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November 2010

In the Doldrums - New analysis on the UK recession consumer from The Futures
Company
Joe Clift
 
 

   Title: In the Doldrums - New analysis on the UK recession consumer from The Futures Company
   Author(s): Joe Clift
   Source: November 2010
       

In the Doldrums - New analysis on the UK recession consumer

from The Futures Company

Joe Clift

The Futures Company unveiled the fourth wave of research from its long-running investigation into the effects of the economic downturn on the UK consumer at
a briefing in London in November 2010.

Findings - based on an online nationally-representative survey, taken in September - suggest UK consumers have made radical behavioural changes as a
result of the tough financial times.

"We're out of recession officially, but in terms of how people feel about themselves and their personal situation, it still doesn't feel quite right," Eleanor Cooksey,
associate director at The Futures Company, surmised.

How is the UK consumer feeling?

Over the four waves of research, some broad trends about people's feelings on the economy are observable.

Positivity is on the increase. The proportion of survey respondents who said the UK economy is going "fairly well" rose from 15% in November 2009 to 24% in 
September 2010. Similarly, the proportion saying things were going "very badly" contracted from 21% to 15% over the same period.

But this optimism about the macro situation switched to pessimism when people were asked about their "personal financial situation". The proportion of survey 
respondents saying they would be worse off in 12 months' time fell only slightly (40% to 39%) between November and September, while the number believing 
they would be better off barely rose (9% to 10%).

"People haven't really changed their way of thinking," Cooksey said. "They are still, broadly, pretty pessimistic and very cautious."

The Futures Company's survey also dug deeper into people's own personal financial "reference points": those variables which affected whether they thought
the economy would do well - or poorly.

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Perhaps surprisingly, people seem to be taking an international outlook on the downturn. "Changes in the global economy" was seen as having the third-
biggest impact on the UK economy, behind only government policies and changes in consumer confidence and spending.

The data also imply that even slightly more esoteric concepts had been taken on board by people eager to learn about the causes of the recession. The
sterling exchange rate was seen as having a positive impact on the economy by 31% of people, many of which will have noted that the recent weakening of the 
pound has boosted exports, potentially narrowing Britain's trade gap.

Responses to another question on the survey underlined what Cooksey termed the "ambivalence" people felt about the UK government.

Just 1% believe the government has been helpful for their personal financial management; by contrast, 25% say the same about their family, and 8% about 
their friends.

In other words, people are taking an individualistic approach to the recession; they believe that people close to them - family, friends, their employer - have
been more helpful in assisting them in tough financial times than charities, banks and local and central government.

The single outlier in this is major food retailers; overall, 4% of people said these firms had been very helpful. This could mean that the various promotional 
offers and coupons offered by supermarkets have been gratefully received by the public. Indeed, the popularity of food retailers is all the more impressive as 
the typical grocery spend has risen by £250 in the past year due to high inflation.

Another way of assuming personal responsibility in tough financial times - building up savings - has been proving popular. Almost half (45%) of the survey said
they are more likely to put money away for their retirement if their finances improved in the past year; meanwhile, 41% would pay off their debts.

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"People regard saving as something they'd really like to do and debt is something people are really trying to get hold of," Cooksey added.

In summary:

l People are more optimistic about the economy as a whole than they are about their personal financial situation.
l Complex economic concepts are being taken on board; the UK public recognise the global causes of the downturn.
l Family and friends are the preferred sources of help for recession-related problems.

Who is suffering most from the recession?

From its data, The Futures Company segmented the UK public into three different groups to illustrate how the recession had impacted different households. As 
the general consumer mood was adjudged to be "in the doldrums", these cohorts were named according to a nautical theme: those broadly unaffected by the 
recession were enjoying Plain Sailing (roughly one-third of survey respondents), those who were just about coping were enduring Choppy Waters (40%), while
those with All Hands on Deck (25%) were suffering the most.

