Monday, January 12, 2009

Changing Our Consumption Habits

Spending money that we do not have on things we do not really need has come to an end. Much of our patriotic consumption during the last decade (of things mostly made in other countries) with money fueled from the housing boom appears to be unsustainable. The overweight and excess debt that has caused this collapse is bringing about a new spending paradigm, which for some reason appears similar to that of the Great Depression.

When AdWeek is publishing articles about the new consumer attitudes you know there has been a pronounced shift in worldviews. In an article titled Boomers Caught in Squeeze Play the new spending patterns are evaluated. Lets take a look -

American consumers have no recollection of life in the Great Depression. Not only are most simply too young to remember it, but for the last quarter century they've lived without extended economic hardship, becoming ever more acquisitive in a world of instant gratification and easy credit. No one knows how long or severe the current downturn will be.

The circumstances of this recession are unprecedented in the history of modern consumerism: For a generation that has substituted rising home equity and stock prices for personal savings, the current economic meltdown -- with the value of the Dow Jones Industrial Index plunging 40 percent from its peak and $4 trillion lost in home equity -- has been psychologically wrenching after a quarter century of unquestioned prosperity.

"This is not a normal recession. This is a tectonic, structural shift, a global realignment," says Umair Haque, director of Havas Media Lab. "The post-war industrial era was the era of production. Now we're seeing the birth of the real 21st-century economy and marketing has to adapt. We'll see a world where consumption [will] slow -- especially in developed countries where there will be a shift from consuming to saving -- and production will slow."

Gallup chief economist Dennis Jacobe concurs that "a fundamental change is taking place" in the behavior of U.S. consumers, even if it's not clear how permanent it will be. While gas prices have dropped 57 percent since peaking last July, cheaper petrol has done little to loosen consumer purse strings. And for more affluent American households, their declining confidence and spending track with a time line that started last fall with Lehman Brothers' bankruptcy filing, and worsened with the once-unimaginable sale and bailouts of troubled financial institutions that quickly followed.

"The last cataclysmic event was 9/11, caused by a terrorist attack. It was patriotic to get out and shop," says Alison Burns, global client services director, JWT, New York. "This downfall is of our own making -- greed, mismanagement and all sorts of things much closer to home. Now it's not patriotic to go shopping. It's all about being prudent, back to basics, valuing the things we have more highly."

[ Ben Kline, chief strategy officer at Allstate agency Leo Burnett,], whose agency works for McDonald's, adds: "The 'apex predators' of categories that didn't add enough value as consumers traded up are going to be in trouble. People are realizing they don't need a $4 latte; $4 goes further at McDonald's."

If having money in the bank worth more than a $4 cup of coffee? Is having no HELOC better than having a late model vehicle? During the bubble the answers were different then they are now.

And notice the huge shift of patriotic behavior, once we showed pride in our country by going out shopping every chance we had. Now we are good Americans when we don't.

1 comment:

Nora said...

Changing our consumption habits doesn't address the main problem. You hit the nail on the head when you say American consumers purchased items manufactured in other countries. Ever since Americans first began buying Toyotas, I've KNOWN that a time would come where most Americans would not be able to afford to buy products no matter how cheap because there would be no jobs left. The problem is we no longer PRODUCE WHAT WE CONSUME!!! I've always tried to buy prodcuts made in America, but today it's impossible. Just about everything is manufactured overseas. This means no jobs for Americans. There's only so much a service economy can do. We must produce tangible products...bottom line.