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02.24.2010

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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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The New Normal?

Questioning our self-proclaimed thrift

By Abbie Westra
Reprinted with permission of CSP Information Group
Note: This is part 1 of 2 from an original article published in February/March 2010 FARE Magazine

The death of conspicuous consumption. Simpler pleasures. Homier values. These are some of the proclamations media outlets made during the recession …back in 1991.

“Consumer-behavior experts predicted that people would be more frugal in the 1990s, and consumers themselves said they planned to cut back on spending,” writes James Surowiecki in an Oct. 2009 article in The New Yorker. “It didn’t happen.”

Another 10 years after that recession, “the bursting of the Internet bubble and the impact of 9/11 led many to predict that Americans would consume less—and we all know how that panned out.”

And now, in 2010, research firms and publications are preparing commercial industries for a “New Normal.”

An April 2009 cover of Time magazine called for a “New Frugality” (which was also the magazine’s 1991 “Attitude of the Year”), and the major networks continue ongoing reports on this New Normal “with more belt-tightening, less income and, in many cases, a new found gratitude for the most basic human comforts: family, home and health,” reads a recent ABC News report.

Of course, this recession hit consumers harder than those preceding downturns, and hopefully we’ll learn from our economic short-sightedness. But not everyone believes that out of the ashes will rise a new movement of frugalistas and bottom feeders; nor does history support such an outcome.

Some, like consumer research specialists The Hartman Group, suggest that as the recession subsides, we’ll surely slip back into our previous spending habits. What’s more, the day-to-day penny pinching we’ve adopted does little to help household savings. The impact, according to them, is more emotional than economical.

Emotional Economy

It was late 2008, and media outlets were beginning to proclaim this new frugality. So The Hartman Group did what it is best known for: questioning the obvious. The Seattle-based research firm, whose methodology is based on ethnography (data collection through observation), approaches consumer habits with the assumption that nothing is as it seems.

When it came to the recession, the firm’s team of ethnographers questioned the way the media and many surveys were talking to consumers. “It really depends on how you phrase the question,” says vice president of strategy & innovation Jarrett Paschel, referring to the media and surveys prefacing questions with phrases such as “due to the recession, do you believe…”

His team wanted to remove the recession from the question and then find out what consumers expected from the year or two to come.

The Hartman research found that Americans were engaging in what they called the “theatrics of thrift.” It seems Americans are rather schizophrenic when it comes to shopping: We consume at a higher rate than any other country, yet it’s seen as a sign of high moral character to be frugal. When the recession began, that coupon-clipping frugality kicked into high gear, along with cross-channel bargain hunting and other penny-pinching tactics.

But a paradox surfaced as the research went on: this penny-pinching at the store level resulted in zero net gain.

According to The Hartman Group’s consequential report, “The New Value Paradigm: Theatrics of Thrift” (see sidebar below on methodology), approximately 7% of annual household expenditures goes toward groceries, and 5% toward dining out—really, a drop in the bucket compared to mortgage or rent, car payments and other big-ticket items. Further, the research found that one instance of thriftiness is often negated by another instance of splurging—for instance, a wife clipping coupons and her spouse buying an iPhone.

But socially, it’s the grocery-store savings that we remember, that we commiserate about with friends and neighbors, and that journalists then report us as doing, even though there is really no economic gain.

We do it because it makes us feel in control in an otherwise helpless economy. “We engage in the theatrics of thrift by increasing our traditional thrift-oriented shopping behaviors in certain patterned ways that serve as an antidote to the current collective anxiety,” concluded the study. “Simply engaging in these behaviors helps to alleviate stress in day-to-day lives—it makes people feel better and engenders a sense of control.”

Shopper Segmentation

The Hartman Group also wanted to test the hypothesis that consumers are trading off, trading down and “otherwise demonstrating a newfound price consciousness.” So they isolated the segment of the population that described themselves as “significantly challenged” by the recession—24% of the sample.

What they found was that price ranked sixth in importance among all respondents and third among those most severely affected by the recession. It followed quality and consumption.

