Consumers in the Crisis

Grant McCracken writes about 4 ways in which consumer behaviour may change in the downturn as spending power (or perceived spending power) goes down. I’ve summarized his ideas below:

1. Elastic Consumers: spending less during the crisis but reverting to old habits once things get better

2. The Exception: spend less on most product categories but keep spending at the current level on one (or more).

3.  Trading-up: Spend less on some categories to spend more on others. (Which ones and why is an interesting and important question to answer!)

4.  Sticky Savers: reducing spending during the crisis and staying that way forever.

Read the original article here.

I did a little research to look for actual examples of these types of behaviour. Here are two of the more famous (but most probably apocryphal) ones:

The Lipstick Index (Via The Economist)

a term coined by Leonard Lauder, the chairman of Estée Lauder, a cosmetics firm, in the 2001 recession. In the autumn of that year, lipstick sales in America increased by 11%. Believers in the theory trace the phenomenon back to the Depression, when cosmetic sales increased by 25%, despite the convulsing economy.

If this theory were true, then lipstick could be an “Exception” or a “Trading-Up” category for many people. However, The Economist writes that while lipstick sales do increase during economically difficult times, they also increase during times of relative prosperity so there is no clear correlation. Click here to see a great chart showing the data.

The Mama Noodle Index (via Wikipedia)

In 2005, the Mama Noodles Index was launched to reflect the sales of Mama noodles, the biggest manufacturer in Thailand. The index was steady since the recovery from the East Asian financial crisis, but sales jumped by around 15% in the first seven months in 2005 on a year-to-year basis, which was regarded as a sign of recession. People could not afford more expensive foods, hence the increase in the purchase of instant noodles, as instant noodles is seen as an inferior good.

I haven’t been able to find data to prove or disprove this theory but the notion of instant noodles being an inferior good may not be the only explanation as this article by Christopher Solomon describes:

It is comfort food in the ultimate sense of the word: the comfort that you can eat, and feel as if you’ve eaten, for mere pennies. One does not hanker for instant ramen. One doesn’t dive into the cupboard in search of ramen and emerge with, say, tomato soup. It is almost always the other way around.Yet this meal of last resort is all the more satisfying, because the alternative — hunger — is unthinkable.

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