Tag Archives: recession

Delivering Winning Experiences for the Recessionary Customer Mindset

Layout 1I just received an interesting advertisement from Mimi’s Café.  Mimi’s is a 115-store chain of upscale casual dining establishments known for generous portions of predictably high quality entrees.  In an unusual twist, Mimi’s is promoting a “Just Enough Menu” focused on smaller portions at prices that range from $7-9 for lunch and $8-12 for dinner.  While most advertisements you see promote “more for less,” this advertisement promotes “less for less.”   Although this may be surprising, I believe it’s an astute move.  Not only does it provide a low price incentive but the “less for less” approach strikes a chord with a recessionary mindset that has been taking hold.

The National Bureau of Economic Research (NBER) announced yesterday that the United States has officially been in a recession since December 2007.  I don’t think many people were surprised.  “I think that we’ve got a ways to go, that this is going to be probably a deep and long recession,” said Jeffrey Frankel, a Harvard University economist who sits on the NBER.

Over the past year or so, the focus of our work on customer experience design has transitioned from the strategic to the urgent.  We’ve spent more time helping clients focus attention and investment on collaborating with and retaining their best customers, surfacing and quickly addressing the reasons for customer attrition, and on continually reinforcing that, although everyone seems to have become more conservative,…

Customers are NOT NOT spending!  They are just changing how and why they spend.

Customers are continuing to opt for and engage in experiences that are designed to meet their needs.  It’s just that their needs and priorities are changing significantly.  Organizations that understand and quickly adapt to these changes can not only preserve but enhance revenue in the short term.  Organizations that hang onto outdated beliefs regarding their customers’ priorities will not only lose revenue but will ultimately be seen as out of touch and irrelevant.

While every industry and situation has its own unique behavioral shift to understand, we’re seeing a few overarching patterns that represent a solid starting place.  Increasingly, customers are:

1. Rejecting Conspicuous Consumption

The recession may just provide a cure for a wicked case of Affluenza!  In light of the current conditions, our past consumer behavior looks a little embarrassing; like our evolutionary predisposition to acquire has been running amuck.  The Times of London columnist, India Knight wrote, “I am happy to observe that the decades of vulgar excess are finally over… There is a strong collective sense of us all coming back down to earth. It’s like a huge national reality check and, unwelcome as it may be, there is a possibility that it will result in us straightening out our priorities.”   (See:  Dear Prudence: Recession May Bring Return of Traditional Values).

blingwater_1We’re seeing early indications that there may be an aggressive backlash against indulgent and conspicuous consumption.  Think about it.  How many families need a 5,000+ square foot house other than to store all the stuff they buy to fill it to the rafters?  Is it really necessary to spend between $40… and even $400… for a case of 12 liter bottles of water?  Have I got a deal for you?  A case of Bling H20 (water corked in frosted glass bottles adorned with Swarovski crystals) is currently on special for less than $400/case.  Even at this discounted price, it still makes the EvianPalace” water seem cheap at $15-$20 a bottle.  Similarly, is it necessary to spend three times as much on Renova’s designer toilet paper, $200 jeans, or a $690 on a Porsche baby stroller?

We’re starting to see a return to the more reasonable basics.  In the fashion industry, “the dress, which has enjoyed a lengthy reign over the market, is losing ground to more conservative, versatile, basic pieces that can blend and carry their owners through several seasons. Retailers report excellent sales in practical items such as blazers, denim, basic separates, and trousers.”  (http://www.slate.com/id/2191398/)

It’s starting to look more and more socially unacceptable to buy upscale goods.  A recent investment blog post provides an indicator of some of the sentiment we’re seeing.   “One company that will be hurt by the eating retrenchment is Whole Foods (NASDAQ: WFMI), a favorite of the upper middle class who wants to look down their noses at people who go to regular grocery stores.”  (My emphasis added).  The point isn’t whether Whole Foods shoppers believe in the health and environmental benefits of organic and natural foods; the point is that non-Whole Foods shoppers perceive the Whole Foods shoppers as “looking down their noses at them.”

As I mentioned in a previous post (When the Going Gets Tough… The Tough Get Closer to Their Customers), as customers that are struggling will buy up in order to keep up appearances, the ones that aren’t will tone it down.  I expect we’ll see an echo of the “grunge” music, fashion, and lifestyle movement that arose out of the recession of the early ’90s.  This will create opportunity for new products, entertainment, fashion, and retain outlets.

