The Connection between Consumer Behaviour and the Economic Downturn - Essay Example

Running head: Changes in Consumer Behavior linked to the Economic Downturn Changes in Consumer Behavior linked to the Economic Downturn Insert Insert Course Title Insert Instructor’s Name 21 February 2012 Changes in Consumer Behavior Linked to the Economic Downturn Europe and North Atlantic has been faced by financial crisis with respect to economic downturn that has been alluded to the collapse of US housing markets, and in turn affecting interconnected economies. The destructive force was however been felt more keenly in the North Atlantic and Europe, with consumer behavior evidently experiencing significant changes. The North Atlantic economy trade seems to link with global economies, where uniquely close and increasing transatlantic economic relationships play a crucial role in transmitting economic shocks to all industry participants. Although all participants in these economies experienced significant changes, consumer behavior changes form a critical indication. Consumer Behavior Economic downturn in the North Atlantic and Europe has seen consumer buying patterns change from big time spending to limited spending, even though consumer behavior may be influenced by other factors such as cultural beliefs. Changes in consumer behavior basically entail the variations in the process a consumer uses to make purchase, use and disposal decisions, alongside influential factors such economic progress with regards to the product use and purchase decisions. Consumer decision making follows a step-by-step decision making process which involves prospective consumer’s need recognition, alternative evaluation, actual purchase and then post purchase behavior (Lamb, Hair and McDaniel, 2010, p. 189). However, this decision making process is influenced by a number of factors such as cultural norms, purchasing power, product quality, and supplier marketing strategies among others. Households, being the perennial consumers, consider economic crisis as a cause of alarm and have started taking a more cautious approach when it comes to spending for the household. More so, household saving levels allude to a relaxed or cautious approach towards future economic possibilities with regards to general economic trends. Economic downturn in Europe and North Atlantic has seen an accelerated return rate to household traditional norms of borrowing and saving that constitute a major driving force behind consumer behavior. Consumer behavior changes among individuals and households basically follows the income labor dynamics that have been largely influenced by economic downturns. Spending, saving and borrowing decisions by individuals and households can therefore be attributed to economic downturn in Europe and North Atlantic. Consumer behavior during the European and North Atlantic crisis has presented a wide range of economic uncertainties and hardships to consumers whose buying patterns are dictated by perceived risk. Consumer behavior can be alluded to having been influenced by perceived consequences and uncertainties with regards to economic risks. Savings ratio among individuals and households tends to increase with levels of economic risk perceptions, and thus influencing consumer buying patterns. The existing financial crisis has played a huge role in imparting consumer risk perceptions that have consequently led to accelerated savings alongside cautious spending (Rotzoll, Haefner and Hall, 1996, p.124). Although forces of supply and demand come into play where prices fall as consumers demand less thus improving demand, economic crisis influence on consumer behavior tends overshadow such forces. Economic uncertainties remain the most influential aspects to changes in consumer behavior, with businesses, individuals, and households delaying discretionary spending as world economic uncertainties increase. Consumers have increased their savings and reduced their spending, which further amplifies the global economic downturn. The changes in consumer behavior is consistent with the fact that when consumers become increasingly uncertain, they tend to spend less and increase their savings to build up more stable buffers against negative economic possibilities. Globally, consumer behavior follows similar trends with regards to economic hardships and uncertainties. Government’s use of taxations rates to change consumer behavior to discourage consumption and production of consumer products polluting the environment proves the intensity with which economic hardships influence consumer behavior (Park, 2008, p.81). However, these trends may not be evident to the service industry, education, and health, since