What will the current downturn might mean to consumers? Will their habits change in lasting ways? Could we return from the downturn to discover that consumers are a very different animal, that our economy runs on new principles. David Brooks wondered recently whether we might someday look like abstemious Amsterdam. There is a scarier prospect: that we might go the way of Japan.
Here’s a typology of possibilities.
1. a mere quantitative change
Consumers scales back existing consumption habits. They buy the same things, roughly speaking, but they shift from expensive to cheaper versions, from big quantities to small quantities. This suggests a shift from European luxury cars to Japanese sedans, from luxury goods to something more generic, from national brands to store brands, from eating out to eating in, from steak to hamburger.
The logic is a simple diminution, a quantitative change that produces no qualitative change. The world of consumer demand remains what it always was, scaled back for the moment in a managed retreat. When trust, job confidence, credit and prosperity are restored, the consumer will come charging back. All is forgiven. All is forgotten. We will party like it’s 1999.
One variation on this scheme would be to scale back all categories except one. This consumer would make cuts across the board, but would continue to eat out at the present level, or buy the same kind of car, or … you get the idea. For instance, we can imagine that some men might make extraordinary sacrifices to protect their purchase of a Ford 150. This is a violation of the Diderot effect, the one that keeps consumer purchases consistent across board, and it is the kind of thing that happens only when driven by a particular idea or objective. We need to watch for these violations, and then identify the ideas or objective that drives them. I am a little surprised to discover that none of the national brands is promoting itself as the Exception Brand.
Another variation comes from what Silverstein and Fiske call the “trading up” effect. In this second departure from the Diderot effect, consumers scale consumption back and then engage in a balanced pattern of buying up and buying down. Haagen-Dazs ice cream is purchased with CostCo savings. In this case, we need to discover where and by what calculus these trade-offs are being made. Here too brands should be jockeying to become the “trade up” choice, or at least to avoid by the “trade down” alternative.
Variation 1.3 (the long term prospect)
The standing expectation is that consumers who scale down will scale back up when prosperity and credit return. But it is possible that the new, more modest, positively Amsterdamian, consumption pattern will prove sticky. This is what happened in Japan in the 1990s. Consumers gave up free spending ways and never came back. As Tabuchi put in in the New York Times, “free-spending consumers [turned] into misers, making them a dead weight on Japan’s economy.”
A change of this order takes a full-on anthropological investigation. In the meantime, we may speculate. I think Scitvosky’s model might be useful here. He shows how the pleasure of a new purchase devolves into comfort and I wonder if the reverse is also true. Displeasure, as we move to a lower level of consumption, might for some consumers eventually lose its sting and turn to comfort too. Or not.
The question is whether we might habituate to a lower level of spending. I think this can only happen if some of the deeper cultural drivers of the consumer culture fall silent. These would include competitive spending. (This is largely dead among some Millenials.) It would also include the wish to stay in fashion or in touch with the curve. (Here too some young consumers are turning their backs on fashion, especially the branded, mainstream variety.) There are positive forces: the wish to go green, to “save the planet,” this has been the great staple of elementary school education and it is now on the verge of being installed in our culture as orthodoxy. (This is no doubt as it should be.) This is where we really have to do our anthropology: what are the cultural drivers that might intervene here and lock consumption habits into place.
In sum, consumer spending may look very like a tide, falling in every category in exact proportion to the loss of disposable income and credit. Or consumers may manage their retreat less evenly, working trade-offs to protect some categories over others. These prospects will become clearer when the ethnographic data is forthcoming.
Soon: Thoughts on the qualitative scenario. Specifically, how consumption patterns might change, if they are going to change in kind and not just in quantity.
Brooks, David. 2009. “I Dream of Denver.” The New York Times, February 17 http://www.nytimes.com/2009/02/17/opinion/17brooks.html?th&emc=th (Accessed February 17, 2009).
McCracken, Grant. 1988. Diderot Unities and the Diderot Effect. in Culture and Consumption. Grant McCracken, 118-29. Bloomington: Indiana University Press.
Scitovsky, Tibor. 1976. The Joyless Economy: An inquiry into human satisfaction and consumer dissatisfaction. New York: Oxford University Press.
Silverstein, Michael J., and Neil Fiske. 2004. Trading Up: Why Consumers Want New Luxury Goods and How Companies Create Them. Rev Portfolio Hardcover.
Tabuchi, Hiroko. 2009. “When Consumers Cut Back: A Lesson From Japan.” The New York Times, February 22http://www.nytimes.com/2009/02/22/business/worldbusiness/22japan.html?th&emc=th (Accessed February 22, 2009).
This post appeared over the weekend at the Atlantic Business Channel: http://business.theatlantic.com/