As we head into the holiday season, we’re starting to see an increased tendency to give “practical” gifts rather than the more luxurious and exotic gifts.  Look for high end companies to jump on opportunities to introduce more discreet chic alternatives.

2. Making Value-Focused Tradeoffs

As the recession has taken hold, most customers are more willing to postpone purchases, trade down, or buy less.  For many customers, yesterday’s “must haves” are becoming today’s “can do with outs.

In the course of making these tradeoffs, customers are buying more quality non-branded or store-branded alternatives.  Michael Barbaro and Eric Dash wrote in the New York Times “Recession Diet Just One Way to Tighten Belt” that, “Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.  Sales of Nabisco graham crackers have dropped 7.5 percent, and Keebler Fudge Shoppe cookies have slipped by 12.3 percent.  Not even beer is immune.  Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down, the firm said.”

Customers are also making tradeoffs in convenience for price.  This includes shifting from the Marriott to the Fairfield Inn and looking for cheaper flights at off peak times, such as mid afternoon and late evening rather than early morning.  As Barbaro and Dash write, “Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares.”

In a great article, “Dollar’s fall forces new standard of frugality,” San Francisco Chronicle writer Sam Zuckerman writes, “Now, that shop-till-you-drop, I-want-it-all-and-I-want-it-now era may be coming to an end. It couldn’t last because it was built on a mountain of money borrowed from overseas.”  Zuckerman goes on to summarize some of the ways that customers are throttling back:

IN OUT
Saving Borrowing
Cooking at home Eating out
Fixing the old car New car
Staying at home Foreign vacations
20 percent down No down payment
Debit cards Credit cards
Working past 65 Early retirement
Library Bookstore
Tap water Bottled water
BART Bay Bridge
Patching Remodeling
Public park Theme park
Eyeglasses Lasik surgery
Poker night Weekend in Vegas

We’re also finding that business customers want to see products and services unbundled and priced separately.  Customers want and need to evaluate the individual contribution of each component and are placing a premium on reliability, predictability, and performance.  New products and services that address new customer priorities and put pressure on competitors can be effective but advertising and sales efforts must stress differentiated value and superior price performance.

3. Smaller Scale, Do it Yourself Alternatives

During more optimistic economic times, customers often find I easier to justify making investments in major projects.  For example, homeowners might invest in renovating their home with the expectation that it’ll have a positive impact on their home’s value.   However, as home values are shrinking, homeowners are opting for smaller scale and more focused and necessary improvements driven by livability and value preservation rather than economic gain.  For example, at Home Depot, sinks, faucets, and bath accessories are selling briskly as consumers switch from full makeovers to more focused refreshes.

Barbaro and Dash go on to cite an NPD study that provides another example:  “Carl Hall, a retired construction worker in Detroit, wants to buy a fence for his backyard. But he decided not to buy a finished product at Lowe’s, the home improvement chain where he was shopping recently. With money tight, “I am looking to put it together myself,” he said, adding that he hoped to save $200.”

We’re also seeing anecdotal evidence of a similar pattern with business buyers.   It seems like more companies are breaking consulting and business services projects into smaller pieces and looking for parts that they can do themselves.

Agile companies will create offerings and experiences that provide customers both smaller scale and “do it yourself” alternatives… in addition to offering fully integrated options for those who may continue to prefer that.

4. Regaining Control

People experience an emotional loss of control during unpredictable times.  As a result, we typically see people acting in idiosyncratic ways driven by a deep psychological need to regain control.  For example, people often engage more in collecting hobbies when they feel out of control in their lives.  Depending on their individual interests, they’ll collect figurines, CD, DVDS, coins… just about anything.  Conway’s Vintage Treasures blog, stated, ” “Collecting is a passion and a distraction to a better place, a better quality of life then we can get from say for example, following stock prices everyday…”   Our research points to a deeper reason that has to do with control.  The more people feel their situation is out of control, the more they compensate by engaging in behavior that helps them regain their sense of control.  Collecting is one of those things.   What’s the benefit of collecting another figurine when you already have 200 of them?  Well, it makes them feel like they’re on top of their collection and making progress in small steps towards improving it.

Aside from these deeper control issues, we also see more obvious ways of regaining control.  For example, programmable thermostats and insulation which help gain control over fuel bills are another top seller at home improvement stores.