Strikingly, there was little variation in household income between the three groups, as might have been expected. "There is a slight difference, but not a
dramatic difference [though] there is a slight skew to the upper income brackets in the Plain Sailing group," Cooksey pointed out.

Instead, what really set the Plain Sailers apart was that they tended to own their home outright, and did not tend to have children in the house. "Effectively all 
the money that those in the Plain Sailing group have is disposable cash, whereas those in the other two groups have big financial commitments," Cooksey said.

The disjunction between property-owning and mortgage- and rent-paying homes reflects the UK's comparatively overpriced housing stock compared to other
large European countries; during the boom years Britain enjoyed a property bubble which has yet to deflate.

Actual day-to-day behaviour has also changed somewhat in the new financial climate.

In the Plain Sailing group, 70% never changed their spending habits in the recession; meanwhile, 67% and 90% respectively in the Choppy Waters and All
Hands on Deck groups have changed their spending definitively. Moreover, 12% of the first group feel their pre-recession dreams are now out of reach; this
goes up to 87% of the last group.

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But the specific behaviours people have adopted to cope with the recession are actually quite similar across all groups. They are all more likely to be bargain 
hunters (coupons, vouchers and shopping around), regardless of financial need.

For the Plain Sailers, these behaviours are as much a lifestyle choice as a response to dire financial necessity. For those in the other two groups it's "not about
being savvy - it's about survival", Cooksey added.

"What they're doing across the groups might all be the same, but why they're doing it is different."

In summary:

l The Futures Company has segmented UK households into three groups depending on how the recession has hit their finances.
l Membership of the groups is broadly determined by whether or not a household owns property and whether or not their mortgage on this property (or
properties) has been paid off.
l People's day-to-day behaviours have changed across the three groups, but motivations for making the changes differ.

Brands respond to SCANT behaviours

In a separate presentation delivered at the event, Fran Walton, director at The Futures Company, explored the ways in which people are reacting to the New
Normal - and also the ways in which some savvy advertisers are responding to these reactions.

The behavioural changes consumers are making and will continue to make lend themselves to the acronym SCANT (scepticism, control, acceptance, new
aspirations and treading carefully).

But while consumer spending is facing a squeeze, this should not tempt brands to trim their marketing budgets to match. Walton pointed out that "brands that
advertise actually come out of recessions far better than those that don't" and "you need to get back to brand-building to survive".

Scepticism

According to the survey, 77% of people now have less trust in banks than they did before; 58% have less faith that the government can tackle major issues.

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Consumers' scepticism can be tackled by brands going to greater lengths than before to be trustworthy: for example NatWest, a UK bank, has set up a (heavily-
publicised) Consumer Charter, part of which promises to make its banking processes clearer to consumers. It also pledges to donate funds to community
projects.

Transparency is also key for Dominos, a pizza firm which reacted to public scepticism about how food firms manipulated the appearance of their products in
their marketing material with a self-deprecating ad called 'Pulling the Cheese'. The spot went "behind the scenes", demonstrating the various cosmetic
procedures pizzas are given when being shot for the typical ad; at the end of the ad, the firm pledged they would not make these alterations in future spots.

"In today's landscape, being trustworthy is extremely important," Walton added.

Control

Consumer empowerment - reflecting people's own willingness to become more active in managing their finances - also runs through recent promotional material
from large brands. The research shows that 65% of people wish for more control in "every aspect" of their lives, while 60% feel a "greater need" to become
more self-sufficient.

This has led to fundamental alterations in lifestyle which even extends into time management. "During the recession, our relationship with time fundamentally
changed," Walton said. "Before, we were willing to pay good money in order to save time. Now, we're happy to give time in exchange for more control."

Coles in Australia promotes its panel of 2,500 "Aussie mums", who test the quality of its products against their competitors', while ASDA, a UK supermarket, has
rolled out Chosen by You, an initiative in which customers take taste tests of various groceries, in order for the firm to decide which are put on the shelves.

Coupons and vouchers are the single most popular aspect of this control - with consumers providing a big hint in how firms should construct their marketing
strategies.

