BuyMe! Chapter 3

No matter which direction the

economy eventually goes, this

much is certain: The global economic

meltdown has spawned a new type

of consumer. People no longer buy a

product without regard to how or

when they’re going to pay for it; every

purchase decision is haunted by that

voice of caution: Do I really need this?

The days of conspicuous consumption

are history—but that doesn’t mean

people have stopped buying new

products. You just have to make sure

that when consumers do buy, they buy

from you. Buy Me! explains how to

retool your business, your products,

and your marketing to make sure you

beat out the competition.

Consumer behavior expert Marshal

Cohen provides proven approaches

for turning economic challenges into

business opportunities, including

ways to:

! Wean customers from their

addiction to major discounts

on every offering

! Create products that provide

long-term value and are viewed

as “investments”

! Add new must-have features

through dramatic upgrades or new

designs

! Offer additional services that reach

customers who are willing to pay

extra for those services

! Maintain a strong core production

reputation—and build upon it

“The time has come for retailers and

manufacturers to adapt to their

consumers—and not just sit back and

expect their consumers to adapt to

them,” Cohen writes. “This is the time.

This is your time!”

All it takes to come out on top, even in

the most volatile economies, is a keen

understanding of consumer psychology

and the right strategy. With Buy Me!

as your guide, you’ll put your products

where you want them to be—in front of

the competition’s and in the hands of

your customers.

MArshAl COhen is the chief industry

analyst for The NPD Group, Inc.

(www.npd.com), a worldwide leader

in market research and consumer

behavior. Cohen makes regular appear-

ances on television shows such as the

Today Show, ABC World News Tonight,

and CNN and is often interviewed by

The Wall Street Journal, The New York

Times, USA Today, Fortune, and Time.

Cohen makes frequent contributions to

Bloomberg TV and Fox Business News.

He resides on Long Island, NY.

Cover design by Ty Nowicki

BUY ME! gives you the newest ways to create

value that will entice customers even in the

most difficult of times. Consumer psychology

guru Marshal Cohen reveals the secrets for

making sure your offering is chosen over the

competition’s at every turn.

Now is the time to reach out to customers in

new and different ways. Now is the time to

reconfigure the timing of new product launches.

Now is the time to differentiate yourself from

the competition.

(continued on back flap)

(continued from front flap) $24.95 USD

COhen

“ Armed with exhaustive research and a terrific

intuitive sense of why and when we open our

wallets, Cohen is one of the most sane and

insightful voices that we could hope to have

on the job.”

— DAVID COlMAn, style columnist,

The New York Times

“ Cohen’s fresh perspective and insight is a

product of his relevant experience and ‘living’

his profession 24/7.”

— DIAne M. sUllIVAn, president and COO,

Brown Shoe Company, Inc.

“ Cohen’s information is consistently accurate

and insightful. He is an invaluable resource to

our industry.”

— KeVIn M. BUrKe, president and CEO,

American Apparel & Footwear Association!ISBN 978-0-07-166783-8MHID 0-07-166783-0

9 7 8 0 0 7 1 6 6 7 8 3 8

5 2 4 9 5 >

USD $24.95

Marketing

PROVEN

WAYS

TO

CAPITALIZE

ON THE

NEW

RULES

OF

CONSUMPTION

B

ME

UY

!FOr MOre

InFOrMATIOn

VIsIT

WWW.nPD.COM

BUYME!

neW WAYs TO GeT CUsTOMers TO

ChOOse YOUr PrODUCT AnD IGnOre The resT

MArshAl COhenChief Industry Analyst, The NPD Group, Inc.

CHAPTER 3

Change in Consumption

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Consumers today are purchasing under duress. Regardless ofwhether they are mothers with children, single males, or fall withinany other demographic, shoppers across the board are now forcedto wrestle with every single purchase they make. Whereas impulsepurchases were once the norm, consumers today have begun putting thought into all their purchasing decisions, which by con-sequence has inextricably altered their spending behavior.

The rules of consumer spending used to be: “I see it, I want it,I buy it, and I worry about how to pay for it later.” Those ruleshave disappeared—at least for now. Consumers are no longerspending without regard for consequence. Instead, they are look-ing for ways to either stretch their dollars or to save for a rainy day.

