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5 Consumer Spending Trends for 2010

By Robert Passikoff, Ph.D., Founder & President, Brand Keys, Inc.

Niels Bohr once noted that “prediction is very difficult, especially about the future,” but then he didn’t have access to predictive loyalty metrics. Happily, Brand Keys does. And they measure the direction and velocity of consumer values 12 to 18 months in advance of the marketplace and are uncannily accurate in terms of consumer behavior, especially when it comes to spending money.

According to our 2010 Brand Keys Customer Loyalty Engagement Index®, for all 518 brands in the 71 categories tracked, attributes relating to “brand” and the degree to which they affect customer loyalty, engagement and spending have increased significantly. This year’s findings indicate that a real brand can provide meaningful differentiation and act as a surrogate for value, but — and this is critical — that value is being carefully examined, category-by-category, and purchase-by-purchase.

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In terms of retail trends and consumer spending the leverage of brand has reached its highest level of consequence since the 1960s. Having examined this year’s consumer and category assessments, we offer up some spending trends that will have direct consequences to the success – or failure – of this year’s retail marketing efforts.

1. Show me the meaning

Excessive spending, even on sale items, will continue to be replaced by a reason-to-buy at all. This is trouble for brands with no authentic meaning, whether high-end or low; from a spending perspective, consumers are unwilling to broadly open their wallets. Continuing unemployment fears and the still-weak economy suggest that a return to more generous spending is at least 18 to 24 months away. Nearly 20% of consumers indicate that they intend to spend less in 2010. But that’s not all.

The recent economic tsunami left more than just 401k debris. Consumers were left questioning the ethics around consumption altogether, as greed, à la Madoff and others, were deeply connected to economic woes. Tactics that may ease seized spending will be a concentration on more functional items; smaller items and sizes with fewer features that will keep prices low — items that are better designed and, therefore, longer lasting and of real value to the consumer. And, of course, brands demonstrating the value they bring.

2. Gimme something real

What makes goods and services valuable and, therefore, worth spending money on, will increasingly be what’s wrapped up in the brand and what it stands for. Why J. Crew instead of The Gap? J Crew stands for a new era in careful chic—being smart and stylish. And the first family’s support of the brand didn’t hurt either, but style and value needs some real point of real differentiation. Shoppers have become “wise” shoppers – coupon redemption, for example, is up nearly 25% – and thus consumers will continue to focus on prices. While this can be a real threat to retail margins, consumers will not stop paying more when real value is in the room. The time of smoke and mirrors is over for brands. The smoke has cleared, and brands must now mirror the real value consumers seek.

3. Brand differentiation is the new in-the-black

As this year’s Customer Loyalty Engagement Index results have shown, the unique meaning of a brand will continue to increase in importance as generic products continue to plague the brand landscape. Awareness as a meaningful market force has long been obsolete, and differentiation will be critical for success — meaning sales, increased spending in certain sectors and, ultimately, profitability. But this will only happen where brand values are established as a brand identity, and believably exist in the mind of the consumer. A brand can’t just say it stands for something and make it so. The consumer will decide, making it more important than ever for a brand to have measures of authenticity, innovation, and make an investment in engaging advertising if consumers are going to be convinced there is worthwhile “value for dollar.” Consumers will continue to buy store brands, not just because of the price, but because manufacturers have imbued these products with value.

4. Luxury, meet meaning

Brands were barely keeping up with consumer expectations when the economy was good, and expectations continue to grow. Every day consumers adopt and devour the latest technologies and innovations, and only hunger for more, but are not currently willing to overspend for it — having learned from the deep discounts of the recent past. Smarter marketers will identify and capitalize on unmet expectations. Those brands that understand where the strongest expectations exist will be the brands that survive – and prosper. Consumers will spend money on brands that can meet – or even exceed – their expectations. We need only mention the iPod to remind readers that it left many fully functioning mp3 players in the back of junk drawers across the nation. How consumers define luxury will continue to morph over the next 12 months, with meaning and luxury now joined at the hip. Instant gratification hasn’t disappeared — products and services that resonate with value will still be purchased even if it is regarded an indulgence.

5. Quit the buzz on buzz already

Conversation and community is all: eBay thrives based on consumer feedback and consumers continue to spend at that venue. Nearly 30% of consumers say they will use their credit cards less, but you can’t buy online without them and if consumers trust the community, they will extend trust to the brand and that trust will result in sales. It’s not just word of mouth, but the right word of mouth within the community. This means the coming of a new era of customer care and customer outreach. That comes down to one word: engagement. Buzz is easy to get; engagement takes authenticity, and as consumers continue to make buying decision based on real experience and not just marketing lingo, it’s not going away.

Accommodating these trends will require a paradigm change on the parts of some retailers. This year will undoubtedly be difficult. Spending growth prospects are dim until the credit markets improve, which is unlikely until 2011. But whether a retail brand does something about it or not, the future is where it’s going to spend the rest of its life. Those that take the easy route of price slashing and feel-good ad fluff may find a short-term solution, but not sustenance. Retailers have always been some of the savviest of America’s entrepreneurs. We’re betting on the smart ones to respond and prosper.

Robert Passikoff has pioneered work in the area of loyalty and engagement, creating the Brand Keys Customer Loyalty Engagement Index, the Brandweek Loyalty Leaders List, the Sports Fan Loyalty Indexâ, and the Women’s Wear Daily Fashion Brand Engagement Indexâ. His first best-selling book, Predicting Market Success, provided marketers with a 21st century perspective on predictive loyalty metrics, and his newest book co-authored with Amy Shea, The Certainty Principle: How to Guarantee Brand Profits in the Consumer Engagement Marketplace examines a predictive approach to Integrated Marketing ROI. In 2007 Robert was recognized by the Advertising Research Foundation with their Research Innovator of the Year award, and in that same year, New York University’s communication school declared Dr. Passikoff “the most-quoted brand consultant in the United States.”

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