There is ample evidence around us that the recession has already changed consumer purchase behavior in Greece. Recent reports suggest that virtually all shoppers and households have changed the way they live and shop: there is reduced number of trips to retailers, shifting of shopping to value channels, reduced spending across product categories, increased private label spending, increased planning of meals and shopping trips and reduced out-of-home activities, such as long holidays, entertainment and eating out. This comes to no surprise: For the last 20 years consumers have being urged to define their lives in material terms and to live beyond their means; now they face reduced disposable income, unbearable loans, inflated credit card bills, and a rising cost of living.  At the same time, the recent series of political and corporate scandals have bolstered consumer mistrust and skepticism towards all sorts of marketing messages.

In such an adverse environment it is of critical importance that companies understand how their customers re-evaluate consumption priorities, change their spending patterns, and redefine what constitutes ‘value’. Value, in particular, seems to be the most important driver of consumer buying decisions at the moment, while loyalty or habitual buying tend to become increasingly erratic. Interestingly, the current trends seem to affect all groups of consumers, regardless of their levels of discretionary income. Not only have the lower income consumers - who have been hit financially the hardest -become ever more thrifty, many affluent consumers are economizing as well, even though they don’t necessarily have to.

This new reality presents marketing practitioners and academics with two important questions: First, what are the short-term marketing strategies that companies can successfully employ as they struggle throughout the recession? And, second, are these new consumption trends going to stick after the recession passes and what will be their long-term impact on consumer behavior? In other words, now that our shopping patterns have been interrupted by the recession are we ever going back to our old habits or will we emerge as ever more demanding, sophisticated and empowered consumers?

Marketing in Times of Hardship

The intuitive business rule for coping during a recession has always been straightforward: reduce expenses in any possible way. Marketing budgets are among the first to get hit; after all, such cost reductions convert directly to profitability. But the problem is that cutting marketing costs to facilitate the short-term relief of a company represents exactly the type of strategies that can cause its long-term stagnation. Reducing customer service, slashing marketing communication budgets, or diminishing product development are tactics that may offer some short-term cash flow consolation, but also increase the likelihood of long-term damage to competitiveness, brand image and market share growth. In managing their marketing budget cuts, managers must be careful to determine what is indispensable for the future prosperity of the company, i.e., the ‘good costs’ and what is extravagant and must go.
According to a number of studies from previous recessions, smart companies perceive not just threats in a recession but also opportunities: During tough times, customers are more willing to rethink their current brand choices and relationships and, as a result, are more willing to switch between providers. In addition, the recession is likely to increase the return on marketing promotion activities. This happens for two reasons: The majority of the weaker players tend to cut back on their advertising expenditure, therefore causing a reduction in the message clutter found in mainstream media. In addition, keen advertising agencies, also feeling the pressure, become more motivated to turn out more creative solutions at better prices.

A number of managerial implications follow from the above observations:

1. Building and maintaining value-adding brands is the key to keeping the existing customer base as well as to attract those customers who are looking to switch from competitors. Trusted brands convey a sense of safety in troubling times and help sustain an emotional connection with consumers, which is key to the continuity of relationships.
2. To draw in the switching customers companies should consider investing in new product development.  Ironically, it is at such times that the conditions for new product introductions are quite favorable: competitors tend to become quieter, the return on advertising expenditure increases, and consumers are actively looking to switch to value-enhancing solutions.
3. Typically, in times of recession the need to do more with less drives marketers towards abandoning traditional broadcast media and shifting towards more cost-effective and measurable alternatives such as internet advertising, direct marketing and sales promotions. However, investing in a well-balanced media strategy is very important. For mass market consumer brands in particular, remaining visible on mainstream media is key to maintaining brand equity. Most multinational mega brands know that if they stay out of the television sooner or later they will be out the mind of many consumers.
4. Consumers in a recession are shopping around for better deals and businesses are gradually forced to compete increasingly on price. Many companies will need to increase the frequency of temporary price promotions, but the permanent cutting of prices entails several risks: First of all, extreme price reductions lead to price wars which eventually put pressure on profitability. In addition, a company that aggressively reduces its prices might send the message that they have decreased the level of quality – especially if product or customer service modifications are also involved. Finally, continuous price cuts may irrevocably damage the image of brands that took years to built. One alternative to price cuts is bundling, which through pairing existing products or through an alliance to offer complementary products allows companies to create value for customers without obvious price cuts. Another alternative to price cuts is to introduce ‘fighter brands’, lower-priced versions of premium brands sold under a different name.  

Future Projections

Previous experience suggests that after a recession has ended consumer behavior return to ‘normal’ within a year or two. Deeper recessions, however, entail the risk that there will be profound transformations in consumers’ attitudes and values. It seems that the Greek recession is here for the long run. A clear emerging consensus from both the business and the academic worlds is that post-recession Greek consumers are very likely to embrace a more demanding attitude toward providers. Post-recession consumers will actively seek better deals; they will act on volume as well as on price and will feel more empowered to act. In addition, in line with the global trends, they are likely to expect greater commitment to sustainability, corporate responsibility and will resent cunning marketing practices that treat people as automated, materialistic consumption machines.

One of the latest research projects currently underway by Graduate School marketing faculty seeks to examine whether and how the recession has changed the way consumers evaluate components of value in product and service offerings. Assuming that, due to the recession, the tendency of consumers to employ more non-compensatory evaluation strategies has increased, we propose that post-recession consumers will be more demanding of brands, manufacturers and retailers and less willing to compromise.  The aim of this research is to measure post-recession consumer “demandingness” levels and to investigate whether the recession will have a lasting effect on the consumers’ willingness to make trade-offs between value components, across different product categories.
Bibliography:

Quelch, J. and Jocz, K (2009) “How to Market in a Downturn”, Harvard Business Review, April, p. 52-62.
Flatters, P. and Willmott, M. (2009), “Understanding the Post-Recession Consumer, Harvard Business Review, July-August, p. 2-7.
Pearce, J. and Michael, S. (2006) “Strategies to Prevent Economic Recessions from Causing Business Failure”, Business Horizons, 49, p. 201-209.


* Dr. Krepapa is assistant dean and professor of marketing at the Graduate School of DEREE – The American College of Greece.