Post-Recession Priorities for UK Consumers

Back in September 2013, in an article published in Marketing magazine, Andrew Curry, a Director at The Futures Company, said that the post-recession consumer will, for some years to come, have a very different set of priorities. His key points were that they would be:

  • More cautious attitudes towards debt
  • Wanting increased social connectivity (and the support network that engenders)
  • Have greatly increased intolerance of “rewards for failure”
  • Looking for value, not cheapness
  • Needing assurance (in an increasing uncertain world)
  • Seeking “purchase decision process simplification”

RedRoute’s view, by contrast, was that these were not that different to the priorities they had before the recession and that, in fact, the historically low level of interest rates may actually encourage borrowing.

What we said instead, in our article on 25th November 2013, was that the best way to understand the future demand for your business is to use the five key drivers of customer preference as we explain further below.

Looking back at what has happened since the recession, we can now see that consumer debt has actually grown continuously since 2013, as shown by the chart below taken from the Guardian article by Phillip Inman and Caelainn Barr, published on 18th September 2017 (“The UK’s Debt Crisis”).

The following extract from their article gives the context to this rise:

“In 2007 unsecured consumer debt – mainly on credit cards, store cards, loans and overdrafts – peaked at 45% of household income. In the years immediately following the financial crash, households were more inclined to kick their credit habit. Saving increased and borrowing declined, as the level of unsecured debt fell to 35% of income by 2012. But since 2012 households have increasingly failed to clear their credit and store card bills at the end of the month. High interest rates on those cards had sent their debts rocketing and the OBR [the Office for Budget Responsibility] now predicts unsecured household debt will reach 47% of income by 2021.

Bank of England figures show unsecured consumer credit jumped 4.9% in the past year when adjusted for inflation. The total increased from £192bn (in today’s money) in July 2016 to £201.5bn in July 2017.

This marks a slowdown on the previous two years when growth hit 12% and inflation was almost non-existent, but maintains the trend for UK GDP growth to come almost entirely from an increasing population and consumer spending with borrowed money.

It wasn’t supposed to be this way. The government’s official forecaster, the Office for Budget Responsibility, once predicted that the UK’s economic revival would be built on the foundations of business investment, higher exports and an improvement in productivity that would lead to higher wages. It didn’t materialise. Instead a mix of low wages growth, government cutbacks on welfare and public services, and more recently the uncertainty created by the Brexit vote have forced millions of households to borrow to buy essentials.”

So old habits die hard, both for businesses and for consumers.

As for social connectivity, well in one sense – the use of social media – that was more-or-less a one-way bet. As the “internet of things” connects more and more devices in ever more ingenious and seamless ways, people become connected whether they want to or not! But things are changing.

Social media is increasingly being brought into disrepute and there is growing calls for further and further regulation. In a similar vein, the “sharing economy” is also coming under fire for being “unsocial” – with rulings against Uber growing around the world typifying the pressures.

With regular stories about “fake news”, “the need for authenticity and objective verification”, and stigmatism emerging with regard to “online cliques” with self-reinforcing narrow views, the future may look very different to the one envisaged back in 2013.

Our prediction is that, ultimately, Facebook and YouTube will be re-classified as publishing houses not software platforms, because that is the easiest route by which society will wield the pressure to get them to take responsibility for what appears on their services.

In the short term, whilst new regulations such as the General Data Protection Regulations (GDPR) which are being introduced from May 2018, are seeking to ensure companies of all sizes take greater care of personal data, people in general have already lost confidence in the security of data held online. That will lead to changes in behaviour by individuals which, encouraged by GDPR, will to lead them to be much more cautious about what they share online and what permissions they give.

Again, not quite the outcome anticipated. So, what about less tolerance of “Rewards for Failure”?

Unfortunately, the outcome on that score is not that good either. As Kara Scannell and Richard Milne reported in their article in the Financial Times on 9th August 2017, there have been hardly any prosecutions for malpractice resulting from the Financial Crisis and, worse still, the proposed “stronger regulations” on everything from Bankers Bonuses to Trading Rules and Financial Robustness requirements have gradually been quietly either reduced or completely eliminated. Meanwhile we see stories in the paper about earnings and payoffs for senior roles in the public sector that seem way out of line with those of the workers responsible for delivering the services.

To quote from the article by Scannell and Milne:

“One of the enduring mysteries of the 2008 financial crisis has been why the Justice Department made so few attempts to prosecute the individuals responsible for it, given the abundance of tangible evidence of wrongdoing by Wall Street bankers, traders and executives in the years leading up to the great unwinding.

The authorities …take pride in the “record-breaking” amount of money collected from the banks in the form of civil penalties. But forcing big banks to hand over their shareholders’ money in exchange for burying forever the evidence of wrongdoing is not nearly the same as holding people accountable for their behaviour.”

And not to mention any efforts to return the gains they walked away with which ultimately everyone else paid for.

On the quest for value for money, that is a perennial desire and it did not start in 2012. In fact, one of the things we find in our data modelling is that despite what everyone says, price elasticities do not “increase during recessions” except in a purely technical sense. What changes is the ability to spend at any level of price due to the reduction in real income.

If you want to predict how well your company will do in the marketplace in the future then the most predictive measure is what we call “Effective Net Preference”. ENP is a “balanced scorecard”-measure of the five key dimensions that influence customer purchasing behaviour (both consumers and businesses). These five dimensions are:

  • Relevancy (right solution)
  • Association (right image or brand identity)
  • Accessibility (perceived – and actual – obtainability)
  • Value (right cost-benefit trade-off)
  • Expectation (expected reliability that the brand promise will be delivered)

Value for money is one of these five.

Interestingly, though, each of the items listed by Andrew Curry are all part of one of these five dimensions. Consider:

Taking on debt is simply about “Accessibility” – what you can afford. And “simplifying the purchase process” is again about the preference to use services that are quick and easy. Which is why services such as Just Eat have been successful.

Social connectivity is about the need to be accepted socially – and one way to achieve that is to buy brands you are proud to be associated with. Feelings of injustice, by contrast, will mean you avoid companies that you believe do not “play fair” – and that is where brands like Uber are coming unstuck.

Meanwhile the need for assurance has been met by many online services from Trivago, to TripAdvisor to, to uSwitch, and ultimately to meerkats… who now personify the concept of trusted advisers.

So, if we analyse the winners and losers in the post-recession years we can see how the winners are the companies that have been delivering successfully across each of the five key drivers. The losers are those who have underperformed on one or more of those.

The companies that are under threat – and that includes Facebook and Google – are those who are not in control of their performance on all of those five drivers. Think Uber as a classic case in point. Expect Deliveroo, Airbnb, and other services that are not in total control of the service they provide as potential risks for the future.

The priorities for the post-recession consumer are Relevancy, Association, Accessibility, Value and Expectation – or RAAVE for short. If you want your customers to be your “raving fans” in the years ahead then concentrate on tracking your relative performance on these five dimensions and you will succeed. Ignore them and you trust your future success to decisions that are beyond your control.

For more evidence on the power of ENP and the RAAVE metrics contact us for further details.