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Consumer Behavior: From Trading Up To Trading Off

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Brand Strategy Value Proposition Shopping

The opposite of trading up is not trading down. In fact, there is no opposite of trading up; shopping behavior is more nuanced than that. When shopping hit the skids after the financial crisis, there was a lot of talk about a new normal of frugality, as if the only thing possible after a decade-plus of trading up was a generation to come of nothing but trading down. It’s clear now that those prognostications were flawed, not to mention overly pessimistic.

This is not to say that consumers aren’t buying less. Indeed, they are. The drop in discretionary consumer spending from the pre-recession peak to the recessionary trough was 6.9 percent, more than double the next largest post-WW2 decline during the second dip of the early 1980s double-dip recession. Since hitting bottom, spending has been growing, but on a trend line below the pre-recession trajectory. This so-called output gap is the shrinkage in the size of the economy that is playing out most problematically as high, enduring unemployment. Clearly, consumers have cut back.

The proper issue is not whether, but in what way consumers are cutting back. One way in particular is under-appreciated. More than trading down, consumers are trading off. Squeezed by tighter finances, many consumers – most, in fact – are not walking away from the things that matter most. Instead, they are prioritizing those things then trading off everything else to afford them. Brands suffering from trading down have simply done a poor job of making themselves a priority worth trading off to get.

Some brands are obvious priorities, having enjoyed great success during the Great Recession. Apple.  Hyundai. Restoration Hardware. Just to mention a few. With the recovery lagging, consumers will continue this process of putting some things at the top and everything else at the bottom.

What’s at work here is the undaunted desire of consumers to win. People have not given up their ambitions for the good life. Frugality is a coping mechanism not an aspiration. People may be spending less, but they still want more, so they are finding new ways to win what’s important to them.

A sports metaphor helps. The expansive era of trading up was like the spread attack of an offensively minded team whose strategy for winning is to accumulate points. The difficult era of today finds consumers thinking like a defensively minded team that still wants to win, but more by waiting for opportunities to arise than by driving hard to run up the score. Trading off is defensive. It involves some mix of trading down. But it’s still about winning.

Consumers remain aspirational. Brand marketers can still sell to hopes and dreams, provided such selling properly reflects the ways in which consumers are striking the balance financially. Trading off is a path to purchase in which buying is more episodic, with the constancy of consumer reserve interrupted periodically by bouts of mad spending as consumers seize the moment. Just look at the 2011 holiday season: bursts at the beginning and the end with a lull in the middle that nearly panicked anxious marketers. Acting slow then fast then slow again, and so on, is what trading off looks like.

The key thing to note, though, is that there is not enough to go around in an era characterized by lower spending, a smaller economy and consumer prioritization. Some brands will lose. No rising tide will save the day by lifting all boats. Growth in today’s marketplace is almost exclusively a fight for share, and not just within a brand’s own category.

With prioritization in full swing, the consumer consideration set now crosses category boundaries. For example, vacation travel may rise to the top by trading off against a down payment on a new car or a kitchen renovation or dinners out for half the year. Just being in the consideration set is not enough nowadays. To secure their fair share, brand marketers must rearticulate their value propositions with trading off in mind, giving consumers good reasons not simply to consider a brand but to put it at the very top of the list.

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