Consumption smoothing - how to stress test your marketing strategies
Will a cut back in consumer spending have a dramatic impact on your business performance? The key to succeeding in these challenging times is to explore scenarios that you haven't looked at in the past because business cannot use the same strategies for a different set of economic conditions or marketing outcomes. Consumption smoothing is an emerging trend that may be of interest to marketers. It’s a popular approach used by consumers to insure their consumption in the presence of risky and variable incomes.
What is Consumption Smoothing?
Consumption smoothing is an economic concept which seeks to balance spending and saving to attain and maintain the highest possible living standard over the course of one's life. This idea is notable because of its difference in approach to common knowledge about consumer behaviour during periods of economic growth. However, in uncertain times, the concept can have a significant impact on the growth and profitability of your brands if you identify customer groups who are most likely to experience consumption smoothing.
What does this mean for marketers?
Here are five ideas on how senior marketers could approach this emerging trend:
1. Explore new consumer segmentation models.
Account for risk profiles of your most profitable customers. Adding a variable that measures attitudes to risk may provide an indication of how consumers will react to changes in household incomes, economic conditions and pricing changes.
2. Revise price elasticity models.
Research indicates consumer behaviour in a crisis is characterized by consumption smoothing at various levels. In sum, these behavioural adjustments result in significant reallocation of consumption expenditures depending on the profile of your most profitable customers. Brand portflio pricing strategies that account for potential shifts in purchase patterns can deliver more profitable growth strategies.
3. Assess the potential impact of consumption smoothing on your brand portfolio.
Consumer smoothing is accentuated in some categories and for some brands that have specific profiles that make them more vulnerable to changes in economic conditions and consumer spending patterns. Using scenario planning techniques may result in increased visibility of potential strategies.
4. Ask the right questions.
Often marketers take the approach of looking at their competitors for cues on superior strategies. This could be a suboptimal approach if these strategies do not undergo rigorous stress testing for emerging consumer behaviour.
5. Look at best practices from past recessions.
Explore successful strategies adopted by brands with similar profiles in past recessions. The analysis may shed some light on opportunities for initiatives that can lead to superior results.
Please email me if you may have any questions or would like to receive more information about consumer smoothing trends in your product category.
