NEW YORK–(BUSINESS WIRE^[1])–A “new frugality,” born of The Great Recession and evidenced by two
consecutive years of declining per capita consumption, is now becoming
entrenched consumer behavior that is reshaping consumption patterns in
ways that will persist even as the economy rebounds, according to a new
survey^[2] of 2,000 U.S. consumers from Booz & Company.

This new consumer spending report, the second issued by Booz & Company
since the early days of the recession in October 2008 [link^[3]],
confirms a picture of pervasive retrenchment in consumer spending that
spans a broad range of consumer product categories. But the survey also
suggests that increased frugality may have become learned behavior,
making many Americans more cautious and discerning consumers. What is
more, the study suggests that these behaviors are “sticky,” and unlikely
to quickly change as the economy shows signs of improvement. For
example, in the next 12 months just 9% of consumers intend to spend at
pre-recession levels on household products, 10% on mobile phone service,
11% on health and beauty products, and 18% on apparel, clothing, and
shoes. Moreover, nearly two-thirds (64%) of consumers say they’ll shop
at a different store with lower prices even if it’s less convenient for
them.

“Frugal behavior is now considered trendy by many shoppers, and will
continue for years to come,” said Matt
Egol^[4], a Booz & Company Partner. “In this changed environment,
marketers need to develop deeper insights into shopper attitudes and
behaviors in order to better align their product, pricing, and marketing
communications strategies.”

Evidence of changed consumer attitudes abounds in the study. For example:

• Approximately two-thirds of the respondents (65%) say they now
  consider saving to be more important than spending, and that they
  frequently use coupons.
• More than half (55%) say they would rather get the best price than the
  best brand.
• More than half of consumers surveyed reduced discretionary spending on
  a range of categories, including dining out (58%), consumer
  electronics (53%), apparel (53%), and media and entertainment (51%).

Further, these attitudes are translating into strong behavioral change
going forward:

• Nearly two-thirds (64%) of consumers say they’ll shop at a different
  store with lower prices even if it’s less convenient for them.
• Only one-third (32%) of respondents believe that their household
  financial status over the next twelve months will change for the
  better, reinforcing focus on frugal shopping behaviors such as
  deferring spending, trading down to lower price points, or buying
  their favorite brands during promotions

Several other consumer behaviors characterize the “new frugality.”
Highlights include:

Shopping itself is less impulsive and more disciplined.
Recession-habituated shoppers are more inclined than ever to do research
before going to the store. This was especially true, the survey
revealed, in three categories: Health and Beauty (83%), Household
Products (82%) and Food and Beverage (79%).

Another study conducted this past Fall by Booz & Company in
collaboration with Grocery Manufacturers Association, “Shopper
Marketing 3.0^[5],” found a comparable proportion of shoppers conducting
research before they shop, with a focus on finding the best prices,
clipping coupons, and reading circulars for what is on sale. The
“Shopper Marketing 3.0” study also found that many shoppers use price
breaks to justify buying the brands they love.

The shift to private label products has accelerated and shows no
signs of slowing down. In fact, Booz & Company analysis shows that
private labels are likely to continue to take share from brand names.
Said Egol, “Retailers are unlikely to give brands back the shelf space
that private label has taken given their dependence on private label for
profits. In addition, consumers are reporting generally positive
experiences when trying private labels, so for some consumers they are
becoming preferred brands.”

However, the move to lower price points overall, while pervasive,
is not universal. Generally, shoppers are opting for lower priced brands
in apparel, household products, and food. But they are less inclined to
“trade down” when purchasing alcoholic beverages, tobacco, and health
and beauty products.

Not surprisingly, big ticket items will continue to see the biggest
household spending cuts: In the past year consumers continued to
defer expenditures for items like consumer electronics (only 22% made
purchases) or home improvements (23% made purchases). These behaviors
will continue in 2010; only 13% and 17% respectively said they would
revert to pre-recession buying habits in these categories.

Implications for Marketers

The Booz & Company survey sheds light on the challenges faced by
consumer marketers and retailers emerging from the recession.
Specifically, faced with the same basic economic trends, consumers are
behaving differently with respect to their attitudes toward value and
loyalty. Booz & Company identified six distinct, new consumer segments
that can help interpret how customers shop in terms of brand loyalty,
retail format loyalty, and online behaviors. These segments range from
“Shopper 2.0” – young consumers who tend to buy online, regardless of
product category, who are price sensitive with few brand or store format
loyalties – to “Loyalists,” largely male, who are loyal to both brands
and the stores where they shop, but are also avid users of the Internet
for research and buying.

“This more cautious consumer approach to spending began even before the
recession came into full swing but has since picked up speed,” said Booz
& Company Partner Andrew
Clyde^[6]. “As manufacturers lured consumers with new promotions,
consumers traded down and liked the experience. As the economy recovers,
marketers need to better target their strategies to preserve the value
of existing brands, and avoid destroying value through too blunt a
competitive response across segments.”

For retailers and consumer products manufacturers, Booz & Company
identifies specific areas to spur growth and profitability coming out of
the downturn:

• Building marketing strategies and tactics that address where and why
  consumers shop – rather than relying too heavily on demographics-based
  approached used for advertising buying.
• Determining differences in consumer behavior across product
  categories, offline vs. online shopping occasions, and specific
  retailers/etailers.
• Differentiating marketing messages and promotional offers to more
  price conscious consumers vs. those who place greater value on brand
  or convenience.
• Engaging shoppers along the full path to purchase, rather than
  treating online and in-store interactions as silos.

Methodology

The survey polled 2,000 U.S. consumers, with a sample that is
representative across demographics, geographies, product categories, and
retail formats. The polling was conducted online during October, 2009.
The results of this sample were integrated with Booz & Company’s
perspectives on key trends currently shaping consumer behaviors based on
recent client experiences across the marketing and media ecosystem and
across a broad set of consumer spending categories.

The full report, “New Marketing Imperatives,” is available for download^[7]
on www.booz.com^[8].

About Booz & Company

Booz & Company is a leading global management consulting firm, helping
the world’s top businesses, governments, and organizations.

Our founder, Edwin Booz, defined the profession when he established the
first management consulting firm in 1914.

Today, with more than 3,300 people in 60 offices around the world, we
bring foresight and knowledge, deep functional expertise, and a
practical approach to building capabilities and delivering real impact.
We work closely with our clients to create and deliver essential
advantage.

For our management magazine strategy+business, visit www.strategy-business.com^[9].

Visit www.booz.com^[10]
to learn more about Booz & Company.