Understanding changed mindsets the key to meeting consumer needs in tough times
Professor Barbara Cude, Department of Housing and Consumer Economics, University of Georgia, helps us understand how to work with consumers in a tough economy.
So said Professor Brenda Cude, Department of Housing and Consumer Economics, University of Georgia, whose first appearance at an earlier ICAE conference occurred in very different economic times. Her topic in 2009 said it all: “Meeting Consumer Needs During Tough Economic Times.”
Tough indeed. While the reduction in economic activity did not fall to the Depression-era levels feared by so many people, including more than a few professional economists, the events of the past year have still had significant and life-changing aftereffects on many consumers.
“The technical definition of a depression is a decline in GDP of 10 percent or more,” Cude said. “During the first quarter of 2009, we saw a decline on the order of 6.4 percent. While that’s not a depression, it’s still pretty significant.”
Significant enough to prompt real changes in the lives of many average Americans. A recent MetLife survey, titled “Study of the American Dream,” found that at least 30 percent of respondents believe that spending less is the “new norm.” While not a majority of consumers to be sure, this percentage of newly gun shy buyers may forever impact levels of economic activity for years if consumers follow through on their beliefs.
Demand for simplicity tops dominant trends
The same MetLife survey found that 47 percent of respondents are feeling the imperative of a newfound “demand for simplicity,” or the belief that they have enough of whatever they need right now and are prepared to try and live simpler lives. Such an orientation may not be encouraging news to organizations looking to increase production and sales of consumer goods long term.
However, a more problematic trend for corporate leaders may be a “focus on the boardroom” as business leaders come under greater scrutiny in the wake of the massive bailouts that made headlines in the past year, and the subsequent executive bonuses that also made headlines.
“People definitely believe there should be more oversight of these issues,” Cude said. “There is a strong perception that certain individuals have received obscene amounts of money when their companies were left in a mess.”
Less just might be more
Research has shown that fewer choices generally result in consumers being happier with their decisions. "People don't want access to 10 different kinds of annuities when they don't understand what they have now," Cude states.
“People don’t want access to 10 different kinds of annuities when they don’t understand what they have now,” Cude commented, noting that research has shown that fewer choices generally result in consumers being happier with their decisions. Cude noted that, in one case, participation in a company’s 401K plan actually increased when the optional choices were reduced from many to just one.
“The final choice was to simply check ‘yes’ and the company would deduct 2 percent of your salary and place it in your 401K account,” Cude said. “Oh, and the company would handle the investment strategy for you. Almost overnight, participation in the plan went from 9 percent to 34 percent.
“The message is that in a society with such a dizzying amount of choices,” Cude said, “consumers can actually become paralyzed by the number of choices available. It becomes easier not to choose. With fewer choices people feel they can make better decisions, and as a result are happier with those decisions.”
Advancing trends with insurance implications
Cude noted that there are a couple of additional trends that may be advancing in the post-crash environment. One is the idea of “discretionary thrift,” which means the consumer has the disposable income to afford a purchase, but elects a mindset that says, “I can afford to buy it, but I think I won’t.” The other advancing trend will likely be a retreat from conspicuous consumption. In the aftermath of a near depression, people may not want to be seen as status conscious or over the top in their consuming habits.
Other ways that consumers are likely to respond to a post-recessionary period will manifest in the possible slowing of trends such as “green consumerism” as well as a “decline of deference” to experts such as physicians and government. Other trends may put the damper on previously valued behaviors, including such unrelated factors as “ethical consumerism” and even “extreme experience seeking,” adventures that may seem too expensive and risky in more risk-averse post-recession times.
“There are implications in all this for the insurance industry,” said Cude. “People are scrutinizing all expenses more closely, paying much more attention. You may see more dumping of insurance even when it is mandatory. More complaints over credit scoring. Dropping comprehensive or discretionary coverages. Dropping flood or earthquake insurance. Reducing the limits on a home that may be worth less than it was before the recession even though rebuilding costs are pretty much the same. Or consumers may just become quicker to jump to an unknown company for a difference in price. We need to realize that, while the jury is still out, some degree of belt tightening may be permanent.”
What can the insurance industry do to maintain markets, drive growth and attempt to elevate consumer satisfaction?
- Communicate value – Make it clear why people need your services and how you can help them protect what is important to them.
- Demonstrate ethical behavior – Show consumers you are worthy of their trust.
- Develop “smart” advisors, both on the phone and online – Employ customer service people who can think on their feet and who can deliver the help customers need without resorting to the next canned script.
Click here to view Cude’s presentation.
Contact Info:
Brenda Cude
Professor, Dept. of Housing & Consumer Economics
University of Georgia
706.542.4857
bcude@uga.edu
www.uga.edu
