The Other ‘R’ Word

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The Other 'R' Word

Several signs are pointing to the likelihood that we are now in economic recovery. The gross domestic product (GDP) for the last half of 2009 was positive and most indices are reflecting a turnaround scenario. Even the housing market has been showing signs of stabilization. Not exactly a robust recovery, but certainly an end to the precipitous decline we saw in 2007 and 2008. The recovery phase will be marked by ongoing price declines in many locales, albeit more gradual ones. We will also see a gradual stabilization in sales rates, a gradual decline in the level of inventory for sale and a gradual bottoming out of construction activity.

Again, though, the word to emphasize is “gradual.” The new home industry has done a good job of reducing supply with inventory for sale now in line with the long-term average. But the existing home market is still oversupplied, and we continue to be inundated with an influx of distressed and foreclosed properties (albeit at a slower rate). That means anyone hoping for a robust “V”-shaped recovery is likely to be disappointed. It will be more like an “L” with the bottom part sloping slightly upward. But the good news is we are finally seeing signs of improvement.

Now About Consumers …

The real question is how the decline in the value of housing has affected consumer willingness to spend. It is on that point that most economists are mixed. Two separate studies were referenced in the Wall Street Journal in the same week with one indicating “further de-leveraging of the household sector will likely keep a lid on any rebound in consumption. In other words, the future of consumption and house prices are closely linked.

The other study concluded that “…while consumer spending may be sluggish in the near future for other reasons, it is doubtful recent declines in home values will be a major contributor to this problem.”
So which study is true? I think they both are–it just depends on which sector of the economy you’re discussing.

Obviously, in the green industry, we have historically found a strong correlation between the demand for our goods and services with housing. Consumers are, in general, saving more and spending less. Their investment in big-ticket items (including landscaping) has been preceded with intensive information gathering and, in many cases, customers are purchasing in “incremental phases” and not biting off the entire amount of the investment at once.

In order to analyze how the economic downturn is affecting consumers differently, Nielsen recently created a segmentation that divided households into groups based on their spending behavior in reaction to the decline.

Their recession analysis grouped consumers into eight segments:

- Recession Indifferent. Those who do not alter their purchasing habits at all.

- Recession Insensitive. Only slightly affected by the downturn and will cut back on spending for luxuries such as entertainment and dining out.

- Switch to Private Label. Tend to be younger, larger households known as “young, bustling families” and often represent plain, rural living. They buy generic brands or store labels.

- Light Coupons & Sales. Typically represent older and smaller households that take advantage of light coupons and sales.

- Stock Up & Save. Generally older couples who live in a comfortable affluent situation and are known as “empty nesters.” This group remains loyal to name brands but depends on coupons and sales to stock up while they can.

- Switch Stores For Best Deal. Consumers who typically live in cosmopolitan centers and will switch stores looking for the best deal.

- Brand Disloyal/Promo Sensitive. These consumers will switch from name brands to generics or brands on sale looking for the best deal.

- Panic Stricken. Those who take drastic action to greatly reduce living expenses and cut back in all departments to do whatever it takes to save money.

Enhancing The Quality Of Lives

Interestingly, income alone does not have a direct correlation with the purchasing behavior segmentation. More than half (57 percent) of the “Stock Up & Save” consumers earn more than $50,000 per year, compared to only 47 percent of the those in the “Recession Insensitive” group.

Likewise, a higher percentage of people with lower incomes are in the “Switch to Private Label” group than in the “Panic Stricken” segment. Other characteristics such as household size, age and location are also factors in a consumer’s ability to tolerate a recession, which is why trying to reach “Recession Indifferent” consumers with marketing efforts that target higher income groups is probably not efficient.

The value proposition for growers in the future must focus on the unique ways in which quality of life is improved for our customer base. Much has been researched and validated about the benefits of flowers, plants and trees. In a nutshell, our green industry products and services improve emotional health, boost seniors’ well being, enhance hospital recovery rates, enhance employee innovation and ideas, strengthen feelings of compassion, decrease worry and anxiety, express feelings of compassion, build stronger communities, mitigate environmental externalities and improve the value of homes–just to name a few of the benefits.

I cannot overemphasize the importance of this quality of life message, particularly in focusing our differentiation strategies in the future. That because of whether you are member of the Boomer, Gen X or Gen Y generation, quality of life is a “higher-order” need that is important to you.

For example, although the economic downturn has increased anxiety on the part of Baby Boomers about retirement, they are nevertheless proactive in seeking innovative solutions to dealing with age. They view their new stage of life as one of activity and fulfillment rather than idleness. Gen X is the most “time-starved” generation, often juggling career and family obligations, but they maintain a strong commitment to work-life balance in their lives. The Gen Y generation is just beginning their adult lives and facing lots of firsts: their first home, first job and most importantly, first independent income. They are trying to find the right balance between spending for necessities and spending for entertainment. This generation is concerned not just with function and utility but also style.

All of these generational attitudes come down to one thing: enhancing the quality of their lives through emotional well being, ecosystems benefits and economic dimensions. Our industry research shows there’s no better way to do this than through the daily use and/or enjoyment of flowers, plants and trees. All we have to do now is convince consumers of this in a manner that they view our products and services as necessities instead of luxuries. This will, of course, make us even more recession resistant in the future. It will also sell a lot more outdoor living spaces.

Charlie Hall (charliehall@tamu.edu) is a professor and Ellison Chair in International Floriculture at Texas A&M University.

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