Another way that customers regain control is by taking advantage of packaged offerings that reduce the actual or perceived costs or level of uncertainty.  These bundled offerings can provide the comfort of “no surprises at a set price.”   For example, while travel agencies report that although overall demand for travel is down, there has been a shift to U.S. and even local destinations, with a rise in popularity of “all-inclusive” stays.  (See:  Americans Flee Looming Recession).  The opportunity for a local bed-and-breakfast might be:  they could offer a package that included dinner at a local restaurant; bicycle rental, horse carriage tour or the like; and tickets to a local attraction or museum.  Those establishments could provide the goods and services at a discount to the B&B (as a “cost” of marketing for the increased business), and the B&B could offer the full package below the retail cost of the individual items while guaranteeing the usage of their rooms.  A win-win situation for all of the businesses!

5. Cocooning, Insperiences, and Staycations

As hard times loom, we tend to retreat to the comfort of our friends and family.  We connect with cozy hearth-and-home scenes in advertisements rather than images of extreme sports, adventure, and rugged individualism.   As we cocoon, insperiences tend to boom.  According to trendwatching.com, Insperiences represent “consumers’ desire to bring top-level experiences into their domestic domain.” This can include high-end entertainment systems, in-home spas, exercise facilities, etc…

As a result, telephone use and discretionary spending on home furnishings and home entertainment should continue to hold up well, as uncertainty leads us to stay at home but also stay connected with family and friends.   Sales of big-ticket electronics, like $1,000 flat-panel televisions and $300 video game systems, are on the rise, according to retailers and research firms. Falling prices for such devices and a looming government deadline to convert to digital television have helped. So has the view, sensible or not, that the technology is a good investment.

Staycations often replace vacations.  Vacations at or around home rather than traveling can be significantly less costly since there are no lodging costs and minimal travel expenses.  Costs may be limited to gasoline for local trips, dining, and local attractions.   In addition, Staycations do not have the stress associated with travel, such as packing, long drives, or waits at airports.  They may also appeal to people who are stressed about being away from work.  (However, it also leads to the downside of working on your vacation.)

6. Small Understated Indulgences

In parallel with reverting to the practical, customers will look for small understated indulgences.  They seek diversionary yet affordable experiences that can make them temporarily forget their worries.   This includes things like going to the movies.  During the height of the great depression, when 25% of families had no income and unemployed labor reached 40%, movie receipts still increased by 22%.

Big indulgences like higher-end restaurant chains, including Ruth’s Chris and Morton’s, will be off since they are either actually too expensive or appear to be extravagant.  In addition, frequently small indulgences that have become habits, like Starbucks, will also take a hit since the total expenditures on those items tends to add up.

There are also a range of interesting anti-recessionary small indulgences.  Chocolates and alcohol generally sell well during a recession.  Another interesting affordable luxury that generally performs well during a recession is lipstick.  The “Lipstick Index” is the result of a time-series analysis that suggests that lipstick sales are inversely related to the strength of the economy.

7. Looking for Empathy

Customers are looking for companies that understand what they’re going through and are ready to help.  In the outstanding New York Times article, “Thriftiness on Special in Aisle 5,” authors  Stephanie Rosenbloom and Andrew Martin write:

“While it might seem counterintuitive for stores to teach shoppers to cut their spending, several chains have concluded that providing such knowledge can spur loyalty and keep customers from trading down to cheaper competitors.

So the Stop & Shop grocery chain is offering “affordable food summits” where consumers are taught how to lower their grocery bills. Home Depot offers classes on how to cut energy bills. And Wal-Mart Stores hired a “family financial expert” who has used online chats to teach several thousand shoppers how to save money for college, whittle away debt and sell a house.”

Whole Foods has redesigned their customer experience around the “Whole Deal” theme targeted at customers who remain committed to natural and organic foods but are feeling a heightened attention to cost.  This experience includes several creative elements that match customers’ shifting priorities : an expanded selection of lower-priced alternatives marketed under their “365″ store brand,  “Money Saving Meal Plans” and “Budget Friendly Recipes” that provide advice for containing costs while maintaining a focus healthy natural and organic foods.   They are even offering “Value Tours” through the store in order to help customers find the most cost-effective solutions.

Another way customers are looking for understanding is pricing.  Astute providers do not necessarily have to cut list prices but they may need to offer more temporary price promotions, reduce the thresholds for discounts, extend credit to long-standing customers and price smaller sizes more aggressively.