So they then isolated the subgroup that said price was “extremely important” and who ranked price higher than all the other value attributes, and found that this “price-dominated value shopper” represents just 5% of the population. Further, there were no significant demographic differences (age, income, race and education), nor any relationship between price-oriented shoppers and the degree to which they were affected by the recession. Those shoppers may have been just as price dominated before the recession as they are today.

“In short,” the study concludes, “we find no convincing evidence of a true price-dominated value shopper/consumer.”

More so, both the affected and unaffected agreed that “the thrill of finding a great deal” still dominates their shopping behavior, over pure price. “What we are witnessing are some incremental short-term behavioral changes necessitated by economic conditions, but not a fundamental shift in orientations toward one’s value paradigm,” the study concluded.

So what happens in more bountiful times, when housing values and access to credit improve? “The vast majority of consumers we spoke with didn’t really need to be engaging in this behavior; they like to,” says Paschel. Nonetheless, he expects that coupon clipping will subside as the recession softens, “not because they are more flush, but because there is less anxiety.”

The Other Side

Of course research is based greatly on each firm’s unique lens. The questions asked and methods used will generate different results, particularly when you’re using human beings as your source of information. And when it comes to the New Normal, The Hartman Group appears to be in the minority.

Information Resources Inc. (IRI), Chicago, came out with its own shopper behavior study in October 2009, and they had a much harsher conclusion than The Hartman Group. Based on its findings, we can expect to be faced with a “new shopper mindset” in the months to come.

“We have taught the shopper how to shop on a deal and this will be extremely difficult to change moving forward,” said Thom Blischok, IRI’s president of consulting and innovation, in the “How’s Business” CSP CyberConference held in December. Blischok predicted that consumption will be down 3% to 6% for the foreseeable future, and in some categories as much as 10%.

“If you think 2009 was tough, 2010 is going to be even tougher. We’re going to see deal mania occurring. We’re going to see a tremendous amount of channel shifting as consumers look for the deal.”

Looking at the year to come, IRI sees Americans today in a “trade-off period,” in which unemployment is still frightening and downtrading or full-fledged abstinence is still a reality. From the first part of 2010 we’ll move into the “beginnings of shopper recovery,” and then “a new stability” as quarter-four nears. From this stability will be born the “new conservative shopper.

“Be very clear: This new conservative shopper will in fact eat tremendously and consume tremendously less than they do today,” Blischok said.

IRI’s findings define this new consumer as someone who will shop multiple stores to find the lowest prices, who “will think much more about what they’re going to buy before they buy it.”

A Historical Perspective

Paschel and the rest of the Hartman team aren’t alone in questioning the new frugality. Others, like The New Yorker’s Surowiecki, look to past proclamations as a reality check. Yes, he points out in his Oct. 2009 article, we’ve lost nearly 7 million jobs, wage growth has been anemic, and the housing crash and stock-market meltdown “erased, conservatively speaking, about $13 trillion in household wealth.”

But he reminds us of the incredibly simple “wealth effect”: people tend to spend more money when they get richer, and less when they get poorer. Simple as that. So, while this recession is the worst since the Great Depression, the notion that the Depression turned Americans into tightwads is largely a myth.” According to Surowiecki, in the five years after World War I, purchases of household furnishings and appliances rose 240%, and the rate of homeownership rose nearly 50% between 1940 and 1960. More so, he says, today’s recession, painful as it is, is nothing like the Great Depression, which lasted 10 years and experienced 25% unemployment.

Hopefully, Surowiecki continues, we will learn from our past and keep saving, “but the evidence for a radical shift in the way we consume seems more like the product of wishful thinking. ... Even after the worst recession of the past 70 years, retail sales this year will be about where they were in 2005. Does anyone really think that four years ago Americans were misers?”

Even the people at The Hartman Group trust history more than current consumers.

“You’re only going to get so much from consumers—especially when you start talking about anything around money,” says Michelle Barry, Hartman’s senior vice president. “And to start to talk about what you think you’re going to do, or to try reflecting back on changes in really subtle ways ... it’s relying on sketchy memory and recall, or aspirations for the future. There’s only so much reading between the lines you can do.”

The one word that trumps all catch-phrases is value. Read part 2 examining the shopper's high (teaser: fun trumps thrift), business implications and marching orders complete with a list of do's and don'ts for those looking to succeed in the future.

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