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This in turn has big implications for media use. "We'll see a lot more apps that help consumers take control," Walton said.

One compelling example of this is Barcoo in Germany, which allows people who download its app to scan products with mobiles and immediately get user
ratings, price comparisons, green credentials and nutritional information.

Acceptance

The research also showed 53% of the UK public agreeing that the recession will change global consumer culture forever, and 43% saying that not only are they 
not spending as freely as they did before, but that they will never spend as much as they did in the past again.

Brands successfully responding to this mass lowering of expectations have included Waitrose, a UK supermarket known for its relatively high price points and
good-quality products. The firm leveraged its reputation for quality in the launch of essential Waitrose - a low-cost private label brand designed to appeal to the
recession consumer - and boosted sales considerably.

"They asked themselves, 'what do we need to be?' and 'what values do we need to have in today's landscape?', and very much repositioned their own label
around 'quality at prices you wouldn't expect'," Walton said. "Waitrose has gone from strength to strength, and is now in a position to continue to grow for years
to come."

Meanwhile, the National Trust, a charity with a somewhat fusty image known best for its work in preserving Britain's stately homes, has also realigned its brand
in the recession.

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Walton added: "They've really thought about people's needs, and have recognised that many people are spending more time at home during the holidays and
are not necessarily travelling abroad."

New aspirations

Changed priorities are reflected by the fact that some people see the recession as having taught them valuable life lessons, which they are now applying in
their spending choices: a slim majority (53%) agree that they have learnt how many things they can do without and 37% recognise that they can "make a real
difference in the world" by doing business with more socially responsible companies.

This is not to suggest there has been a mass conversion from going out and having fun to an ascetic lifestyle of nights in; when asked what they would do in the
next year if their finances improve the single most popular response was "eat and drink out more" (53%), followed by "shop for fun and pleasure" (51%). Walton
said: "People are looking for a release ... there is a desire to spend."

But these desires are in the realm of an imagined wealthier future. In the straitened present, as Walton pointed out, "everyday essentials are now becoming
luxuries".

This tension - between a desire for luxury and tough financial times - has been successfully tackled by Virgin Atlantic in a series of glossy, aspirational ads for
business class travel.

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The high-price service is explicitly presented as a luxury, rather than something that should be a normal event in people's lives. Implicit in the ads is a
recognition that people might struggle to afford the service.

"They've recognised the fact that business class travel is no longer an essential," Walton added. "It's an event."

Treading carefully

One of the strong themes of The Futures Company's survey is the newly risk-averse nature of many consumers. Six in ten are now "more likely" to consider the
potential risks of the decisions they make. Even more strikingly, 57% claim to think twice before making "even the smallest" purchases.

The automotive sector provides some of the most compelling examples of brands responding to this mood. With the costs of something going wrong with a car
potentially very high, these firms have a lot to lose from this mass de-risking. So Vauxhall is now even offering what it calls a "lifetime warranty" on cars, while
Chevrolet is marketing a "5 year promise".

The Digital Cosmetic Mirror from Shisheido leverages digital technology to allow risk-averse customers to see what the product would look like on them without
actually putting anything on their skin. Meanwhile, Miele actually allows consumers to try out their products in showrooms, so they know they are getting a good
deal.

"It's time to get back to building trust - helping customers gain and retain control ... make sure you're fit for purpose, and not just trying to fit in. Are you selling
an aspiration or a necessity?"

In summary:

l People's behavioural changes, caused by the recession, will be SCANT (characterised by scepticism, control, acceptance, new aspirations and treading
carefully).
l Brands should leverage these changes by responding to them directly: allowing them more control, appearing more transparent, and de-risking their
goods and services.
l But people will still want to spend in certain circumstances - provided that the message is right.

For further information about the research, contact Jennifer Childs (T:+44 (0)20 7955 1824, E: jennifer.childs@thefuturescompany.com).

About the Author

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Joe Clift is a Report Writer for Warc.

© Copyright Warc 2010

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