Gordon Hendren, of Charlton Strategic Research.
It's no secret that consumers aren't spending as much as they used to, and they're buying different products as well.
Overspent baby boomers in particular used to be the most brand-loyal of all shoppers. Now, they're perusing the weekly sales flyers like any other bargain hunters and causing grief for small businesses across the country.
"Brand loyalty is waning and comparison shopping is increasing," says Gordon Hendren, a Toronto-based consultant who spends his working hours closely analyzing consumer behaviour.
"One of the trends that we see is a kind of cocooning, simplifying life and spending less," says Mr. Hendren, who is president of Charlton Strategic Research, which, along with the Strategic Counsel, has just completed a quarterly survey of shifting consumer attitudes in both Canada and the United States.
Will a "new" consumer emerge through this recession? That's one of the questions Mr. Hendren and his team are studying. They are also looking at how consumer behaviour is evolving, how the environment is playing a role and how brands can engage with buyers.
Mr. Hendren has more than 20 years of experience conducting consumer studies and providing insight, with client experience ranging across such sectors as media, petroleum, financial services and retail. He is also an expert in brand tracking and brand marketing. He is a graduate of the commerce program at Queen's University in Kingston, Ont.
Mr. Hendren joined us earlier to talk about consumer behaviour and its effects on small business.
Dave Michaels, globeandmail.com: Welcome, Mr. Hendren, and thanks for being with us today. We have plenty of questions lined up, so let's dive right in.
First of all, as an expert in consumer behaviour, what kind of general advice are you giving to CEOs today?
Gordon Hendren: Although we see the recovery taking some time (likely a few years), good brands, smart brands, brands with a good point of difference and a value proposition should protect and even gain share.
Today is a time of risk but also a time of great opportunity for their brand and business – this is driven by brand loyalty declining and comparison shopping increasing dramatically, as consumers search for value. The paradox of the current marketplace is that many companies have dramatically cut marketing spending at exactly the time when they should be increasing marketing spending – to defend their position and take advantage of this opportunity. While there is a short term gain from cuts there may very well be a long term consequence. The weaker brands will likely suffer and decline.
Competition is increasing, so focus on your brand's/company's point of difference and competitive advantage. If you don't know exactly what your point of difference is – I strongly suggest identifying it, quickly!
Dave Michaels, globeandmail.com: I've heard that this recession came on so quickly and frightened so many people that it has forever "changed" consumers. We've seen lots of stories about people cutting back who never thought they would do so, and now they are saying they're not going to go back to their old ways. Do you think that's true?
Gordon Hendren: There is no question that attitudes have changed significantly. That said, "forever" is likely an overstatement. Our quarterly tracking study, Consumer Shift, shows a significant pullback in consumer attitudes toward spending continuing and that a quest for value is still very much the current mindset. Also, I do believe in "wealth effect" – meaning that if your investment portfolio is down and/or the value of your house/condo is also down you are less likely to want to spend more. Negative media can also play a role – especially when coming from the U.S., where things are worse than in Canada.
We have noticed some key differences within certain demographics: Ontario has been the hardest hit in terms of attitudes toward spending; women are most likely to say that they are "comparison shoppers"; those 35 and older are most likely to be "price is the bottom line" or "comparison shoppers" segments; those with household income under $50k are most likely to be in the "price is the bottom line" category.
The segment that is likely to have a longer spending pullback (and increased savings) is the pre-retirement (50-plus) group. A significant proportion of this age group is worried that, as of today, they do not have enough saved for retirement. While this may be good for the financial services sector (increased savings and investment) it is not good news for other consumer categories. While they will be very selective concerning value, this 50-plus segment offers an emerging opportunity to win new consumer loyalty driven by relevant value propositions.
From Marc Larose of Ontario: When you are looking at consumer trends, is there a change in what type of product is being bought? How is that correlated to company decisions on product selling? In other words, how should a company direct its energy to satisfied the need of the new consumer?
Gordon Hendren: First, it is essential to understand the mindset and needs of the new consumer. Yes, different products may be offered OR the consumer might buy existing products for different reasons today. As well it is also important to understand that the marketplace is segmenting, meaning that there are different segments that are very price-sensitive, some are value shoppers, some are brand-loyal.
In the case of Loblaws, notice that they are promoting no-name products more today because some consumers are driven by price, yet they still carry the national brands and also the President's Choice house brands, thus appealing to all segments.
Using the automotive category as an example: Hyundai recognized a fear among buyers of being locked into a new vehicle purchase (fear of losing their jobs), so they created the assurance program where if you lose your job within a year they will refund your money – obviously an added feature to a current offer that was very relevant.