Rosenbloom and Martin very eloquently summarize that…

“The golden trend tip for brands in a downturn? Care about your customers. Deliver. Sympathize. Surprise them. Talk to them.”

These seven patterns provide a solid starting place for identifying the specific shifts in customer needs, priorities, and behaviors that may be relevant to your industry and situation.  In the end, companies that focus attention and investment on collaborating with and retaining their best customers, surface and quickly address the reasons for customer attrition, and remember that…

Customers are NOT NOT spending!  They are just changing how and why they spend.

Those companies will be in the best position to deliver winning experiences that resonate with their customers’ changing needs and priorities… and, maybe even, turn a downturn into an upturn.

When the Going Gets Tough… The Tough Get Closer to Their Customers

Whether we like it or not, the current recession will separate the weak from the strong.  For many organizations, I believe the deciding factor will be how well they recognize…

The linchpin of an effective recessionary strategy is aggressive customer focus!

In a downturn, customers’ assumptions about the future are driven by fear and uncertainty more than objective financial realities.  Any recession generates the obvious and predictable belt-tightening; customers delay necessary purchases, choose more inexpensive options, and avoid discretionary spending.  However, it’s critically important to recognize that, beyond these generalities, each recession produces it’s own unique pattern of changes in customers’ needs, priorities, and behaviors.  As a result, a recession can create opportunities for organizations that can understand these changes, think creatively, and use the situation as an opportunity to strengthen relationships with their most valuable customers.

One of the worst things an organization can do during a recession is to take its eyes off of their customers.  However, when threatened, most organizations have a tendency to adopt an inwardly-focused, “survival mode,” mentality.   They focus on operational and financial controls and stop investing in what appears like discretionary initiatives aimed at strengthening relationships with customers.  By taking their eye off of the customer, they end up accelerating customer and revenue attrition while undermining their longer-term competitive strength.  There are three things we’d recommend based on the work we’re doing to help our clients deal with this challenge:

1.      The first priority is aggressive focus on and investment in your best customers and prospects.  During a recession, a relatively small number of your best customers will provide an even larger share of your profits, while the often larger ranks of marginal or unprofitable customers will create even more of drain on the system.   The first thing to do in a recession is to clearly identify who your most valuable customers are and invest in strengthening relationships with those customers.   This includes collaborating with those customers to understand and address their changing priorities, restructuring your offerings around their unique needs and, as necessary, restructuring financial terms.  It also includes focusing sales efforts on the most valuable, winnable customers and making sure that you’re not wasting resources on customers that are not going to buy and that are unlikely to be profitable.

There are many classic examples of the benefits resulting from aggressive, customer-focused investment during times when competitors are retrenching.  For example, Dell invested in their customer-centric telephone ordering and pull production systems during the 1990-1991 downturn.  As a result, Dell was able to capture the strongest competitive position when the economy sprang back.  Singapore Airlines invested $300 million in new seats, entertainment, meals, flight attendant training all aimed at their most profitable first-and business-class customers.  As a result, they were able to not only survive, but remain profitable in the aftermath of the 1997 Asian currency crisis and emerged in stronger competitive position.

A lot of the work we’ve been doing is focused on helping clients collaborate effectively with their best customers.  This starts with the analysis required to clearly determine who their best customers are and continues with the implementation of joint planning processes, closed-loop satisfaction management practices, as well as, more agile, open, and collaborative product development and service processes.  In addition, we’ve been helping clients optimize their selling activities by starting with a clearer understanding of how their customers’ buying priorities are changing.

2.      The second priority is watching, talking with, and listening to customers more closely in order to identify creative ways to address subtle changes in their needs, priorities, and behavior.  It’s critically important to NOT rely on your traditional assumptions about what’s important to customers.  Instead you need an informed view of how your customers’ needs and behaviors are changing as dark clouds appear on the horizon.  You need to think creatively about ways to meet those changing needs and address those changing behaviors in order to strengthen the relationship, generate more value, make their lives easier, or make their businesses easier to run.  Not surprisingly, customer behavior will increasingly be driven by emotion rather than rational consideration.  By getting closer to customers you can identify ways to proactively address customers’ emotional needs and reactions.  Here are a few of the overarching behavioral shifts we’ve been observing as the recession continues to take hold:

  • Sympathetic Frugality and Inconspicuous Consumption. Most people who are struggling don’t want it to show; they’ll make compromises in order to keep up appearances.  However, even the customers that are doing well are becoming more cautious as they see friends and colleagues cutting back or losing their jobs.  Appearances matter.  Inconspicuous consumption refers to purchasing goods or services that convey a lower socioeconomic status. People who have, so far, been unaffected directly by the recession don’t want to rub it in.  As a result, we are starting to see a regression towards a more socially-neutral mean.  While the customers that are struggling will buy up in order to keep up appearances, the ones that aren’t will tone it down.  I expect we’ll see an echo of the “grunge” music, fashion, and lifestyle movement that arose out of the recession of the early ’90s.  This creates opportunities for clever, customer-centric marketers.
  • Exercising Control. People are starting to cut corners in ways that give them the feeling of being in control and of acting responsibly. All inclusive and bundled pricing that creates more predictable and budgetable expense streams will have an advantage.  Companies need to look for ways to help their customers regain a feeling of control. This might include measuring the benefits and savings associated with programs, locking in discounts for the future, etc…
  • Inexpensive Luxuries. During the height of the great depression, when 25% of families had no income and unemployed labor reached 40%, movie receipts still increased by 22%.   As stress and uncertainty levels rise, people naturally look for more inexpensive ways to meet their personal and social needs. This includes affordable entertainment alternatives. Beer, liquor, movies and home entertainment tend to do well during a recession. Product and service organizations that provide affordable alternatives to premium pleasures can benefit from promoting these options.  This includes everything from buying your latte at McDonalds or Duncan Donuts rather than Starbucks… to more economically-oriented entertainment, restaurants, hotels, and vacations.

whole-deal

I walked into Whole Foods yesterday and noticed how effectively they’ve redesigned the experience.    They’ve launched “Whole Deal,” a more value-focused experience targeted at customers who relocal-producer-loanmain committed to natural and organic foods but are feeling a heightened attention to cost.  This experience includes several creative elements that match customers’ shifting priorities : an expanded selection of lower-priced alternatives marketed under their “365” store brand,  “Money Saving Meal Plans” and “Budget Friendly Recipes” that provide advice for containing costs while maintaining a focus healthy natural and organic foods.   They are even offering “Value Tours” through the store in order to help customers find the most cost-effective solutions.  In addition, they are promoting a “Local Producer Loan Program” that highlights the support they provide to suppliers.   Overall, they are meeting a challenging situation by finding ways to add more value for customers, rather than just cutting costs.

3.      The third priority is identifying and eliminating the negative experience elements that drive attrition. Most organizations unintentionally frustrate and annoy customers in ways that they can’t even begin to understand.  Recent studies have shown that, while the economy has been weakening, their tolerance for bad service has been diminishing.  For example, a recent Customer Experience Study (conducted by RightNow and Harris Interactive) found that:

  • 87 percent of consumers have stopped doing business with an organization after a bad customer experience, up from 80 percent in 2007 and 68 percent in 2006.
  • 84 percent of consumers indicated they would tell others about a bad experience – up from 74 percent in 2007 and 67 percent in 2006, In fact, blogging about a negative customer experiences is on the rise: 22 percent of consumers this year have posted negative feedback about a company, vs. only 13 percent in 2007.
  • 58 percent of U.S. consumers said that in a down economy, they will always or often pay more for a better customer experience

In many cases, the negative experience elements that contribute to attrition may be relatively easy to fix without major investment.    The trick is to be able to clearly identify these things with an unbiased and unfiltered, outside-looking in perspective.  Over the past decade, we’ve worked with several organizations to conduct an Urgent, Short-Term Customer Retention Program.  Typically, over the course of 6-8 weeks, we can quickly diagnose the specific breakdowns in the experience that are leading to defection or lost new business opportunities.  For example, we worked with a business-to-business financial services provider to uncover the root causes for why customer attrition was increasing.  Over the course of an 8-week effort, we were able to identify 7 things they could immediately to 3 point increase in retention.  This translated into a 12% improvement in the business’ bottom line.   These improvements included a new template for on-boarding and initiating new customers, an early warning system for changes in customer behavior that preceded attrition, and expanding the schedule of follow up training for customers.

The way through many tough times is finding ways to intelligently create more value for others.  One of the surest ways there is for making sure that you end up being the strong rather than the weak is avoiding the tendency to become self-absorbed and maintain a clear focus on the customers that are, ultimately, the source of your success.