The seriousness of the economic downturn is now an undeniable reality, with the optimistic prediction that digital would be unaffected exposed as a false hope. With Britain facing the ‘worst recession in living memory,’ this will inevitably impact on consumer trends and behaviour.

As economic woes worsen, understanding how this affects customers becomes even more critical. Businesses
that have a deeper understanding of the relationship between the
economy and emerging patterns of consumer behaviour are far more likely
to emerge from the crisis unscathed.

Despite the bleak outlook, the downturn doesn’t mean bad news for all companies. For example, Whitbread, the owner of the Costa coffee chain and budget hotels brand, Premier Inn, have clearly benefited from the current economic climate. Just last week, Whitbread announced their sales growth for 2008, which increased by 6.7% in the 39 weeks to November 27th.

The underlying message from Whitbread’s financial results is reinforced by Econsultancy’s third annual Online Customer Engagement Report in association with cScape, which found that 48% of companies feel that increased sensitivity to price is likely to be highly relevant for their business in 2009. The shift toward lower-cost products also originates from a trend towards ‘No-Frills Chic,’ and from an increased focus on quality (deemed significant by 45% of companies surveyed). Consumers are increasingly looking for products and services that are well-designed and yet still affordable.

Whilst it is unsurprising that the budget hotel industry is doing well
(as thriftiness in spending is to be expected), the growth in coffee
sales stems from subtler changes in customer behaviours and attitudes.Over a quarter of companies said that focus on short-term needs
would be important in 2009; small luxuries (such as expensive coffee)
will grow in popularity, as a way for consumers to comfort themselves
during the wider economic doom and gloom.

Whilst consumers may be less indulgent when it comes to actually purchasing products this Christmas, they are still engaging in window-shopping. This ‘look but don’t purchase’ customer behaviour stems from prolonged decision making (thought to important by nearly a third of companies in Econsultancy’s survey report); indulging in a relatively expensive cappuccino is all part of this experience.

The idea that short-term indulgence will enable consumers to lighten their hardship is given force when looking a completely different industry. Statistics from the UK’s biggest directory service provider indicate that sex shops, lap-dancing clubs and escort agencies are thriving in the recessionary climate; telephone requests for pole and lap dancing outlets were up 469%, whilst calls for escort agencies increased by 40% and enquiries for sex shops increased by 1,312%. Cheaper alternatives to traditional entertainment are also expected to do well during the downturn; telephone requests for karaoke for example, increased by 96%.

Conversely, it appears that customers are far more frugal when it comes to bigger, high-end luxury items. Only 9% of companies felt that the purchase of luxury goods and indulgent items would need to be addressed in 2009. Many believe that the luxury sector will face a temporary slump, as fewer individuals will have the level of disposable income that they have had in previous years. On the other hand, the recession is unlikely to affect the super-rich, who will continue to indulge as before.

However, it’s not all bad news, as increased sensitivity to price
can have both positive and negative outcomes. The economic climate
provides good news for eco-warriors, as concerns for the environment
together with the impetus to save pennies is driving behavioural
change. Expect the trend toward ‘Eco-Cheap
to result in increased numbers of people cycling to work, holidaying in
the UK instead of abroad, and purchasing second-hand and vintage

It’s clear that a deeper understanding of customer motivations is essential to understanding the long-term sources of ROI.