uncertainties in the long run mean more investment to long-term assets such as education and health. Economic downturn has presented a wide range of economic uncertainties, which have significantly influenced changes in consumer spending and savings. The effect of consumer behavior changes are most evident in the retail industry where consumers have resorted to increased savings and decreased spending. Research has it that, economic recession majorly affects consumers with lower wages and higher living costs among other factors such as loss of employment, work place tensions, and decreased income. Decreased consumer buying patterns are significant in the above stated categories of consumers amidst the economic crisis. These particular groups are more cautious to uncertainty factors with savings and investment being top on their preference list over unnecessary spending. Although such behavior may be hurting to the economy, positive results are attained with regards to national risk management (Armand, 2011, p. 163). Income that would have rather been spent is being channeled to building financial buffers to hedge against future uncertainties. The retail sector has been on the receiving end to changes in consumer behavior, with specific industries such as the cosmetics and personal care industry being massively affected by the economic downturn. According to Bird (2009), participants in the cosmetics and personal care industry have experienced a slowdown in general destocking and repeat orders, which have left many suppliers perplexed. The drop in orders for many industry participants have instilled economic fears, with most companies decreasing media spending and downsizing production in their factories to regain financial stability. The evidently changing consumer behavior in the industry poses a major uncertainty threat to the existing business, with recovery possibilities being tied to global economic recovery. Companies seek to put in place a number of business strategies alongside marketing strategies to salvage remaining consumers. Marketers need to understand the collective influence of consumer’s character traits and economic constraints during such economic downturn. It is evident that character traits vary from the cognitive, passive, and economic to emotional man. Each consumer with different character traits is influenced differently by the existing economic recession, depending on the character traits they posses (Schiffman and Kanuk, 1977, p.592). However, consumer character traits may go hand in hand with social and cultural aspects. According to Suneja (2000, p.57), economic processes influence consumption patterns as much as cultural and social process do. Indeed, cultural and social processes such as advertising, fashion and peer pressure play a big role in influencing consumers to change there consumption patterns Changes in consumer behavior are usually experienced when consumers are subjected to environmental factors such as economic hardships, which consequently affect decision-making process. Consumer decision-making process basically begins with identification of consumption problem by the consumer with regards to perceived difference between the actual state and the ideal state as the consumer motivation basis. The ideal state is the consumer’s desired situation, while the actual state is the real present state of the consumer, which constitutes the problem to be solved (Hoyer, and Macinnis, 2009, p.195). However, the ideal decision-making process remains unchanged, subject to other factors remaining constant. Incase of economic downturn, financial capabilities of most consumers also take a downturn with consequent alteration in decision-making. Consumer behavior trends in the European and North Atlantic markets have since followed purchasing power trends, as dictated by the economy. However, past claims, according to De Vries (1976, p.178), allude consumer patterns to a static trend where consumptions habits by the common people and general markets adopted static consumer patterns previously confined to the rich. More so, consumer patterns are not only influenced economic trends, but also by social, cultural, and consumer’s hierarchy of needs, all of which are major contributing factors to consumer behavior amidst the economic difficulties. Maslow’s hierarchy of needs basically defines the order in which consumer needs tend to follow with regards to demand for products alongside marketing strategies (Baker, Graham and Harker, 1998, p.99). Conclusion Economic downturn in Europe and North Atlantic has evidently resulted in changes in consumer behavior, both locally and globally. Economic hardships and uncertainties among