Consumer Spending: What's In, What's Out

BusinessWeek

View photo

.
05_phones.jpg

Cell phones are definitely in, but cable TV is not regarded as crucial

Consumers are cooling to cable. And they're not very satisfied with satellite TV. In fact, according to consumer research firm GfK Roper Consulting, about 40% of those surveyed during mid-2008 and early 2009 said they'd be willing to do without cable or satellite TV. Instead, they'd just as soon watch programming on free sites like Google's YouTube or buy videos à la carte from Netflix. Of those surveyed, only 37% said they were getting good value for the price they pay for cable or satellite subscriptions.

The trend is showing up at some of the biggest cable and satellite TV providers. Subscriber totals dropped last year for Comcast, Dish Networks, and Cablevision Systems, while Netflix sales are growing apace, and traffic to video sites including Hulu, owned by General Electric and News Corp., is surging.

More from BusinessWeek.com:

What Consumers Cling to in Lean Times

Are Low Prices Here to Stay?

Best Tech for the Buck

None of this comes as a surprise to the researchers at GfK Roper Consulting, who have been studying consumer habits since the 1970s, paying special attention to how buyers behave when economic fortunes worsen. Amid recession, consumers behave in some predictable patterns. "People have a fairly consistent game plan for dealing with a recession," says John Berry, a vice-president at GfK Roper Consulting. "The list of things they cut back on is very consistent, and that points to opportunities for grabbing people through those shifts in their behavior."

Good Value for the Money

People tend to eschew products deemed frivolous or overpriced. But that doesn't keep them from embracing new technologies -- even items that carry high price tags. The condition, of course, is that the products are seen to deliver good value for the cost.

Consider the technological innovation that has taken wing during past economic rough patches. During the Great Depression, it was radio. Census data show that by 1940, 90% of U.S. households outside the South had radios, up from about half of U.S. households at the beginning of the decade.

More from Yahoo! Finance:

One Ford for the Whole World

8 Cars for Under $18,000

10 Cars That Could Change the Way We Drive

Visit the Family & Home Center

Similar patterns emerge from GfK Roper Consulting research. Amid the recession of the early 1990s, ownership of personal computers increased. The percentage of PC-owning households rose to 24% in 1992 from 18% in 1990. Early the following decade, during the tech bust, cell phone usage surged. In 2002 the percentage of households that owned a cell phone jumped to 54% from 35% in 2000.

This time around, smartphones such as Research In Motion's BlackBerry and Apple's iPhone may turn out to be the breakout devices. In late 2008, GfK Roper Consulting asked survey respondents to identify the last nonessential thing they'd be willing to give up amid spending cutbacks. The response: 15% said their cell phone or BlackBerry would be last to go. The only item that ranked higher on that list, at 16%, was "driving where I want, when I want." Younger consumers felt even more strongly about their handsets; in that demographic, 23% said their phone would be the last thing given up, nearly twice the percentage of adults aged 45-59.

Consumer aspirations are seemingly impervious to recessionary pressure, GfK Roper Consulting research shows. In 1973 only 10% of households in GfK¹s sample considered a dishwasher "essential." By 2001, nearly one-third of households did. The trends lines are similar for such amenities as PCs, microwave ovens, TV remote controls, and in-car air conditioning.

Consumer Spending: What's In, What's Out

Consumers: Recessionary Creatures of Habit

Consumers are creatures of habit when it comes to cutting back during a downturn. Amid recessions in the past four decades, Americans have tended to reduce spending in the same areas, while continuing to seek value in comparable ways. For instance, they curtail high-end dining and vacations, but slake their thirst for cutting-edge technology that they believe saves money.

GfK Roper Consulting has studied these consumer buying habits through periodic surveys since 1973, and most recently in February. This BusinessWeek.com slide show highlights this survey information, underscoring the sometimes predictable ways we behave when the financial going gets tough.

1. Cable, Satellite Dismay

Consumers are paying close attention to where they find value. These days, many don't find it in cable and satellite TV services. About 40% of those surveyed said they would consider canceling their cable-TV or satellite-TV service. The percentage is even higher in households that have an annual income of $50,000 to $75,000. Only 56% of those surveyed have at least a moderately favorable opinion toward their cable or satellite providers.

2. Old-Time Radio

American consumers are happy to embrace new media forms during bad economic times, as long as they see value. Consider radio. During the Great Depression, radio found its way into millions of America homes. Advertising soon followed. Benton & Bowles, an ad agency started by young Yale grads William Benton and Chester Bowles in 1929, specialized in radio. By 1936, the company generated $15 million in annual billings.

3. Cell-Phone Loyalists

Even as many consumers tighten belts, demand is on the rise for smart phones such as Apple's iPhone and Research In Motion's BlackBerry. Asked in late 2008 about the last thing they would give up, 15% of consumers named their cell phone or BlackBerry. That was the second-highest percentage after the 16% who answered, "Driving where I want, when I want."

4. Cut the Cord

The first real boom in American ownership in wireless phones came during a recession. In 2000, only 35% of American households reported having one. By 2002, the number had climbed to 54%. It was also during these years that conventional land-line phone service began to decline. A survey by the National Institutes of Health found that by 2008 one in six families was "wireless only" meaning that it had done away completely with traditional land-line connections.

5. Cash Is King, Again

Remember cash? When was the last time you wrote a check? Both are coming back into vogue. More than 80% of consumers surveyed say they think it's a smart idea to pay for everything with cash, debit cards, and checks.

6. Gas Guzzler Be Gone

During the energy crisis of the 1970s, American consumers became familiar with Japanese brands like Honda and Toyota, as gas prices soared and oil supplies tightened. By 1975 more people planned to buy small cars than owned them. A similar dynamic played out in 2008 when gas prices rose above $4 a gallon and consumers started ditching SUVs for hybrids. Still, the percentage of consumers who think it's a good time to buy a car of any kind was just above 15% at the end of 2008, the lowest since GfK Roper Consulting started asking the question in 1973.

7. Computers: Going Mobile

In the third quarter of 2008, notebook PCs outsold desktop PCs for the first time. Also last year, inexpensive and ultra-portable computers known as netbooks gained traction. These days, computers are following a similar pattern to telephones. Stationary, corded phones started being replaced by cordless phones in the 1980s and were rendered virtually obsolete by cell phones more recently.

8. Two All-Beef Patties

Fewer people are dining out at high-end restaurants, but the number of people flocking to inexpensive eateries is holding up. In 1981, 20% of consumers surveyed said they cut dining costs by going to less expensive and fast food restaurants. By 1991 that figure had climbed to 25%. The same pattern is showing up again, notwithstanding the prevailing view of fast food as unhealthy. February sales at McDonald's stores open for more than a year rose 7%.

9. Bulk Buying Is Back

U.S. consumers are drawn to discount stores during downturns. In February, Wal-Mart sales rose 5.1%, double the increase analysts expected. Witness the surge in popularity of warehouse clubs such as Costco during the recession of the early 1990s. By 1993, 28% of Americans belonged to warehouse clubs, and during the middle of the decade, discount stores were among the three most shopped-at stores in 17 of 19 retail categories.

10. Rising Standards

Recessions also seem to have little effect over the long-term upward march of consumer expectations for living standards. In 1973 only 13% of consumers surveyed said they considered in-car air conditioning essential, while only 10% said they had to have a dishwasher. By 2001, the last time the survey was taken, those numbers had grown to 57% for AC in the car, and 32% for dishwashers.

Hesseldahl is a reporter for BusinessWeek.com.

Click here to see the full list of What's In, What's Out.

View Comments (0)