Recession or not, people have lost confidence. What does this mean for marketers?
Over the holidays, my parents got one of those big presents that don’t fit under a tree. A car comes to mind for most people, but for my parents, it was an acre and-a-half plot of land. As I was talking to my Mom on the phone, she said something that stuck with me.
“I’m not sure whether or not we want to build right now. I’m afraid, if we hire a contractor, they would be more likely to cut corners to save money. Not only would the management look for ways to save but so would the individuals involved with building the house.”
For the past three weeks, I’ve been searching for work in the Atlanta area. I have many reasons for making the plunge from the comfort of my home in Cleveland down to Atlanta. More than anything, I need a place that offers more opportunity. Unfortunately, my timing seems a bit off. In leaving one of the hardest hit areas of the sub-prime loan crisis and real-estate bubble, I’ve come to realize the psychological shock wave has spread much further. Even in markets with some of the highest growth in the country, management has an uneasiness in their gut from what they are reading in the news, hearing on the radio, and watching on television.
Everyone seems to be insecure at the moment. More specifically, they are concerned about the future outcome of investments. Not such a good area for a recent college grad, seeking entry-level employment to be caught in. I am one of the most insecure investments a company can make. Management uses time and resources, which means money, on a person that has no guarantee of yielding any present or future benefits.
The downward spiral, through my eyes, looks something like this:
- Consumers hold onto money because they are not sure their investment is optimal.
- Management can see areas of decreased sales, or merely forecast that a decrease will occur because of more uncertainty of growth.
- Hiring is tapered back, if not put on hold. Or worse, layoffs, possibly all-out cutbacks occur.
- Unemployment rises.
- People hold onto money even more.
- Inflation occurs at every step of the game because people view the things they have as more valuable than the money being offered.
I’m not arguing economics, I don’t know economics very well. To confirm my ignorance I will ask two economics majors to critique this argument in the comments. I’m trying to argue psychology.
Its easy to see who the major players are in building and loosing confidence are; the government, the media, and your social networks are probably heavy hitters. But there is a more subtle variable that has has a direct, immediate effect on how you think of your money. Cheap prices.
Right now the best thing businesses can do to restore consumer confidence is to drop prices. The last step of my spiral is the most important to ending the cycle. Businesses need, more than anything, to slash prices and to adjust their processes while they still have a buffer. The buffer between now and when prices are forced to adjust by the market will allow companies some elbow room for testing different pricing schemes. It will also give them time to streamline inefficiencies, draft up new plans, and apply other practices that have been sitting in archives and business books for rainy days.
Nothing makes consumers more confident than when they feel rich because their money can go far. Companies cannot afford to wait for better governance, media optimism, or people to just feel good without anything having changed. What needs to change is business. Pull money away from all forms of marketing but research and use the savings to compensate for the adjustment. Maybe its a good thing I haven’t found work yet. It’s probably occurring already, but I haven’t noticed…
yet.
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Greg, this is a very interesting and thoughtful post and I’m happy you solicited my take on what you’re discussing here. If I understand correctly, you’re saying that with a potential economic recession looming and the consumer confidence numbers trending downward, that marketers must dream up some new way of communicating with their customers, telling them it’s OK to actually go out and buy afterall. It’s an interesting viewpoint, but reading s0me of what you wrote demonstrates that you don’t understand the underlying phenomena of a recession.
The portrayal of Recession as a sort of Bogey that everyone must fear is misleading I feel. Essentially what a recession is–and it’s an absolutely necessary aspect of the cyclical pattern of business’s adoption of innovations (ie. new ways of doing things)–is the liquidation of untenable business enterprises. What I mean of course, is that during the boom phase (think recent tech boom of the 90s) of any prosperity you have many new businesses coming into existence. The information/data that each of these entrepreneurs are utilizing to make their profit projections are usually misleading–they see past profit rates of increase and then extrapolate that going forward, sometimes ad infinitum. Of course these profit projections are not sustainable or realizable, and here, once people begin to realize the untenableness, we see the liquidation of these unsustainable enterprises (again, think tech boom, then the subsequent bust where many e-companies failed). So in its basest form, recession is the liquidation of untenable enterprises that were created during previous boom periods. And, your 6th bullet point about inflation could not be further from the truth during times of recession. Recession actually includes a process of DEFLATION. If you can just reimagine the example of the 90s tech boom/bust, you can understand that when a company or companies go poof–out-of-business–you have the evaporation of the paper wealth that goes along with it. This elimination results in fewer $$$ in circulation, which then results in the increase in the purchasing power of each monetary unit in the economy. So, recession exhibits a period of price deflation (things are cheaper in real terms at least), liquidation of unsustainable businesses, temporary surges in unemployment(which I neglected to mention more fully).
I think the idea that the consumer somehow drives the economy is also misleading. The idea was born out of the Keynesian aggregate demand arguments of the early 20th century, which still persist to this day, but surely you’d have some reservations about adopting it. I’m sure that you’re aware of the many instances of products being created without a customer base in mind–in many instances in the past the demand for a product had to be created! The role of Marketers in this instance was first to educate the consumer of the benefits of using the product and then why it would be more convenient to do so. Sometimes persuasion was/is the best method of developing a consumer base for a product–regardless it’s a stark difference from the idea that somehow consumers plead for a certain product to be produced, then a company steps in to fill that void. So, in short, consumer confidence surveys can be misleading, and certainly they are not accurate indicators to the overall economic climate. It’s more like a indicator of the present fear/apprehension resulting from media reports, or whatever.
Anyway, I thought the post was interesting, but overall I wouldn’t be worried about consumer confidence surveys or the so-called Recession (no one even knows if we’re in one anyway).
Ryan