The continued emergence of the online world is another trend we see, because it is cheap to use and is perceived to offer lots of stuff that is free, thus appealing to value-conscious consumers. Notice that Microsoft is getting into the search business to compete with Google.
In the sports world we see indications of growth potential in fantasy pools, betting on sports and playing sport video games. These appeal to the consumer's need and desire for escape (as do movies, which are up significantly).
The bottom line to thinking about any new products – start with consumer's needs and their mindset.
From Jeff in Parkhill, Ont.: My business always gets busier during a recession - it did last recession and here we are again. I wonder once the new consumer emerges from this, will a business that has success now continue, or fall back into the same pattern as in pre-recession days?
Gordon Hendren: What is your business? It would depend on the business – and vary by category.
That said, there is a strong push for value today, which should carry on for at least a few years, maybe longer. This recession has had a much greater impact on consumers than the 2001, 1991 and even 1981 versions … therefore we see it taking longer to get back to pre-recession levels.
From Karen Morris, Toronto: Do you believe that the financial sector and large business can and will create jobs that will replace the hundreds of thousands of jobs that have been downsized during this recession, unless and until a large flow of cash goes directly into the retail consumer and small business sector of the economy? Who drives job creation: the consumer who demands services and goods or the seller of goods and services?
Gordon Hendren: I do see some potential for the financial sector on the following fronts: Savings and investment intentions are up, which speaks well for the banking and mutual fund sectors. Real estate is seeming to do well also. These sectors have many small business such as financial planners, mortgage brokers, real estate brokers etc.
Where another opportunity might lie for small businesses is to position themselves as a "go-to outsourced solution" for larger companies. Given our outlook which sees at least 2-3 years for a full growth recovery, these larger companies will likely outsource rather than aggressively hire.
Dave Michaels, globeandmail.com: How have consumers' attitudes toward companies changed in recent years? What do they expect now?
Gordon Hendren: Certainly the financial/investment sector has lost a great deal of respect in the past year. Re-earning their clients' trust needs to be a big focus for them.
While consumer demand in the automotive sector is down significantly several brands have stood out with a solid value proposition: Ford and Hyundai. Ford for its straight talk and employee pricing. Hyundai being the first to offer its assurance program. This shows that some brands with a solid product offering and relevant communication can rise up, even in categories that are experiencing a tough time.
Offering good value is fundamental and is more important than ever. Think beyond price. Our study shows that while consumers are spending less in general they are also looking for better value. Rewarding customers with value added, product bundling and loyalty programs is very helpful in such a competitive environment.
From a communication point of view, there is a need to be in tune with how consumers are feeling and thinking. A humorous approach can be very effective but is hard to do well; straight/honest talk is seen as a good approach by consumers.
From Don McAlpine, Elliot Lake, Ont.: There has been a notable shift in disposable income. Wages have not kept pace with the cost of living. The overall affect is the shift from a "wage" based society to a "credit" based society. Given the current level of credit availability and ongoing recession/depression, why would we not expect to see "shifting consumer attitudes in both Canada and the United States" in response to the underlying economic factors below?
Gordon Hendren: Some segments are "feeling" this recession more than others. Yes credit levels are high by historic standards and from what I read there is some "unwinding" of credit going on as we speak even here in Canada among individual Canadians (eg. credit cards). That said, rates are still very low – by historic standards. As a result we have seen a rebound in for example real estate sales – which goes to show that consumers will take on debt if they think they can afford it. The key is inflation – if it increases significantly those with debt will be hurt. Only time will tell.
Dave Michaels, globeandmail.com: Anything in your recent research that our readers might be surprised by?
Gordon Hendren: One surprise: Canadians are more optimistic than Americans about their country being in a better position to weather the economic storm. Typically Americans have a more "can do" attitude than Canadians. Hopefully this is a good sign for Canada.
Dave Michaels, globeandmail.com: How have social media affected consumer attitudes?
Gordon Hendren: Social media have created new channels for information (such as Facebook, Twitter). Also, social media have changed the speed/rate that information can travel. A bad consumer experience can get circulated very quickly to hundreds, maybe even thousands of people. This can be further amplified by the fact that the source is "trusted" (for instance, a friend within the social media network). Marketers are trying to figure out how to harness social media – and it is not easily done!
Dave Michaels, globeandmail.com: Well, that's all we have time for today. Any closing thoughts?
Gordon Hendren: For small business, or any business, a recession brings opportunity. A well-positioned brand that focuses on its competitive advantage should be successful. Cheers and hope the good weather continues!