(Mis-) Interpreting Recovery Consumer Behavior

What to make of consumer behavior these days?

One school of thought argues that behavior speaks for itself.  What consumers have done is the best predictor of what they will do.  Attitudes often misstate actions.  In-market tests can competently craft communications campaigns without attitudinal research.  Managing purchasing behavior is the purpose of marketing, so influencing attitudes is, if anything, nothing but a means to this end, and not always the best.

By this reckoning, consumer behavior is no more complicated than it looks.  If you want to know what to make of it, just look at it.

This is the sort of logic being used by much if not most of the news media in stories being written about the future of the consumer marketplace.  What’s observed is penny-pinching, so what’s ahead must be even more frugality.

These stories are off-base, as discussed in-depth in A Darwinian Gale.  But not only are these stories wrong, they are rooted in two major marketing fallacies.

A recent story in The New York Times is a prime example of this fallacious reasoning about consumers.  An article entitled “Hard Times Have Younger Floridians Catching the Early Bird,” (the online title was “Newly Frugal Generation Revives Discount Dining”) offers this observation:

“Across Florida in fact, the early-bird special is experiencing a revival.  With that label and some newer versions, several restaurants have introduced early dining discounts since the recession started, and younger people are arriving in larger numbers at classic establishments that have been serving up free dessert for decades.”

So far, so good.  This is simply a fact.  Consumers are looking for cheaper fare.  This is what you see when you look.  This is the behavior, but what to make of it?  In the very next paragraph, The New York Times weighs in:

“Part of it is purely business – promotions work when people have less money to spend – but restaurant owners, researchers and patrons say it also reflects a changing mood.  It is a sign, they say, of shifting priorities, as Americans respond to tighter budgets with a demand for value and a willingness to alter their habits to enjoy a little fun.”

This story advances the notion that frugality has taken hold; that unless things are really cheap, consumers won’t buy.  For marketers, this would imply that if a brand tries to market anything more than saving money, it will fail to resonate with today’s aggressively frugal mindset.  The only way to attract business, in other words, is the early bird special.

The first fallacy here is interpreting what this behavior represents, implies or means to people without asking them.  Behavior speaks clearly for itself only in a marketplace that is well-understood to begin with.  When things are in transition or rapidly changing or recovering from a major shock, then the meaning or implication of behavior is not so readily apparent.

The only times we are able to easily interpret consumer behaviors is when we have no doubts about what consumers are intending to do.  But that is exactly the problem now.  Nothing is clear anymore.  The context within which behaviors used to have meaning has utterly changed.  The depth, length and impact of this recession are wholly unprecedented.  We no longer understand where consumers are coming from, so putting a spin on their behavior is little more than a shot in the dark.

In fact, there is another very different yet equally plausible interpretation of the penny-pinching or frugality being displayed by consumers.  Maybe this behavior is not a frugality-based renouncement of spending but a shift in spending away from the kind of value available in the marketplace today.  This is not frugality; this is a shift in perceptions about what’s worth paying extra.  If true, this interpretation would predict that once consumers are able to spend again, they will do so as long as they see something worth buying.  If frugality is the key dynamic, then consumers won’t spend on anything at all unless it’s really cheap.

It’s not possible to choose between these two interpretations just by looking at consumer behavior.  At this point in the recovery, one would expect to see the same behavior either way.  The only way to sort it out is through attitudinal research.

A recent McKinsey study asked consumers what they were thinking.  Consistent with other surveys and other anecdotal evidence, 18 percent of consumers in this research reported trading down to lower-priced brands during the past two years.  But is this behavior evidence of frugality?  Of the consumers who switched, 46 percent found that lower-priced brands were better than expected, and, indeed, for many, “much” better than expected.  As a result of having been forced to make do with less, 34 percent of consumers trading down to lower-priced brands said they no longer preferred higher-priced brands and another 41 percent said that even though they still preferred higher-priced brands, they were “not worth money.” 

The bottom line, says McKinsey, is that “[a]s a result, a growing number of consumers are now in play.”  This is telltale language.  If frugality were the case, consumers would not be “in play.”  Instead, they’d be lost.  The reason that consumers remain “in play” is because they are still willing to pay for high value.

What’s changed is the value equation.  In being forced to live without, many consumers have found that they can do without.  But this does not mean a frugal focus on nothing but price.  Instead, it means a new search for value worth the money.  The challenge for marketers is to identify the new sources of value and then deliver this to consumers.  This is in contrast to frugality.  If frugality were the case, then job one for marketers would be reassuring consumers that it’s okay to spend at all.

In other words, what we make of behavior matters for the success of our brands.  Attitudes can never be reliably inferred from behaviors alone, and what consumers are thinking not what consumers are doing is what matters most for the future of this economy.

Of course, it’s not all consumers.  This is the second fallacy.  Too often we generalize a trend true of some, even most, to everybody.  We know we shouldn’t because we understand market segmentation.  But The New York Times deliberately avoids nuance because it makes for a complex storyline.  Readers want an uncomplicated takeaway, so only the rare news story discusses differences among consumers.  Instead, universalities are preferred, which often leads to over-generalization.

The fact is that many consumers will carry frugality with them into the future.  Just not all.  Similarly, many consumers want to keep spending, but have just lost any affinity for the value, high and low, that used to motivate them.  But again, not all.

The overarching shift in the marketplace is one of a new value equation, which will mean different things to different consumers – frugality to some; new premiums to others; and, yes, the same old value as always to others.

Whatever the value equation in this evolving marketplace, it cannot be imputed from behavioral data alone nor will it be the same for all.  These two fallacies are rife in news accounts, but they should not be in marketing.  Attitudinal data establish the context within which behavioral data can be interpreted.  And many varieties of attitudes will coexist at once.  Behavioral data is merely the starting point.  Attitudinal research and consumer segmentations are needed for behavioral data to make sense, especially in today’s rapidly changing marketplace.

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