Consumer and Investor Evolution in the Great Recession of 2008-09
Under reasonably tranquil conditions, a deer will quietly eat a strange pile of corn even in the presence of a human. After the first shots of hunting season that same deer will not stop running until it is completely exhausted, while it will ignore even a barrel of juicy apples when initially frightened, only seeking out basic food and water when absolutely necessary. At the beginning of the 2008/2009 Great Recession, our animal brains suddenly took over the minds of investors and consumers, thus leaving us skittish in the face of opportunity as we only loosened our grip on our money for bare essentials. Like a deer, we have finally adapted to the anxiety of our new turbulent environment with shaky confidence, yet businesses are the ones that must quickly adapt, at least until economic behavior is fully normalized, as they are facing annihilation.
Before the Recession, consumer spending was quite liberal due in part to excess availability of credit and a blasé attitude toward the value of a dollar. In addition, America was being invaded by cheap imports from places like China. As US consumers gorged on even the most unnecessary, lowest quality trinkets, we became addicted to cheap goods. At first, we soothed our addiction in the Recession by purchasing our essentials from discount retailers like Aldi, Ollies, Big Lots, Dollar General, and, of course, Walmart. Unfortunately, Walmart has grown to the point its reputation of being a discount mall is becoming less true. Meanwhile, Americans are discovering paying a little bit more now for a higher quality product is better than replacing the entire product in the near future.
Retailers and producers must, therefore, recognize we are at the next level of consumer evolution in America. Under current conditions, consumers have been shocked into remembering a single dollar has value and it must be spent wisely, or saved. On the other hand, the signs of a time, when brand loyalty and quality over quantity were prevalent, may be resurfacing, yet that era is not returning. If consumers learn anything in the long run, they will become more sophisticated in how they spend their hard earned money. It is not enough for Gillette, as an example, to be "the best a man can get," but rather, it must be the best a man can get at the right price. In other words, consumers are starting to evaluate the value of the product or service over its lifetime versus initial cost, yet they still want a discount and are willing to sacrifice some on the quality.
Furthermore, investors are also evolving in a similar fashion. Investors had grown accustomed to high returns from the 1990s, where the technology boom rapidly expanded the economy, then from the 2000s, when short-term profiteering and massive tax cuts artificially inflated stock and commodity values. From the Great Recession, they have learned to fear supposedly innovative investment opportunities like "financial derivatives." As a consequence, opportunities for true innovation in our economies need to be created that can yield far more concrete growth to ensure the values of investments remain stable. This also means investors are going to be more reserved in where they park their money; therefore, these opportunities need to be created where investors go versus where financial institutes want investors to stash their money.
In all, consumers and investors in America, as well as the rest of the world, are evolving. Once prosperity returns, the behaviors they have grown accustomed to in this time of uncertainty shall likely prevail for some time, while these new instincts could determine how stable the global economy is in the future and how fast it grows. For businesses, attracting consumers and investors can be a real challenge as marketing strategies need to evolve as well. Consequently, the wise businessman should closely watch what traits consumers and investors are picking up when they are anxious, because this will reveal the basic instincts of modern consumers and investors, as well as what marketing strategies will be most effective in the future. We are still in the presence of great change, yet businesses, which recognize how our economy is changing, can become even stronger in the future, while those that do not may well face their demise, as so many firms have already during this hunting season.