credit crunch presentation

Julian Rodway

Expressions Planning Limited

416a King’s Road

London SW10 OLJ

Tel: +44 (0)20 7376 3356

Fax: +44 (0)20 7376 3447

Email: [email protected]

February 2009

CREDIT CRUNCH:

WHERE YOUR CONSUMERS ARE AT TODAYE X P R E S S I O N SB R A N D P L A N N I N G

mailto:[email protected]

CREDIT CRUNCH CONTEXT

The last quarter of 2008 was a dress rehearsal for 2009

The UK economy experienced record rises in fuel, impacting on:

• Home heating

• Transport costs

• Production costs

Compounding these fundamental costs was the credit crunch

From a consumer perspective the world was changing:

• Mortgage companies were failing

Icons of consumerism were crumbling:

• High street shops were closing

Banks were bailed out:

• Motor manufacturers were looking for economic support

Consumers were experiencing the cold winds of change

Expressions Planning Credit Crunch - 1

A YEAR LONG REVIEW

Expressions conducted 4 pilot groups in January 2009:

• 2 in Birmingham

• 2 in London

In each location one group was conducted amongst:

• Consumers confident about their economic future

• Consumers experiencing recent economic difficulties and concern over jobs

The aim was to understand the current environment:

• Select 8 households for an ethnographical study

The intent is to follow the fortunes of these 8 families monthly over the year

In this base line study we explore 2 status symbol categories - holidays & motoring

• And 2 fmcg categories – dog food & sausages

We invite you to submit categories to be explored during these monthly interviews

This will be a free service


RECESSIONARY MINDSETS: RECREATIONAL TO REALITY


RECESSIONARY CONSUMER TYPOLOGIES

Expressions Planning Credit Crunch - 4Prominence

Co

nfi

de

nt

Co

nc

ern

ed

Recreational

Reserved

Retrenchers

Not overly concerned about serious economic issues

Recognise situation as an opportunity to review

& reduce household expenditure

Elements of regaining control of expenses

Participation is about cutting back:

- not cutting out

Perceive household as vulnerable to unemployment

Need to be proactive, manage their household expenses

Matter of prioritising expenditure

Cutting back & out without being too puritanical

Experiencing economic difficulties; adjusting & adapting

Desperate measures need to be enforced by many

Optimistic belief means some adopt a

progressive cut back/out policy

Learning to adjust to a different set of priorities

Driven by a need to conform to situation

Conscious that conspicuous consumption is

not socially or politically correct

Selectively join in but will also exploit opportunities

Relatively confident they will not be impacted on

Reality

RECESSIONARY CONSUMER TYPOLOGIES: SUMMARY


Recreational Summary

Need to conform

Selectively join in

Exploit opportunities

Relatively confident

Reality Summary

Experiencing economic

difficulties

Desperate measures

Progressive cut out policy

Learning to adjust

Retrenchers Summary

Vulnerable to unemployment

Need to be proactive

Prioritising expenditure

Cutting out & back

Reserved Summary

Not overly concerned

Opportunity to review & reduce

expenditure

Regaining control

Cutting back, not cutting out

RECREATIONAL MINDSET


Context

Crisis

Voyeurs of crisis; a topic of discussion not an imminent threat

Opportunity for some to carefully and covertly exploit:

“…at least you can now negotiate over prices…”

“…you can now get a builder and at a reasonable price…”

Critical of the ‘doom & gloom’ of economic news; considered an

irritant:

“…the media don’t help, full of depressing stories…”

“…stopped listening to Radio 4…too depressing…”

Economically comfortable; adopt a secure attitude to employment

Typically working in public sector or companies supporting essential

services

Boast about low mortgages or tracker mortgages

Perceive themselves as financially astute

Not prepared to alter their lifestyle but less overt about it:

“…we’re still going skiing but feeling a bit guilty about it…”

RECREATIONAL MINDSET (Cont’d)


Considerations

Brands

Feel an opportunity to review household expenditure

More about exploiting offers than consolidating:

- minimizing expenditure & getting greater value:

“…Sky are doing some good offers…”

Concern over value of sterling & foreign holidays

For the brave an opportunity for investments:

“…house prices are going to fall…they’ll be some bargains

about…”