The marketplace is beginning to see changes in consumers’ con-sumption habits and abilities. Unlimited credit is a thing of thepast, as are deals allowing consumers to buy now and stress outabout credit payments later. All consumers, even those who are lessthan fiscally responsible, are beginning to learn the ins and outs ofborrowing money. As a brief aside, I am amazed by the number ofconsumers I’ve interviewed who still have little to no knowledgeof how credit cards work. They don’t understand that when theypay off only the minimum balance due on their cards, they are notactually paying down their debt but rather are bearing the bareminimum cost of keeping their cards active. While my intentionwith this book is not to teach you how to manage your funds,

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I am interested in helping you understand your consumers’ spend-ing behavior in the new economy. If you don’t understand that themajority of your consumers are still relying on credit in an ever-tightening market to fund their purchases of your products, howwill you possibly know if you’re approaching them with a salestechnique that is tailored to the way that they purchase?

The fact that consumers are purchasing under duress takes onadditional significance when you consider the spending power ofall those that are a part of the U.S. workforce, a figure that roundsout to approximately 100 million people. Multiply all those in theU.S. workforce by the amount of money that each employed per-son makes on average in one year, or about $50,000, and you cansee that before taxes, the total U.S. workforce is worth roughly$500 billion in gross spending potential. Even after 20 percent ofeach person’s gross income is subtracted from the equation toaccount for taxes, the U.S. workforce’s net spending power stillrounds out to around $400 billion. Next recognize that once con-sumers have paid their mortgages or rents, every penny of their$400 billion in spending power that remains is now governed bytheir newly incorporated tendencies to second-guess and overeval-uate all of their purchases. Take consumers’ cable bills, for exam-ple. While consumers might not question whether or not they canlive without cable, they will be more inclined to find ways to cutdown on the cost of their bill. They might consider altering theirpackage options or bundling their cable with other new or pre -existing services, like phone or Internet, in an effort to reduce their overall costs.

Because consumers are purchasing under duress, it is critical thatyou rethink how you are designing and marketing your products.An example: Consumers today want to buy multipurpose pro ducts.They want the equivalent of the Swiss army knife of products, anitem that features so many functions that it becomes a necessity totheir lifestyles. A blender is no longer expected to just blend. Now

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it has to be able to mix frozen drinks and chop food as well. Needanother example? While refrigerators with built-in water filtersmight not be new enough to entice consumers to replace theirolder model appliances, those with TVs built in to the outside ofthe refrigerator door have a cutting-edge quality about them thatpersuades consumers to buy. All of this is to say that with each newproduct you develop, you need to be offering functions that sur-pass those of the traditional product.

It is important to understand the ways in which consumers’ consumption habits are changing. Consumers are assessing theirspending with greater scrutiny and are no longer buying productsthat offer anything less than the best value for the price. Sure, theystill are willing at times to buy a singularly focused product—but onlyif that product can offer something that no other product can, like adistinguished brand or the best performance rating in class. What thismeans is that you will need to find a new trigger that will draw con-sumers’ focus to your retail offerings or your pro duct’s message. Youmust develop products that will wow your consumers, things that willappeal to their sense of worth by serving as either short- or long-termmoney-saving investments. Just one look at recent NPD data onaccessories reveals that consumers are placing an increasing amountof importance on purchasing investment-worthy items.

As Figure 3.1 shows, sales of men’s watches are growing eventhough the rest of the market is in decline.

Not long ago, the trend among younger consumers was to gravitate away from singularly functional watches in favor of usingmultipurpose devices, like cell phones, as their timepieces of choice.As the sales upswing in Figure 3.1 indicates, however, even thoughthey serve only one functional purpose, watches recently havebeen gaining popularity among men for their investment value.Male consumers have returned their loyalty to this product becausethey feel it will enhance their image, keep them punctual, and mostimportantly hold its value to some degree. As the watch example

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illustrates, consumers today are weathering the current economicstorm by looking for products whose value withstands the test oftime. And when they find such a product? Well, they have no problem changing the rules of their purchasing behavior to makeroom for it.

