Wed, 09/09/2009 – 10:27
From Yale School of Management-Center for Customer Insights

You would have to be living under a rock not to know that consumers have turned off the freewheeling spending spigot. Shoppers are focusing on “deals” and limiting their shopping basket to necessities. Adjustments are being made across the economy as a result. Here in the U.S. builders are replacing granite countertops with Formica, auto dealers sell cars with fewer options, and in the midst of reportedly weak back-to-school sales for retailers, consumers will tell you they are more conscious than ever of spending. All this begs the question: is the current “no-frills” mindset a temporary matter of reduced consumer confidence, or has the downturn triggered something deeper and possibly more permanent in the purchase decision behavior of consumers?

We reported last year on some new research conducted by Nathan Novemsky, Ravi Dhar and Jing Wang here at the Yale Center for Customer Insights that could shed some light on this question. The study found that consumers often overspend on frivolous items like a kaleidoscope, or opt for expensive extra product features like a car sunroof — even when they may know in the back of their mind that their enjoyment of those items will be short-lived.

Why? Because when making purchasing decisions consumers don’t automatically think about how their enjoyment of a product might diminish over time. Yet it’s clear that the level of satisfaction consumers get from many products does diminish over time due to waning novelty. And that brings us to the current consumer mindset, for the study also found that consumers are reasonably good at predicting their future enjoyment of a product and how much it will diminish over time if they are cued to think about it.

Once people are prompted in some way to consider how they might enjoy a product less in the future, it often shifts their product preferences – away from higher priced choices with extra features to cheaper, simpler options. For example, the study found a precipitous drop in willingness to buy a sunroof option for a car once participants had been effectively cued to think about their enjoyment of this option over time. Many apparently felt the thrill would soon wear off, as only 26% of the study’s participants who were appropriately cued to think about the issue said they would buy the sunroof, compared to 61% who had not been cued. At the time the study’s authors warned marketers to be cautious about prompting consumers to consider the duration of owning or using a product (for example by emphasizing a positive attribute, such as durability or a 5-year warranty.)

The danger is that such prompts might actually dampen consumer interest because consumers may think about how the product’s utility over time and conclude it’s not worth it. Getting back to the current “no frills” consumer mindset we discussed at the beginning of this post, it’s fair to suppose that the economic downturn has prompted consumers to think more carefully about their longer-term financial health, thereby cueing many to weigh the longer-term utility and enjoyment of the products they buy against the more immediate hit to their balance sheet.