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11.04.2009

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New Value Paradigm: Theatrics of Thrift

The New Value Paradigm provides a provocative, consumer-centric explanation for what to expect from consumer and shopper behaviors as we take the slow path toward economic recovery. The report provides the new consumer understanding for “value” and its implications for CPG companies and food retailers.

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“A New Frugality?” Consumption Ain’t Dead Yet

By Harvey Hartman

“Feeling nervous? Learn to relax…five cents, please!”—Lucy Van Pelt

Never has the advice of a cartoon character seemed more appropriate to today’s analyst community. That is, we are here today to suggest that the idea that we are witnessing the dawning of an era of new frugality that will forever transform the American consumer is just that, an idea. So just relax.

In truth, the new frugality famously portrayed on Time magazine’s cover in April—and championed aspirationally by Walmart’s Mike Duke—has always been there from the start. It’s part and parcel of our cultural mythos, a powerful byproduct of our Puritan forefathers (and mothers). To convey the absolute power of this mythology, we often rely on the following scenario:

If you were meeting a potential in-law for the first time, wanting to make a good impression and all, you would never let them believe that you never pay attention to prices, that your future household’s approach to home economizing will be virtually non-existent. To be certain, you might possess so-called “nice” things, perhaps a BMW auto or Tumi luggage, but if the subject came up you would proffer a story about how you got a “good deal” or plan to use the thing for 30 years. To callously disregard the symbolic portrayal of frugality would be to invite a lifetime of familial discord.

Of course, once your in-laws left—with no one looking over your shoulder—you would behave as most Americans always have. Which is to say that you would consume with sometimes reckless abandon at a rate that frequently leads that of all other nations of the world. Let’s face it, with the possible exception of a few fringe elements who tend to congregate in college towns, we American’s like our stuff (the fringe elements do too, they just won’t admit it).

This is one of those famous contradictions of American culture. We exhibit a symbolic commitment to a given behavior as a way of ameliorating the underlying guilt which characterizes our daily lives. We spend significant effort clipping coupons and chasing down the best prices on our groceries and household products, only to negate any realized savings with the impulse that compels us to purchase that “adorable” $30 doormat that catches our eye at Target. This is why consumer spending has increased every year since 1900. And it’s probably why we saw consumer spending rise 1.3% in August, the single biggest rise in eight years¹.

But let’s return to the subject of the alleged “New Frugality.”The folks at Nielsen recently released research suggesting consumers are still demonstrating significant frugality behaviors and that new habits in spending and saving are gaining longer-term traction.

Our own recent research (The New Value Paradigm: Theatrics of Thrift) suggests that while Nielsen is likely correct on the first point, the latter interpretation is most flawed.

To give you a peek in to some of the interesting things we found, consumers truly are reporting exacerbated thrift behaviors. Similar to what Nielsen found, 68% of the consumers we surveyed reported that they were more likely to “buy only what I can afford to pay for with cash or a debit card.” Likewise, a full 70% reported that they were more likely to “try to avoid recreational or unnecessary shopping trips.”

But are these current reports of increased thrift behaviors really indicative of longer-term shifts in ideology regarding consumer spending? Or, alternately, could these reported behaviors merely be a heightened enactment of our culture’s symbolic orientation to thrift as described above? Just to be clear, we do believe that shoppers are actually engaging in heightened thrift behaviors in the short term. What we are questioning are shoppers’ underlying motivations across a longer term time horizon.

Our current research offers further insight into this puzzle with a groundbreaking investigation into the many facets of the shopper’s value equation². Recently, many marketers and analysts have been speaking about an alleged “value” consumer with no clear definition of what constitutes this value orientation other than vague references to a desire for low prices. Examining the shopper’s value paradigm in much more exacting detail, we were surprised to find that the concern with low prices actually factors much lower in shoppers’ value equations than most would assume. Even more interestingly, we find that these value equations are almost identical across different segments of recession-related struggles. That is, shoppers most affected by the recession demonstrate similar value equations to those least affected by the recession. So while we are all—struggling or comfortable—engaged in heightened thrift behaviors, we also hold similar value paradigms. Our report explores these relationships in even greater detail.

So we are left to conclude that these results are strongly suggestive of a short-term enactment of thrift-oriented behaviors, and not of a newly minted cohort of frugality.

While this debate regarding the new age of frugality is surely much too complex to be resoundingly settled in this brief analysis, we prefer to rest our case on the historical data. From this perspective, consumer spending has never encountered anything more than brief periods of decline (we’re talking months not years) since 1900. Likewise, the idea that the great depression of the 1930s led to a generation of Americans forever demonstrating frugal behavior has been widely and convincingly debunked for many years. As James Surowiecki recently points out:

“it was after the Second World War that America really came into its own as a consumer society. In the five years after the war ended, purchases of household furnishings and appliances climbed two hundred and forty per cent”³

This would hardly seem the behavior of a generation of bitter, beleaguered tightwads.

And finally, we encourage our clients—as well as the analyst community—to be particularly skeptical of the sky-is-falling proclamations of mainstream print publications. As Surowiecki observes, toward the end of the 1990-91 recession Fortune forecasted the “Death of conspicuous consumption”⁴ and Time ran yet another cover story on the return of the simple life noting “after a 10-year bender of gaudy dreams and godless consumerism, Americans are starting to trade down.”⁵ Ditto for the combined whammy of the bursting of the internet bubble and 9/11. Supposedly we were all ready to hunker down, cocoon, and live more soberly and simply. And again, our behavior didn’t quite match our symbolic-based chatter, as we created financial instruments nobody understood, began selling mortgages to the unemployed and went on an 8-year, credit-induced spending bender.

Heck, even the venerable Dr. Phil frequently observes “Remember, the best predictor of future behavior is past behavior.”

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