and access to a wide choice of products.
While the economy will recover, then, it may not look the same as it did when the credit crunch hit. The fact that they have more time on their hands and less money in their pockets means that consumers are becoming expert at seeking out the right products and the best deal for them. That means that businesses will have to up their game when it comes to keeping customers happy.