To be sure, as evidenced by the example of rising watch sales,consumers have drastically altered their spending behavior inresponse to the inclement economic conditions of late. After all,they are facing down a recession that is deeper and unlike any otherthey have seen in the recent past. But the bubble that broughtabout the recession of 2008–2009 had to burst. The U.S. econ-omy could not have perpetually sustained its steep and protractedupward climb. Although it had become the norm for all cylindersof the U.S. economy to continually operate at full speed andsteadily gain momentum, this new “normal” was anything but.Economies must ebb and flow. It is only natural, therefore, thatthe unrelenting growth in the job, real estate, and retail marketseventually exerted so much pressure on all facets of the U.S. econ-omy that the entire financial system finally began spiraling down-ward. The decline had to come.

Yes, the bubble had to burst to preserve the long-term healthof the U.S. economy, but rapid and simultaneous declines in anumber of economic facets are not without their residual problems.

CHANGE IN CONSUMPTION

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-13.5%6.3%Total Women

Source: NPD/Consumer Tracking Service

20.8%10.5%Total Men

6.2%8.8%Total Watches

-26.0%-14.1%Total Accessories

Q4 '08 vs.

Q4 '0708 vs. 07

Dollar Sales % Change

Figure 3.1 Investment Worthy Consumption

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As evidenced by the current recession, the simultaneous declinesin the housing market and the credit market, both at the consumerand retailer levels, have created a compression in the U.S. econ-omy. I refer to this simultaneous squeeze in housing, credit, andpricing, all of which act together to put the squeeze on the con-sumer, as the Great Compression.

Let’s look at the example of increasing gas prices once again asa means of explanation. As the price of gas rises, consumers beginto feel a strain on their overall financial situations. They hear andsee news of fluctuating crude prices and wonder what effect thesevacillations will have on the price of the gas they soon will bepumping into their cars. Eventually consumers begin to equate ele-vated prices at the pump with the weakening of the economy, andthe task of filling up their gas tanks becomes a weekly (if not morefrequent) and emotionally charged reminder of the instability ofthe economic situation in the United States. In the past, to miti-gate their emotional reaction to rising prices at the pump, con-sumers had cut back on their driving and gas purchases—but onlytemporarily. Eventually, usually after about two months, theyreverted back to their normal gas purchasing behavior. But an alto-gether new phenomenon is occurring during the current GreatCompression. Even though prices at the pump are lower todaythan they were one year ago, consumers are maintaining their gaspurchasing cutbacks (see Figure 3.2).

The oil industry is not the only sector that is experiencing declin-ing revenues as a result of the Great Compression. Just look at average sales revenues within the retail sector. Stores are continu-ally clearance-racking their merchandise and offering their cus-tomers steeper and steeper product discounts. These ongoing deals,coupled with special promotions like “buy one item, get the sec-ond one free,” are resulting in seriously compressed retail revenues.

When I look at this situation from the business side of the equa-tion, I find it interesting that stores are continuing to offer such

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deep discounts to their consumers, even when their inventory levelsare in line. But as it turns out, retailers have found that compressedconsumers still feel as though they—and their bank accounts—arein need of such substantial markdowns. They have become usedto these bargains, have come to expect them, and are motivated topurchase because of them. Eventually, however, retailers will haveto put consumers through a strict regimen of what I call “DiscountDetox” in order to help them feel comfortable purchasing full-priced products again.

Before businesses can properly detoxify consumers from theirdiscount dependency, they will need to understand how buyersbecame reliant on store promotions in the first place. Every yearfor the previous five years from the time of this writing, I have seenstores accelerate the onset of the holiday retail season by invariablyoffering earlier and deeper discounts. And every year consumersrespond to these discounts and begin their holiday shopping earlier

CHANGE IN CONSUMPTION

35

382.8

460.3

370.0362.6

JUN 06* JUN 07* JUN 08* JUN 09*

Increase

$78 Billion

Increase

5.6% $

27.3% $ Increase

$20 Billion Dollar

Dollar Increase

20.2% $ Increase

$77 Billion Dollar

Increase

19.6% $Decrease

$90 Billion Dollar

Decrease

Gasoline Dollars Spent Trend (Billions)

0.3% 1.9%

Change in gallons purchased:

–0.2% –2.5%

Figure 3.2 Falling demand and lower prices lead to a big drop ingasoline spending.

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than they did the year before in an effort to find better and betterbargains. So, yes, these promotions work. But they work almosttoo well.