consumers have been the result of the North Atlantic economy trade links, with global economies playing a crucial role in transmitting economic shocks to all economy participants. Such economic shocks can evidently be linked to the resultant changes to consumer behavior. Although consumer behavior may also be influenced by other factors such as cultural and social influences, economic capabilities and expectations are proved to significantly influence consumer decision-making process. Annotated bibliography Bird K. (2009). Economic Crisis Redefines Cosmetic Industry. William Reed Business Media SAS. This source provides specific cases to changes in consumer behavior with regards to economic downturn. Suneja, V. (2000). Understanding Business: A Multidimensional Approach to the Market Economy. Routledge. Gives particular insight to consumer behavior concepts. Lamb, C.W. Hair, J.F., and McDaniel, C. (2010). Essential of Marketing. Cengage Learning. Gives a broad understanding on marketing with respect to consumer behavior. Hoyer, W.D. and Macinnis, D.J. (2009). Consumer Behavior. OH: Cengage Learning Inc. Generally describes how consumer’s behavior is influenced. Rotzoll, K.B. Haefner, J.E., and Hall, S.R. (1996). Advertising in Contemporary Society: Perspectives Toward Understanding. Board of Trustees University of Illinois. Provides marketing related information although does not specifically address consumer behavior. Armand F. (2011). Recognized Values and Consumption Patterns of Post-Crisis Consumers. Managing Global Transitions: International Research Journal, Vol. 9 Issue 2, p151-170, 20p, 4 Charts This article gives a wide range of information that relates to consumer patterns amidst economic crisis. References Armand, F. (2011). Recognized Values and Consumption Patterns of Post-Crisis Consumers. Managing Global Transitions: International Research Journal, Vol. 9 Issue 2, p151-170. Retrieved from http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=c562f201-a6ca-4554-8ec1-a2c011f2038a%40sessionmgr104&vid=6&hid=126. Baker, M.J., Graham, P., and Harker, D. (1968). Marketing: Managerial Foundation. Macmillan Publishers Australia PTY Ltd. Retrieved from http://books.google.com/books?id=UyFedj-2_UwC&pg=PA107&dq=Economic+influences+on+Consumer+behavior&hl=sw&sa=X&ei=fp5CT_jkGuKQ0AW5mKWPDw&ved=0CGMQ6AEwCQ#v=onepage&q=Economic%20influences%20on%20Consumer%20behavior&f=false. Bird, K. (2009). Economic Crisis Redefines Cosmetic Industry. William Reed Business Media SAS. Retrieved from http://www.cosmeticsdesign-europe.com/Business-Financial/Economic-crisis-redefines-the-cosmetics-industry. Hoyer, W.D. and Macinnis, D.J. (2009). Consumer Behavior. OH: Cengage Learning Inc. Retrieved from http://books.google.com/books?id=fk1rTxRYtY0C&pg=PA193&dq=Consumer+Decision+making+process&hl=sw&sa=X&ei=QUtDT6vGGaLO0QXao9iPDw&ved=0CDQQ6AEwAQ#v=onepage&q=Consumer%20Decision%20making%20process&f=false. Lamb, C.W., Hair, J.F., & McDaniel, C. (2010). Essential of Marketing. OH: Cengage Learning. Retrieved from http://books.google.com/books?id=QpCvQfnPpNwC&pg=PT216&dq=Consumer+Decision+making+process&hl=sw&sa=X&ei=QUtDT6vGGaLO0QXao9iPDw&ved=0CCwQ6AEwAA#v=onepage&q=Consumer%20Decision%20making%20process&f=false. Park, J.P. (2008). The Crisis of Global Environmental Governance: Towards a New Political Economy of Sustainability. NY: Routledge. Retrieved from http://books.google.com/books?id=RBdCwBnOioIC&pg=PA81&dq=Consumer+behavior+in+European+economic+crisis&hl=en&sa=X&ei=mGhDT4q1A8bN0QX70tCPDw&ved=0CGMQ6AEwBw#v=onepage&q=Consumer%20behavior&f=false. Rotzoll, K.B., Haefner, J.E., & Hall, S.R. (1996). Advertising in Contemporary Society: Perspectives Toward Understanding. Board of Trustees University of Illinois. Retrieved from http://books.google.com/books?id=CSABqkkgRXQC&pg=PA124&dq=Consumer+economic+hardship+and+uncertainities&hl=sw&sa=X&ei=QFxDT-jSBMiK0AXv59mODw&ved=0CEMQ6AEwBA#v=onepage&q=Consumer%20economic%20hardship%20and%20uncertainities&f=false. Schiffman, L.G., & Kanuk, L.L. (1997). Consumer Behavior. NY: Prentice Hall. Print. Suneja, V. (2000). Understanding Business: A Multidimensional Approach to the Market Economy. NY: Routledge. Retrieved from http://books.google.com/books?id=XRBEcfMxVM8C&pg=RA1-PA57&dq=Economic+influences+on+Consumer+behavior&hl=sw&sa=X&ei=fp5CT_jkGuKQ0AW5mKWPDw&ved=0CDcQ6AEwAg#v=onepage&q=Economic%20influences%20on%20Consumer%20behavior&f=false Vries, J.D. (1976). Economy of Europe in an Age of Crisis. Cambridge: Cambridge University Press. Retrieved from http://books.google.com/books?id=XibqvuCdn1MC&pg=PA177&dq=Consumer+behavior+in+European+economic+crisis&hl=en&sa=X&ei=mGhDT4q1A8bN0QX70tCPDw&ved=0CGkQ6AEwCA#v=onepage&q&f=false. Read More