Consumers Trusting Brands

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Part
01

Consumer Behavior in Uncertain Times

An in-depth analysis of the hypothesis along with meticulous research data reveals that consumers tend to be more cautious and economical during a slowdown and thus look out for cheaper or discounted products trying to be at par in quality to their used brands. This however breaks the concept of brand loyalty thus disproving the hypothesis crafted.

Analysis

The specified hypothesis is disproved by virtue of the research as it has been observed through various sources and channels that consumers tend to be more cautious and economical during a slowdown and thus seek cheaper or discounted products that are on par in quality to their used brands.

Consumer behavior shift

  • The 2008 financial crisis altered consumer behaviors to an extent that the effect on how Americans are inclined towards cheaper alternatives is still visible.
  • Large retailers fueled this by changing perceptions and training consumers to anticipate products cheaply and swiftly, which ruined the concept of brand loyalty.
  • Consumers liking or disliking the concept of discounts did not matter much as people who moved to discounted players at the time of the Great Recession continued the trend of buying from them post recession.
  • A proven reduction in consumer confidence towards their favored brands was evident by the adoption of a replacement of logical standby, distinguishing their purchases or leaving various labels altogether.
  • This further altered the representation and perception that consumers had on brands and the benefits they afford, thereby providing them with an improved agility to change brands.
  • Even in situations where people are loyal to a few brands, they generally choose to stand by for a price drop, either through promotions or other discount coupons.

Viewing from the Brand (Retailer) perspective

  • A substantial decline in sales forced many brands through tough times with the heightened number of previously added stores. As an example, LVMH was blindsided after flash sale online sources such as Gilt Groupe emerged, providing excess inventory for a higher cost. As a response to this challenge, brands like Nordstrom, Sak's, and Macy's had to launch their discount models since their premium establishments saw growth plummet.
  • Tips provided by some sites also focus on ways or alternatives for how brands can present a compelling logical or sentimental advantage over their competitors, such that even if consumers switch to more affordable brands, they are more likely to return once the recession concludes.
  • For example, the American recession had a significant impact in diminishing brand loyalty across a wide variety of products from Jiff peanut butter to Advil pain reliever.

Quantitative Data

  • During the 2008 recession in the United States, merely four out of ten brands were able to hold on to about half of their loyal customers.
  • In 2018, the combined annual retail sales growth of some prominent labels fell by about 3.6%.
  • A research study by Researchgate found that more than two-thirds (65%) of American shoppers utilize coupons more often, opting to purchase goods at low prices while sacrificing comfort shopping and concentrating on saving, indicating an outward shift from the otherwise pricey brands they were loyal to.
  • It was further observed that 19% of highly loyal customers diminished their loyalty, while 33% completely moved on to an alternate label in the same segment.
  • Coca Cola saw 25% of Classic Coke purchasers become less committed which was comparable to Procter & Gamble's branded Crest toothpaste that witnessed more than half (59%) of its highly loyal purchases become less loyal.
  • All of this served as a great opportunity for retailers like Kroger and Walmart who were able to offer their private labels for much more reasonable prices, permitting the consumers to stretch their dollar.

How Consumers value Trust & the preference for price-picking and promotions

  • The recession caused online retailers like Amazon and chain stores like Walmart to provide cheaper alternatives to consumers and inculcate a trust in their product values while enjoying rising sales.
  • A report from Deloitte highlights how during the Great Recession, shoppers who converted to discount players have remained with those discount retailers.
  • A similar instance is evident from a Researchgate report, which depicts how consumers eagerly watch out for a price drop by virtue of promotions or discount coupons, which, in turn, has drastically modified the perception and representation they had regarding their brands.
  • Technology and new age decision-making tools have further aided smart consumption, as modern consumers are more agile and swift in their reaction to price changes. This group has the capacity to switch brands quickly while seeking the lowest prices, thus yielding quality as well as loyalty.

Research Strategy:

Our research began by comprehending the general perception of people during a financial crisis, economic slowdown, or a recession. Thus, we performed a search on the consumer behavior shift to understand the thought perspective of a customer during a crisis. For this, we looked into comprehensive research articles, research papers, and academic presentations that have analyzed and contextualized the phenomenon in retrospect. The American Great Recession served as an excellent tool to analyze real-time cases of pattern shift. Such sources included sites such as Academia, Researchgate, T&F Online, Semantic Scholar, and Google Scholar.

Also, we conducted a deep dive into journals of economic literature in sites such as JSTOR, SCImagoJR, RePEc, etc. We wanted to assess the reaction of people in such cases of financial breakdown. However, we observed that the aspects covered were mostly related to the reasons for an economic downturn, symptoms, and significance for businesses in terms of production slow down or lower profit margins. We performed further analysis of news and media channels like CNBC, Washington Post, etc. to assess the impact of the slowdown on the general public. The idea was to gauge a change in temperament of people, leading to purchasing and a generalist market trend.

