an end to the Roaring 2000s

The Shopper of Tomorrow: Trading Down
February 18, 2009, in Knowledge@Wharton, The Wharton School

Attention Shoppers: We no longer have the following items -- "a sense of entitlement," "conspicuous consumption" and "a golden period of luxury." At least that is the word from Wharton faculty and other experts who point to a new logic that is defining not just what U.S. consumers buy, but how they view the shopping experience.

While shoppers typically pull back during the downward phase of any economic cycle, the severity and uncertainty of today's crisis is likely to have longer-lasting effects on their attitudes than most slumps, these experts note. Consumers, they suggest, will eventually start spending again, but without the vigor enabled by easy credit in the Roaring 2000s.

"The Great Depression certainly changed consumer behavior and attitudes for a generation," says Wharton marketing professor Wesley Hutchinson. "It's not obvious that we will have that psychological scar, but there is precedent for a very large shift."

Over the next 18 months, Hutchinson predicts, consumers will learn to become more frugal and are likely to carry those skills over once the economy recovers. "At some level, everybody has now been schooled about financial markets and overextending one's credit -- something American consumers have been notoriously bad at. We had a habit of not paying a lot of attention to the cost of using borrowed money."

Wharton marketing professor Stephen Hoch sees consumers as embracing a new logic. "Until recently, there has been a theme of entitlement that people really latched onto," he says. It was built on the belief that consumers worked hard and were entitled to splurge on rewards to compensate for the time and energy devoted to making money. Luxury goods marketers promoted the "entitlement" theme heavily, although they have now backed away almost entirely from this pitch.

Consumers who had learned to trade up when times were flush are now learning to trade down, Hoch adds. They realize they were wasting money on higher-priced goods and services when less expensive alternatives were available with little real trade-off in quality or satisfaction. Indeed, many consumers regret what they used to spend; they are finding a new sense of well-being in becoming more discerning shoppers. "There will be more of a premium placed on seeking value," Hoch says. "People will realize that's being smart." . . .

~ Full article here