#30 "Trading down" during a recession: how spending habits are changing during covid-19
Three different ways in which people are adjusting their spending habits, and how is not all about price.
Hi, I’m Florencia Lujani and this is a new edition of Cultural Patterns, a newsletter on brands, culture and strategy. My posting schedule is a bit random at the moment, so if this is the first email you receive from me, welcome! Feel free to reply to this email and get in touch, I’m keen to hear your thoughts. Florencia x
We’re half-way through our second lockdown here in England and it’s clear that most of what got us through lockdown s01 (homebaked banana bread, Zoom pub quizzes, Houseparty and Thursday clapping) isn’t coming back for a second round.
Culture continues to go through a massive reconfiguration where new rituals, meanings and coping mechanisms are emerging, while people also continue to adjust to new finance outlooks. Every household has changed their spending habits in some way or another, and while it might be easy to assume that in times of financial struggle decisions are driven only by price, that’s not entirely true.
As Kantar puts it in this paper, there is no ‘one way’ in which consumers shop during a recession:
Reduced spending power is the trigger for shopping differently, but the ways in which consumers react to an economic slowdown are best understood in terms of ongoing spending practices, not simply less spending power. All households adapt or tighten their spending depending on their spending practices and financial vulnerabilities, so an upscale shopper does not trade down in the same way as a downscale shopper.
There are three different kinds of shoppers:
Those who experience loss of money and are most affected start giving things up and do without anything that isn’t necessary, shifting priorities and lengthening purchase cycles.
Those who need to tighten their budgets slightly tend to delay or defer expenses, not because of lost income but because of income inflows that have become less reliable, so they’re dealing primarily with the loss of choices.
Those who are less affected go back to budgeting rather than funding their spending without worries. They defer major discretionary purchases and start to pay more attention to price points in basic choices, choosing discount retail formats from expensive brands.
People are adjusting their spending not to fit a decline in their financial means, but to come out of lockdown in a similar situation as they were before, to preserve their lifestyle as much as possible and avoid coming out at a different place that requires consistent trading down.
The brands that allow people to trade down but preserve lifestyle have been CPG brands (P&G, Unilever, etc), who are taking market share from the smaller brands in almost every category, as reported by the Financial Times. The covid-19 crisis has benefitted them because:
People choose brands that are physically available, brands that are easy to find in stock at the local grocery store thanks to a well-oiled supply chain and distribution logistics.
People choose brands for which they have mental availability, brands that feel familiar and to which they have allocated meaning for years through advertising and personal experiences.
People choose brands that are reliable, tried and tested, specially in a context where there is risk or anxiety, which are usually the ones with higher penetration and market share.
People choose brands prioritising quality and value, which CPG brands can guarantee, as shown by the latest Reach Solutions research.
People choose brands based on previous purchase decisions because in the context of a pandemic, they are eager to spend as little time as possible at the shops, which decreases the number of new brands they tried, compared to when people are casually browsing.
So all of this has favoured the big brands, but as Mark Ritson said, they already had a huge advantage: if the brand is already known and large, people have pre-existing mental availability, brand image and physical structure towards those brands, so the customer base is instantly reignited, boosting demand and sales.
What’s more, large brands keep winning because of their consistent brand building through the years have made them ‘goods to think with, good to speak with’ as Fiske would say. And this is very interesting from a cultural perspective as well because consumption is related to identity in many ways.
If Descartes’ famous maxim were to be updated for 2001, it might become ‘I have therefore I am.’ Popular media saturate our society telling us that pleasure, security, and success are defined in terms of material possessions and commodified experiences. From this standpoint, meaning-making and personal identity become inextricably bound up with ownership and consumption. (Hoepper, 2001)
Consumption as a cultural practice is one way of participating in social life, so brands are very important signifiers of our personal and social identity. Because ‘product and symbolism live and grow with and on one another in a partnership and mutual exchange’, as advertising legends Judie Lannon and Peter Cooper said, so even when people are faced with lower disposable income and/or greater uncertainty about income, that doesn’t mean that every brand gets replaced for its cheaper alternative.
On the contrary, when we go through a budget loss, we also stabilise our preferences: the brands we continue to buy even when there’s a budget contraction are the ones we’ll choose for many more years to come.
So we don’t know it yet, but brands that outperform during this time will not only win in their balance sheets, they will also strengthen their social symbolism, which might often be an overlooked factor, but one that contributes to business performance nonetheless.
All the images from this post are from this Tesco ad, by the brilliant people at BBH London.
Thank you for reading. This is a very exciting time to work with big and small brands, with many strategic challenges to solve! Would love to hear some of your experiences.
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