Monday, October 4

Looking For Quality: Consumers Shed Frugality

A new study from the latest from The Futures Company notes a new shift in consumer attitudes. The priority placed on price during the global recession is weakening.

"While these changes are small, they are nevertheless notable, for they signal the start of a long awaited reversal in attitudes," says J. Walker Smith, executive chairman of The Futures Company. "It's easy to lose sight of the fact that just because consumers are still tightening their belts doesn't mean they don't want name brand quality."

The drop is slight, with 53 percent saying that "price is more important to me than brand names," which is down from 57 percent in 2009. According to the futures company, consumers look to well-known brand names because they represent a mark of tried and tested quality. Almost 40 percent of consumers believe that famous brands can be relied on for quality.

The challenge price-slashing companies may face is finding ways to justify returning prices to their old normal. Once prices are set, it is often difficult to demonstrate a higher product price-to-value ratio prior to the price cut, unless the company can find a new way to add value.

Price increases are also especially difficult to accept when customers are just beginning to feel economic pressures ease. Their response to price increases tends to be more volatile, especially on fixed monthly costs. For example, a consumer finally feeling confident enough to plan a vacation might balk at higher than anticipated room rates, especially if it kills their travel plans.

Smith is right in noting that consumers are practicing prioritization over frugality, which reinforces other research that seemed to suggest that consumers were splurging. They weren't. Any lavish purchases were self-rewards, tending to gravitate toward toward one-time purchases with heftier price tags but higher perceived quality.

"Frugality is a coping mechanism not an aspiration," added Smith. We tend to agree. In fact, even in B2B settings, price breaks tend to devalue services more than they create an allure for that service. The net result is price breaks increase demand and expectation as customers feel that they might have lost something after receiving the discount.
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