Belief in buying brands unshaken; not going to compromise

Conversely, many aware of brands being discounted:

- from chocolate biscuits to BMWs

Resist changing established and efficient shopping habits

Recession more about being seduced to remain loyal to

existing suppliers:

- exploiting an opportunity

RECREATIONAL MINDSET (Cont’d)


Summary

Confident, to an extent complacent

Perceive situation as an opportunity to exploit

Voyeuristic and vulture mentality

Not prepared to compromise on lifestyle

Respect need to be less conspicuous consumers

More likely to buy a bigger car at reduced rate:

- than a smaller more economical car

Crisis is about selectively joining in when it suits them

RESERVED MINDSET


Context

Younger couples, some professionals (teachers, librarian, IT

workers)

Feel relatively secure in job; unemployment not an issue

Focus is on maintaining lifestyle by efficient finances

Concern is about the future and future planning

Crisis

Impact is by association; house prices have fallen

Constraining plans for family improvements:

“…we wanted to move to a bigger house this year…”

Talk about friends and relatives being affected; second hand

experience:

“…my brother-in-law’s badly hit, he’s a builder…”

Period of reconsidering financial situation, reviewing expenses

Sensitive to the plight of others; cutting back part of conformity:

“…you see people buying more economy lines…so you

think you might too…”

RESERVED MINDSET (Cont’d)


Considerations

Brands

Still remaining loyal to ‘icon’ brands (washing products,

butter, cereals, etc):

- switching where deemed less important:

“…I’m not down to buying the economy own labels but

cutting back where possible…it is a sign of the times…”

Challenge mentality towards expenditure:

“…I feel as if I have to justify what I buy to myself…”

Reference the need to budget and consider expenditure carefully

Future plans involving big ticket items or household improvements put

on ice

Holiday plans have become less extravagant & UK based due to the £:

- no longer able to enjoy cheap €

Looking to make savings where possible without sacrifice

Mood of being prepared for worse times:

- preparing a plan to cope

- a phased strategy from cutting back to cutting out

RESERVED MINDSET (Cont’d)


Summary

Feeling of being prepared

Gaining control of expenditure

Prioritising values

Refreshing attitude to extravagant consumerism

Adopting more family and free entertainment

Turning from consumerism to culture

Need to justify purchases; element of guilt over extravagance

Seeking to compensate when cut back:

- indulgent meal in rather than a night out

Initiating family values and appreciating of money management

RETRENCHERS MINDSET


Context

Crisis

Driven by the need to be prepared

Having a sort of plan, campaign management

Unspoken expectation of at least one partner’s income being

affected

Have often reviewed household finances and cut down and out:

“…we haven’t pared back to the bones …but should it happen

we know we can be more ruthless…”

Concerned about unemployment

Experience of friends, family and colleagues who have been

made redundant

Work in sectors vulnerable to downturn (building related,

catering, manufacturing, etc)

Anxiety about surviving through meeting essential commitments

RETRENCHERS MINDSET (Cont’d)


Considerations

Brands

Some brands non negotiable (coffee, cereal, shampoo, toothpaste, etc)

Perceived as false economy

All discretionary expenses cut back

Experiment with other stores and own label products:

“…I’ve always driven past Morrison’s to get to Sainsbury’s but now I’m

converted…excellent fresh fruit and veg…”

A period of redefining household tastes and expectations

Trading down whenever possible and practical

Staged reduction in unnecessary expenditure and lifestyle

Desire to implement drastic cuts after Christmas:

“…we knew we had to do it but wanted to have a good

Christmas first for everybody…”

All household bills and outgoings reviewed:

- some subscriptions cut out (mobile phones, Sky, etc)

- some services switched to exploit offers (dual fuel discounts, cheaper

suppliers, etc)

- some cut back (basic Sky package, selling 1 car, etc)

Desire to revisit mortgage but concern about ‘opening a can of worms’

Want to be living as expediently as possible; weaning themselves off credit

RETRENCHERS MINDSET (Cont’d)


Summary

Planning for the worst

Learning to live on a reduced budget

Challenging past consumer aspirations

Acclimatising the family; changing tastes and expectation

Learning different shopping regimes

Seek non extravagant rewards and treats

Family based activities evident

Parental concern on children not being the innocent victims

Prepared to compensate children and family with small shared

indulgences

REALITY MINDSET


Context

One or both partners made redundant or hours shortened

Immediately impacting on household finances and emotions

Take desperate and immediate expenditure decisions:

