Will consumers remain thrifty forever?

DMNews, March 6, 2009, by Nancy Kearney

During the next few years, it is likely that consumer spending and consumption will be down substantially and there will be significant switches downscale to value brands and private labels. Some project that habits developed during this period, such as a reduced interest in premium brands, will persist.

In my view, however, when the economy recovers and confidence returns, there will be a return to something close to past spending patterns, and premium brands will once again have a strong role in the economic mix.

Consider the following: First, consumers can get activated about a crisis and react by making huge behavioral changes in things like water usage or gasoline consumption, for example. When the crisis passes, however, they again start using water and cars at about the same rate as before the crises. Consumers have a short memory and dislike sacrifices to their lifestyle.

Second, there is an ongoing need for emotional, self-expressive and social benefits that can be satisfied by frugality for only so long. Eventually, these needs will promote a return to premium brands.

Third, brands are remarkably resilient and can emerge from tough times stronger than ever as was evidenced by Harley-Davidson, Apple and AT&T, all of which went through a period of inferior products or service but emerged with their brand equity intact. As Mark Twain commented upon reading his obituary: “The reports of my death are greatly exaggerated.”

- David Aaker, Vice Chairman, Prophet

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