Brands must understand the consumer response to continued austerity

Recent headlines on the economy at long last give us some reason for cheer. Yet at the party conferences this autumn, the Coalition Government parties were studiously avoiding trumpeting their success – and with good reason. Despite the fact that 46 per cent now feel optimistic about the economy – up 25 per cent since March – they also tell us that they are not yet feeling this in their own pockets.

Recent focus groups spell this out. Consumers know that they are being told that things are looking up, and yet they also know that the improvement has had little or no impact on their family finances. Some remain sceptical that it ever will. Many still struggle to get through the month and continue to worry about the cost of  living – the high price of fuel and food top the list. They are also worried about what the future holds: many believe their own jobs are insecure and their children’s prospects cause concern too.

They’re right. The past three years have seen a fall in discretionary household income of up to £7 a week. Consumer confidence, currently at -27, has not been net positive for more than eight years. Some 54 per cent describe themselves as ‘squeezed’ – up 15 per cent since 2011. A typical comment is: 'My financial security has never been more uncertain.'

Small wonder, then, that 71 per cent agree that 'I spend money more carefully than I used to'. Yet this caution has led to some innovative behaviour as consumers adjust to what they fear may be a long-term economic reality.

Our work has identified three key trends.

The first is all about ‘seeking control’. In an increasingly uncertain world, many consumers strive to take personal responsibility for their family’s finances: 'We didn’t get ourselves into this mess but there’s only one person who’s going to take responsibility for getting back on top of things and securing my family’s future and that’s me.' This means being better informed and investing more time – and money – in gaining a better understanding of what the options are. The success of Martin Lewis’s Money Saving Expert website is testament to this, as is the popularity of technological fixes such as the Invisible Hand app.

It is also about consumers having a better grip on their own finances. Wise brands understand this and that’s why many banks are now providing text message services that update customers on their accounts. The introduction of Smart Meters will do the same, and more, for energy bills.

The second trend is the creation of ‘trading circles’, in which consumers can make better use of limited resources and seek their own alternatives to conventional means of financing. BritainThinks’ own research reveals that of the 79 per cent who have bought something on eBay, 65 per cent have also sold something themselves. This is an act of altruism as well as self preservation: 'If I’m not using it then I might as well make some money out of it – and make life easier for someone like me.'

Peer-to-peer lender Zopa is an example of a brand emerging out of this trend. CEO Giles Andrews says: 'Both our lenders and our borrowers feel that they gain some sort of social capital… by either lending money to people and doing some good or by borrowing money and paying interest to real people, rather than a faceless institution. Other newcomers refl ecting this sentiment include Airbnb, which encourages travellers to stay in other people’s homes, rather than hotels, and the Car Club.

When all else fails, many consumers turn to our third trend: the little ‘pick-me-up’. These are small, inexpensive but uplifting moments that lighten the gloom and provide a substitute for the reward that is currently absent in many family finances. Six out of 10 agree that 'sometimes I treat myself to something I don’t need'. This explains the consistent growth of many luxury brands against the unfavourable backdrop of economic austerity. Janet Carpenter of Atelier observes: 'Luxury consumers have found their strategy for dealing with the recession – buying little indulgences to keep them sane through the tough times'. But it’s not just about luxury brands. A treat might be a cupcake, a trip to the cinema, a glass of wine or even snacks: 'Pringles – they’re so different. I only get them when they’re on offer because they’re too dear otherwise. But they’re worth it because they’re so different from other crisps. You feel like you’re buying a little bit of luxury.'

In the end, the brand that shows it understands these consumer reactions to austerity will win. At a time when corporate trust is at a premium, even small gestures can be important: 'When they can do anything – just a small thing – to help you out and help you save money, it can make a massive difference. It’s a nice change from everyone ripping you off all the time.'

Deborah Mattinson is founder director of BritainThinks [email protected]

Taken from the January 2014 issue of Market Leader. Browse the archive here.