- driven by necessity

Pride prevents consideration of outside financial planning and help

Reluctance to talk to mortgage provider or landlord

Crisis

Living through economic turmoil

Perceived themselves as victims, want to apportion blame

Government and banks cited as being responsible for ‘the mess’:

“…it’s about people in power playing with our lives…”

Adopt a pessimistic view of the future:

“…I’m 48, I’m not likely to get another job in engineering

again…or at all!”

REALITY MINDSET (Cont’d)


Considerations

Brands

Radical change of life

Minimising expenditure and impact on family:

“…you know there are plenty of us out there and there will be plenty

more but you don’t want your kids to be affected…”

Evident psychological impact

Brands are luxuries that need to be justified:

“…it’s only a few pence more for Heinz and they can tell

the difference even if I hide the tin…”

Challenge is to survive on a reduced budget

Economies are essential, not optional:

“…heating or eating…”

Significant change in shopping and eating habits:

“…now buying more vegetables and cooking from

scratch…found some really good recipes…”

Discount stores now offer a shopping relevance:

“…now go to Aldi first…what I can’t get there I get at Tesco’s…”

REALITY MINDSET (Cont’d)


Summary

Challenges and changes family life

Learning to cope with circumstances

For some adoption of different value systems

Different coping strategies; resignation to optimism

In a changing world brand loyalty perceived as a luxury

Consumers looking for survival strategies

However cheap does not always represent value

Need to treat themselves and family

Distractions deemed important; family outings, gaming consoles

Discovery of a different set of values and consuming

experiences:

- eg swapping culture or exchanging items on EBay

APPLIED TYPOLOGIES: SAUSAGES


APPLICATION OF TYPOLOGIES ON CATEGORIES: SAUSAGES


Recreational

Believe in buying best they can afford

Avoidance of cheap ‘adulterated fillings’

Attracted to top end speciality, premium offers:

- Finest, Taste the Difference, etc

Served up as ‘economy meal’; entering the spirit

Haggis a topical January dish for entertaining

Demonstration of credit crunch participation

Reserved

Some consideration given to down trading:

- from top end to branded or mid market

Some driven by lower cost attraction

Resistors do not want to compromise on eat

quality; concern over content & health:

“…paying to distance yourself from the bits &

pieces & fat & grease…”

Retrenchers

Perceived as a relative cheap meal with fresh

vegetables & potatoes

Concern over ingredients of cheap sausages

Resist cheap offers as poor value

Pay ‘bit extra’ for reassurance of taste & quality

Make savings up on quantity or on other less

sensitive items

Temptation to serve more regularly

Exploit offers & buy promotional packs (freezer)

Reality

Perceived as a cheap & traditional meal option

Serving versatility to suit family:

- chips & beans or potatoes & vegetables

Happy to buy economy from trusted supermarket

Or look for promotions or discounted offers

Like sausages as no waste; can be eaten cold

Acceptance of economy range & meat content

Will not compromise on cooking; don’t want burst

sausages & reject fatty sausages

APPLIED TYPOLOGIES: DOG FOOD AND CARE


APPLICATION OF TYPOLOGIES ON CATEGORIES: DOG FOOD AND CARE


Recreational

Prepared to make savings with family food bill:

- but not cut down on pet care:

“…I’d rather buy one bottle of wine less than

change her diet…”

Still buying treats and snacks

Reserved

Dog virtually ring fenced from cut backs

Changing diet deemed a difficult process:

“…need to find one that suits him…only

something I’d do if he was ill…”

Even resistance to reviewing pet insurance

premium

Retrenchers

Pet insurance payments questioned

Nervous about cancellation vs cost of illness:

“…if we stop it you can guarantee we’ll need it,

then it would be very expensive…”

Consider buying in bulk rather than switch brands:

“…I’m now buying bigger bags from Pets At

Home, it’s slightly cheaper…”

Resistance to switching from mainstream brands

Reluctance to cut back on treats & snacks

Some switching from specialist vet brands

Reality

Dog last to experience cut back for most:

- still buying same mainstream brand(s)

First option is to change buying strategy:

- wholesale rather than retail, promotional offers

Last measure: experiment with cheaper brands

Belief that own brands are interchangeable

nutritionally; concern is digestibility

More likely to make savings on snacks & treats:

- substituting leftovers & titbits

APPLIED TYPOLOGIES: HOLIDAYS


APPLICATION OF TYPOLOGIES ON CATEGORIES: HOLIDAYS


Recreational

Mild embarrassment over extravagant holidays

Value of £ impacted on European travel

Believe they have earned & deserve a good

holiday

May consolidate 2 annual holidays into one

Looking for bargain holidays, exploiting market

Open minded to look beyond € zone, eg Turkey,

Egypt

Reserved

Many mistrustful of British summer

Believe they need to travel to guarantee sun:

“…stayed in the UK last year, it was expensive &

a wash out…”

Prepared to consider cheap(er) options:

“…French campsites have improved a lot…”

Will travel & compromise to avoid disappointment

Expect to pay less this year despite exchange

rate

Retrenchers

Avoidance of planning too far ahead

Difficult to justify expense of holiday but argue the

need for break for self & family

Some adopt the attitude: family holiday non

negotiable, only severe crisis will prevent

Prepared to consider different destinations

Holidaying abroad cheaper than staying at home:

“…even with the exchange rate it’s cheaper to

enjoy yourself in Spain or Greece than at

home…”

Reality

Accept holiday would be tight, but don’t want to

deny family

Thinking of creative options: camping, staying

with family/friends

Holiday out of peak season; kids missing school

Even home swaps & house sitting

Some argue going away is a cheaper option:

“…we can stay in Spain cheaper than staying at

home”

Exploit cheap flights, packages & hospitality

APPLIED TYPOLOGIES: MOTORING


APPLICATION OF TYPOLOGIES ON CATEGORIES: MOTORING


Recreational

Aware of attractive offers on new & second hand

cars

Manufacturers desperate to sell

Chance to trade in & enjoy a bargain:

- buy a more economic small car or trade across

or up as fuel prices have dropped

Able to justify new car as helping economy

Vague idea over the cost of fuel

Reserved

Cautious & conservative anxious over fuel price

Adopt status quo mentality

Expect prices to rise with falling £

Could be motivated to invest in smaller car

Economy of running cost now a priority

Less strict about service & authorised dealer:

“…a friend knows someone who can service it &

programme the onboard computer…”

Retrenchers

Debate over need for 2 cars

Opportunity to consolidate

Adopt a pessimistic attitude; low trade in value:

“…wouldn’t be worth much. I’ll keep it for as long

as I can…”

Concern over increasing running costs:

“…the insurance is more than the car’s worth…”

Shop around for deals: service, parts & insurance

Restrict use & use discounted petrol from

supermarkets

Reality

Car a family luxury & a job seeker necessity:

“…sold my wife’s car when she left work…”

“…public transport’s too unreliable for work…”

Valued asset that is selectively used; nurtured

rather than serviced

Becoming aware of alternative service & parts

suppliers:

“…dismantlers have websites where you can get

parts at a fraction of the cost of new ones…”

Appreciate cost of car & its importance

Know how much fuel costs locally & the cheapest

OBSERVATIONS AND ANOMOLIES

For many recessionary reaction did not impact on the household until January

Evident desire to enjoy Christmas before embarking on a belt tightening regime

Possibly due to New Year resolutions and/or job anxiety, there was a noticeable health

undercurrent

Some respondents thought survival of the recession was about being fit:

• Presenting a younger and more active person

• This possibly accounts for the rise in male toiletries and tans

Whilst belt tightening began in January, the sales proved too tempting an opportunity for

many:

• An opportunity to shop and save

• Hence the rise in January of retail sales

Despite banks being perceived as the perpetrators of the situation:

• None had switched banks

View that the economic world may change after Barack Obama’s inauguration


OBSERVATIONS AND ANOMOLIES (Cont’d)

Interestingly green issues appear to have been subjugated by economic concerns:

• Perceived as short term vs long term interests

Seeds of a changing form of consumerism from ‘want’ to ‘need’:

• With some even challenging ‘need’

Signs of entrenchment to home for entertainment

Also exploiting community facilities:

