Team Stock Hop

Background The surge in consumer spending that occurred on so many fronts between 1995 and 2007 has halted and in many cases started to reverse itself. Americans were starting to save more. In October, they saved 4.4% of their disposable income which compares with an average annual savings of 2.7%.

The economy is beginning to recover after the worst recession in half a century. But Americans won’t return to their spendthrift ways anytime soon. Americans are getting used to being careful and 48% think they could suffer major financial losses in the future. The more people discover more cost-effective ways to live, those coping mechanisms become engrained. It appears everyone’s changing, rich or poor. More wealthy people are starting to feel guilty spending too much.

People are worrying more about social and environmental values than before. They are looking for more eco-friendly products and items that don’t scream luxury. Most luxury brands are still reeling from the backlash that began last fall against anything that resembled excess. People are becoming less brand-loyal and feel guilty spending too much.

Many companies are trying to win back customers by repositioning their brand images. Rather than glamorizing indulgence as many did in the past, some are going the opposite way, acknowledging consumers’ ambivalence about luxury and emphasizing experience over materialism. Even customers whose income has not changed are not focused on lavish spending and are even changing to more frugal ways of shopping and spending.

Companies’ Reactions Next Spring, the Fine Living Network, a cable channel at the height of America’s infatuation with affluent living, is slated to be phased out. It will be replaced by the Cooking Channel, instructional cooking at home. People are shifting from aspiring to material wealth to aspiring to live a better life. It’s not because they have a different audience, but because the existing audience is acting differently.

BMW reacted to the recession by launching a new ad campaign that plays up the pleasure of a car rather than its luxury image. “The Joy of Driving” is their new catch line. Timberland is now focusing on what consumers will be wanting one year from now. They are producing boots with smaller logos, rather than their original large metallic logo. Timberland is also going eco-friendly, with a rubber sole that can snap off and be recycled.

Hyundai responded with a new advertising tagline, “We’re all in this together and we’ll all get through this together” Since consumers are afraid to spend, Hyundai is working to give Americans a sense of confidence. In 2009, if a customer bought a Hyundai but lost their job in a year, they could bring the car back. The car maker plans to continue with some type of consumer “assurance” plan in 2010.

Conclusion Americans are still afraid to take on risk. Some neurobiologists call this “memory trace” – emotional turmoil that persists after a traumatic event. Mike Ryan, head of UBS wealth management research says, “You have to be reconditioned to take on risk again.”