Next, we focused on analyzing some top brands hampered by the economic slowdown. This strategy involved scanning through the annual reports, press releases, financial data, company presentations, etc. of a few leading brands like Macy’s, LVMH, Christian Dior, Bulgari, and Forever 21, among others, to assess losses incurred, store shutdowns, and similar events, that indicate a drop in sales. To implement a holistic approach, a study was also performed on cheaper options, which primarily consisted of private labels from chain retailers, such as Walmart, and other online stores, such as Amazon, that witnessed sound profits during the slowdown by luring consumers with more affordable, discounted, and promotional choices by a marginal or no compromise to quality and accessibility of products.
Sources
Sources

Quotes
  • "Consumers now also have more products to purchase beyond every-day luxuries like apparel and shoes — there are wireless plans, music subscriptions — as well new spending models like car-sharing and house-sharing. Amazon, meantime, has become a retail giant, training consumers to expect products quickly and cheaply, brand loyalty be damned"
  • "The financial crisis of 2008 left an indelible mark on consumer behaviors that still affect how Americans spend today. “Cheap was in,” recalled Larry Meyer, who worked as chief financial officer at discount retailer at Forever 21 at the time"
  • "Declining sales made retailers face a reckoning that the industry had added too many stores when times were good. Technology further drove home the reality long after the recession ended, and prolonged recovery."
  • "Department stores like Macy’s, Saks and Nordstrom, meantime, began to push their own discount models, as their premium stores saw growth flatten. Luxury brands have made their own changes. Players like LVMH were caught off guard during the recession when flash sale websites like Gilt Groupe sprouted up, offering their excess inventory at a far steeper cost"
  • "From 2007 to 2008, sales inched up only a half a percent, then from 2008 to 2009 retail sales dropped 3.6 percent. When shoppers stopped showing up, retailers were all left suddenly with onerous, unprofitable real estate, magnifying the pain of plummeting sales."
Quotes
  • "Recessions realign consumer behavior. While consumer preferences are always shifting, a recession causes an immediate reassessment of spending for consumers and businesses."
  • "Brands expect to lose revenue during a recession. To minimize this, look at your market segments and try to understand how an economic downturn will affect each segment differently."
Quotes
  • "It is tempting to cut prices in order to retain price-sensitive shoppers, but this can be a risky strategy. If your brand offers a compelling rational or emotional advantage over the competition, people who are forced to switch to cheaper brands are likely to buy your brand again when the recession is over"
Quotes
  • "People may not like discount retailers, but in a recession most end up shopping there"
Quotes
  • "Consumers who shifted to discount players during the Great Recession continue to bolster performance for discount retailers today"
Quotes
  • "We note therefore the obvious tendency of decreased consumer’s confidence in brands, displayed simultaneously with that of increasing their confidence in the opinions of others"
  • "The study mentioned above revealed that 65% of American consumers increasingly using coupons more often, preferring to buy at low prices at the expense of comfort shopping, focusing on saving"
  • "If they are loyal to some brands, they prefer to wait for a price drop, by promotions or discount coupons. Inherent behavioral differences in this new frugality are reinforced by demographics, including income, gender, ethnicity and age."
  • "The study showed that most consumers surveyed changed their consumption behavior by adopting a logical standby or a replacement, distinguishing their purchases or dropping different brands."
  • "Apart from modifications in the priorities of consumers, the crisis has substantially changed the perception and representation they have on brands and their benefits"
  • "Smart consumption: consumers today are "agile" and act quickly to price changes, with the ability to change brands looking for the lowest price, sacrificing the quality and loyalty."
Quotes
  • "The U.S. recession is taking a bite out of national brand loyalty in products ranging from Advil pain reliever and Green Giant frozen vegetables to Jif peanut butter, according to a study released on Monday"
  • "Just four out of 10 brands held on to at least half of their highly loyal customers from 2007 to 2008, according to the study from Catalina Marketing Corp’s CHKHDC.UL Pointer Media Network, which gathers purchasing data at 23,000 stores nationwide"
  • "Forty-eight percent of highly loyal consumers stayed that way during the study period, while 19 percent reduced their loyalty and 33 percent completely defected to another brand in the same category in 2008, the research showed."
  • "The study authors said Coca-Cola Classic (KO.N) is one of the nation’s most successful brands. Even so, 25 percent of Classic Coke buyers were less loyal during the study period. That compares with Procter & Gamble Co’s (PG.N) Crest toothpaste, which saw almost 59 percent of its highly loyal buyers become less committed."
  • "This time around, retailers such as Kroger Co (KR.N), Safeway Inc SWY.N and Wal-Mart Stores Inc (WMT.N) are aggressively expanding their own private labels. Those products often cost less than national brands and appeal to consumers looking to stretch every dollar."