Difficult Economic Times

Value programs and other strategies revealed.

A report from Nielsen Consumer Insight suggests that by October 2008, one-third of all U.S. consumers in a survey said they didn’t feel secure in their jobs, while half believed they were worse off financially than a year ago. As a result, consumers are taking steps to cut back spending, particularly on major purchases for the:

Home (87%)
Carpeting (77%)
Automobiles (73%)
Major appliances (65%)
Vacations (49%)

Fully 40% of shoppers think that food and personal care prices have increased over the past three months. When offered some ideas for coping, consumers expressed a preference for larger sizes with a lower price per serving (47% of shoppers) over smaller pack sizes at lower prices (17%), modestly downsized packaging at the same price (9%), a proportionate price increase (8%), fewer sales (8%), the same number of sales but at less of a savings (7%) or slight reductions in quality with no price change (4%).

Category inequality:
When cash-strapped consumers cut spending, it doesn’t happen equally across categories. While dairy, dry/canned goods, fresh produce and meats would suffer double-digit declines, deli (40%), beverages and health & beauty (30%) would take a much larger hit.

Categories with less price sensitivity in a challenging market include those with few alternatives—like diapers, occasion- or ingredient-based categories, low-price-point or low-promotion categories, or long-purchase-cycle categories. The more price sensitive categories are characterized by heavy promotion activity, a host of substitutes, discretionary or non-essential items, and stockable products.

What’s a marketer to do?
Rather than pull back from investment spending in recessionary times, history shows a robust return on investment for companies that stay the course. In the 1980s, companies that maintained aggressive sales and marketing efforts enjoyed more growth after the recession—some 275% in the first five years after the recession versus the 19% growth among companies that cut their sales and marketing budgets.