In many cases, these discounts have grown so aggressive and sopervasive that consumers have begun to expect them. In fact, manyconsumers are quite content to put off their holiday shopping untildiscount season begins. And they don’t even need to delay theirshopping much. Not long ago, Thanksgiving Day marked theonset of the prime holiday shopping season. But beginning inabout 2006, retailers began discounting their merchandise evenbefore Thanksgiving in an effort to lure sluggish holiday shoppersinto their stores. And not only are sluggish shoppers rewarded dur-ing holiday shopping season, they now are continually grantedeveryday discounts. As a result, they have come to expect endlesspromotions, storewide sales, white sales, you name it, all the timeand everywhere. If they aren’t offered a discounted price on anitem they want to purchase, they simply will go somewhere else toshop or they may not even shop at all.

The nonstop discounting of store merchandise is bound toobstruct the recovery of the retail sector. So the question is: howexactly do we wean consumers from these discounts? Subjectingthem to Discount Detox will not be an easy task, especially con-sidering the fact that retailers rely on product markdowns to enticecustomers—who generally prefer to shop only for what they want,when they want it—to purchase an item before they need it.

In the more than 30 years I have worked in the retail sector, Ihave never seen consumers show as much interest in buying sea-sonal merchandise when it’s in season as they do now. Currently,my favorite example of seasonal merchandise that is almost nevercarried by stores when it is actually in season is swimwear. Goodluck finding a swimsuit at a major department store during thesummer, when you need it most. If you do manage to find a suit,odds are that it made its debut on the sales floor back in January

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or February, and it might even be the last remaining piece ofswimwear in stock in the entire store. What’s more, the likelihoodthat the swimsuit is both in style and fits you is pretty slim. But ifyou decide to go shopping during the summer for a swimsuit at amass merchant like Wal-Mart or Target, you most likely will beoverwhelmed by the array of options available to you. These retail-ers seem to have learned that there is a huge opportunity in sim-ply giving consumers what they want, when they want it.

In my ongoing field research, I log the dates when variousretailers set up their seasonal departments, as well as when eachbreaks them down. What I have found is that the vast majority ofretailers, over 83 percent of those that I observe across the UnitedStates, completely misjudges the timing of consumers’ desire forseasonal merchandise. To be fair, some retailers have begun to rec-ognize the sales potential of seasonal merchandise and haveslightly improved their approach to this sales category by offeringtheir customers “transitional” seasonal merchandise. But whilethese retailers are taking a step in the right direction by givingtheir consumers what they want, when they want it, these effortsalone will not break consumers of their dependence on discounts.If retail and manufacturing brands really want to connect betterwith their consumers, they must first correctly identify and under-stand their customers’ needs. Timing is everything in life, and itis even more so in retail. My experience in the retail industry hasproven that if you make a product available, the consumer willfind it and buy it. For example, when I was working as the pres-ident of WilliWear, I learned how to entice consumers to purchasethe company’s apparel year-round, instead of only in the spring-time. While customers were enthusiastic about purchasing WilliWear’s apparel in the spring, because of the considerablylightweight, Indian-grown cotton with which the clothing wasmade, they were reluctant to do so during the fall and winter,when the weather in many parts of the world calls for heavier

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fabrics. So to meet customers’ fall and winter clothing needs,WilliWear simply began making apparel from heavier-weight cot-ton fabrics. As it turned out, the new heavier-weight collectionended up taking off like wildfire. WilliWear even earned the dis-tinction of becoming one of the most successful clothing brandsin the fashion industry the year the company introduced its lineupof heavier-weight cotton apparel.

When I look back now to that time, I can see that WilliWearbecame an incredible fashion success story because we were ableto deliver what the customers wanted, when they wanted it. Neveragain would customers have to wait for the seasons to changebefore they could wear WilliWear clothing again because of yarntype, weight, or even color of the fabric it was made from. Remem-ber the old rule that you should never wear white before Memo-rial Day? That rule has gone out the window. And with it has gonethe consumer’s inclination to wear cotton only in the spring andsummer.