• Museums, libraries, parks, pools, gyms, etc


PRINCIPAL LESSONS

Economic recession is about a collective consciousness

Individuals will be affected but react differently

Marketing opportunities are about understanding different consumers’ needs and desires

An economic recession need not result in consumer psychological depression and brand

pessimism

Indulgences and rewards are sought as displacements and distractions

Consumers are more open to experiment with different regimes and behavioural patterns

Status quo is challenged by many wanting to make economies and efficiencies

Consumers need to be able to justify paying premiums:

• need greater belief in product delivery, physically or psychologically

Economy sausages and cheap dog food are regarded as false economies by many

Holidays and motoring are high expense items where significant savings can be made

Even amongst the most vulnerable consumers reluctance to be too puritanical

Reluctance to markedly concede family living standards despite their situation

Living through the recession, even for vulnerables, is initially about

adjusting, not abstaining… (yet)


ECONOMICS AND RECESSION: ACCORDING TO THE CUL-DE-SAC CONSUMER


APPORTIONING BLAME

Banks and bankers

America & George W Bush

UK & Gordon Brown

Empire building entities


Inherent greed of banks

Short term profit at whatever cost

Individuals driven by the incentives of banking

bonus

OPEC

& energy

companies

Lack of regulation & control of banking market

Exploitation of naïve market & investors:

- Bernard Madoff

Bush’s support for oil industry

Courting & lack of control of financial market

UK economy dependent on service & finance

Brown’s denial of the boom & bust economic

cycle & lack of preparation

Specifically oil related companies

Inability to regulate demand & supply &

consequently:

- control retail price of energy

Exploitation of developing economies; Brazil,

Russia, India & China (BRIC)

Moving production & HQs from UK to source &

benefit from cheap production & tax opportunities

PROBLEM RESOLUTION AND CONSUMER REACTIONS


US & UK Governments bail out banks

Tax payers’ money used to ‘bank aid’ the system

Radical reduction of bank rate to ‘defibrillate’

chronic economic solutions

A sop to the UK consumer with a reduction of VAT

Resentment that perceived catalyst should be reactively

supported

Frustration that first trench of funds not distributed:

- banking paralysis, risk aversion or greed

Perceived as nationalisation of high street finances

Savings & mortgages now state dependent

International, some foreign owned, monolithic businesses

looking for hand outs

Retrenchment of foreign companies perceived as exploiting

UK; workers & government economic hospitality

Perception of companies having lost interest in UK:

- emerging BRIC economies

View these companies were profiteering by escalating retail

fuel costs

Recently confirmed by record profits for Shell & BP

Call for windfall tax on energy companies displaced by

complexity of the economic situation

Banks & bankers

Empire building entities

Energy

companies

BANK AID: TOP DOWN ECONOMICS


Government intervention focussed on:

“…helping the perpetrators…”

“…rewarding the guilty…”

Undermines consumers’ faith in credible solutions

Compounding this mistrust is ineffectiveness of

Government intervention:

“…lent the banks billions but not doing anything

with it…”

“…lowest bank rate for 100 years but I’m still being

charged 6% on my mortgage…”

From a consumer perspective recent measures

have been:

- reactionary and restricted

- ill conceived and executed

Emphasis has been on securing the status quo:

- saving the decrepit system that caused the

problem

Shoring-up the

System

CONSUMER CENTRIC: BOTTOM UP ECONOMICS


Lack of trust in banking systems & bankers

Concern over security of savings & honouring loans

Disillusioned with structures & regulations

Disappointment of banks parental positioning & control

and exposed management

Resentment over public monies bailing out banking

system

Impact on consumer is to inflate uncertainty & insecurity

Most consumers perceive themselves as victims of the

crisis & still vulnerable to unforeseen events

Causes many consumers to consolidate & reduce

spending:

“…it’s like a rabbit caught in the headlights… freezes…”

Rather than kick-starting the economy the measures

cause consumer economic paralysis

Belief consumers being excluded from economic

considerations – fundamental flaw:

“…we are the economy…”

“…they shouldn’t have given billions to

the banks but thousands to each

family…that’s the way to start the

recovery…”

Re-engineering & gearing

credit crunch presentation

Economy & Finance