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Consumer’s new spending trends

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The US housing bubble of 2008, which propelled the current global financial crisis, is largely due to consumer behavior. Similar to the Great Depression of the 1930s where a run on banks perpetuated a downward financial spiral, it is consumer behavior again that is dictating the crisis of 2008.

Consumer behavior towards budgeting, debt and spending has changed in recent decades. Ever higher amounts of personal debt are more acceptable. According to Jacques Nantel, Professor Secretary General of Marketing at the University of Montreal, real household income has not increased in the last ten years. However, retail sales rose almost 180%, along with personal debt, from less than 50% of disposable income to more than 120%. It is this attitude towards personal debt that is accountable for the current economic situation, rather than the sub-prime mortgage market specifically.

As a consequence of the economic crisis, there are foreseeable adjustments consumers begin to make to their behavior, which will shape the landscape of consumption in a long term vision. Principally, M. Nantel sees three changes in the way consumers will behave in the future regarding their purchases. Here is an overview of each of those changes, from which some of you might gain ideas.

1. The fragile financial situation in consumer households has changed peoples’ relationship towards money and assets. Bit by bit, people are rediscovering the virtues of a household budgSmart consumers save money with CONSUMER REPORT...et and are willing to make considerable efforts and concessions to reduce their debts. A reduction in credit is indeed the foremost concern for consumers. Either their bank will press them to pay on loans, or consumers will voluntarily seek to reduce their credit card bills or consolidate all their debts into a lower interest loan. They also want to limit further debts and have developed distrust towards credit terms on sale items. Selling products with financing credit terms and various credit payment options are no longer the deal-closers they used to be. Consumers are doing the math on saving for an item rather than paying for it on credit. They are henceforth starting to manage their expenses with their debit card, or with cash.

Knowing that the U.S. active consumer owns an average of eight credit cards, the desire to reduce debt is understandable and encouraged. During a certain period, getting a credit card was as easy as snapping your fingers, banks usually just analyzed your financial situation without looking at how many credit cards you already had.

By now, banks are aware of this new trend and are promoting the benefits of saving! Since when have we seen such discourse from the banks? Decades!

2. The second change in consumer behavior Nantel notes is the fact that consumers seek durability and real value in their purchases. Indeed, people are looking for quality and durability rather than the greatest quantity for the cheapest price. They are willing to pay a little extra in order to receive a good product that will last longer and that will not result in additional expenditures thereafter. A cheap washer can be tempting, but if it breaks after a few months (which it may well do, due to factors such as the sheer cheapness of the quality of the parts and manufacturer practice of planned obsolescence), the cost of the repairs or the replacement will end up being more expensive than the product itself, and you will realize how expensive the “cheap” washer ended up being! Another example is minced meat (also know as hamburger meat). Once cooked, the cheapest minced meat ends up to be the most expensive per ounce. Indeed, the cheap meat, being of poor quality, reduces the most during cooking. People are starting to understand the importance of buying good quality products, with longer life duration.

This trend has even been seen in fashion; people are gradually abandoning conventionally extreme seasonal fashion, which shows its age, and are moving towards something more classic, more sober and of a higher quality in order to keep their clothes in their wardrobe and looking stylish for longer.

3. Finally, the third trend in behaviour change is that consumers consider the real price of premium gifts. They prefer being able to exchange their points right away, rather than accumulating them ad infinitum without ever seeing any results. More and more, people will choose loyalty cards offering the possibility of being rewarded right away over those who require the accumulation of thousands of points before offering a reward.