The key takeaway from the success that WilliWear enjoyed whenit began offering heavier-weight cotton apparel year-round, in tex-tures, weights, and colors that were more suited to fall seasonwardrobes, is that if you listen to your customers’ needs, they willwant your products. In today’s challenging economy, consumersdon’t have the extra cash on hand to squirrel up and store prod-ucts for future use. But if you offer your customers products theycan use when they need to use them, they will buy them. And theywon’t even need to be lured into doing so with some kind of dis-count, deal, or store promotion. The sooner you learn that con-sumers buy based on their needs and begin to adjust your salesapproach accordingly, the sooner you will be able to start cleans-ing them of their reliance on discounts.

Let’s look at a few case studies of companies that have success-fully detoxified consumers from their dependence on discounts,starting with Abercrombie & Fitch, the popular teen and young

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adult clothing retailer. Abercrombie is one of a handful of retail-ers that believes that not only does discounting lower companyrevenues and profits, it also jeopardizes the image of the brand. Soto buck the trend of discounting that has been plaguing retailersacross the board, Abercrombie only offers discounts on its clear-ance merchandise. Not one for fancy buy-one-get-one-free deals,super sales, or one-day-only discounts, Abercrombie has spent thelast decade selling as much of its merchandise as possible at fullprice, marking down older items only when they are ready to bemoved to the backroom for a clearance sale. For Abercrombie,maintaining the image of its store brand is more important thanoffering gimmicky, reputation-tarnishing discounts in an effort tobeat last year’s sales figures.

Next, consider Nintendo’s approach to Discount Detox. In lieuof offering consumers package discounts or additional free gameswith their purchase of the Nintendo Wii gaming console, Nintendodecided to employ a tried-and-true sales technique to increase con-sumer demand. As almost any parent of an adolescent has discov-ered during the past three holiday seasons, finding a store thatcarries the Wii during the months of November and December hasbeen a nearly impossible feat. In their frenzy to track down a Wii,some consumers even desperately started turning to online resalesites like eBay, where they would purchase the gaming consoles athigher prices than their retail value just so Junior wouldn’t be disappointed come holiday time.

In my opinion, it’s no coincidence that the Wii has been soldout in almost every store come crunch time in the holiday shop-ping season. In fact, I think it’s a tactical move for Nintendo, whichappears to be using none other than the old reliable sales methodof supply and demand to push purchases of the Wii. By limitingthe number of Wiis—or, in the case of Holiday 2008, Wii Fits (an exercise-focused video game bundle)—that it releases into the mar-ketplace, Nintendo creates the perception that consumer demand

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for the gaming console is even higher than it actually is. This inturn only ups the ante, making finding and purchasing a Wii thatmuch more essential to consumers. And what happens to con-sumers when they finally get their hands on a Wii? Their sense ofaccomplishment and satisfaction has never been higher.

It seems silly that a company would limit the amount of prod-ucts it supplies to stores when it knows full well that the demandfor that product will be high. It seems even sillier for a companyto do so during such a critical selling time as the holiday season. Whywouldn’t Nintendo just do what almost every other manufacturerwould for any other product and flood the stores with Wiis? Butit can’t be pure coincidence that Wiis have been nowhere to befound for three holidays in a row. Is it possible that Nintendo sim-ply understands that if it limits the supply of Wiis in the market-place during strategic times of year, it can keep the demand for thegaming console high, which in turn lessens the odds that storeswill have excess inventory and begin discounting the product? I think so.

Although most retailers seem to have forgotten the selling powerof the old strategy of supply and demand, Nintendo sure hasn’t.In fact, Nintendo seems to thrive on keeping consumer demandfor their products greater than the actual supply of said productsin the marketplace. Nintendo’s sales tactic ultimately has adjustedconsumers’ expectations of finding a Wii on sale—or even at a dis-count! Who can worry about finding a Wii on sale when consumerscan’t even find a Wii to buy at full price? And when consumersfinally do walk into a store and by some magical occurrence find aWii on the shelf, they fear that if they don’t grab it then and there,Junior is going to think that Santa doesn’t love him. DiscountDetox success!

Companies like Nintendo and Abercrombie, which have suc-cessfully weaned their customers off discounts, are well preparedfor doing business in the new economy, wherein retailers are

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judged more for their profitability than for the volume of theirsales growth. If you want your company to join in the ranks ofNintendo and Abercrombie, it is critical that you too stopindulging your customers’ desire for discounts and start noticingthat the rules of retail are about to change. Is your company readyto take on the challenge of the New Retail Rules? You’re aboutto find out!

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