SAGE Advice: Coping with Hard Times

RSS
Follow by Email
Facebook
Facebook
Twitter
Visit Us
LinkedIn

By: Leo J. Shapiro and Steve Yahn

When gasoline prices soared to more than three dollars a gallon in the wake of Hurricane Katrina, consumers brutally awoke from expectations of better times to come. The percentage of U.S. consumers cutting back on their automobile driving to save on gasoline hit a jaw-dropping 70% in September — a 15 point jump from August and the highest level in more than 15 years of our Leo J. Shapiro & Associates national monthly poll.

In another striking finding — and one that may become a long-term trend — 17% of the consumers polled in September said they are thinking of downsizing the type of vehicle they drive because of the high price of gasoline. The expanding market for gas-saving cars creates new opportunities for advertisers, which should be met creatively by exploring alternative approaches to attract audience. Whichever publishers and broadcasters take advantage of this new ad niche first and best will capture a greater slice of the shrinking ad-dollar pie.

U.S. consumers — who were jittery but spending freely at the time of our August national poll — indicated in September that they are pulling in their horns in nearly every spending category. People likely to be cutting back on driving to save on gasoline are also more likely to be cutting back on clothing, food, and medical-care spending.

Advertising spending moves in step with sales, so as actual or anticipated retail sales decline, sales of ad space will also decline.

Meanwhile, the percentage of households reading advertising and checking prices dropped as they shopped less actively for major purchases. Shopping actively for hotel/motel stays plunged 11 points from 27% in August to 16% in September; active shopping for used cars, personal computer and air travel each declined five points from August to September; there was also a moderate (2%) decline in active shopping for housing and color TVs. In addition to pulling back on shopping actively for major goods, consumers also pulled back on shopping for food and medical care.

As a result, there is a fleeting opportunity for selling “desperation” advertising to businesses that hold perishable inventory — airline seats and hotel stays, for example — as well as to businesses that are overstocked with non-perishable inventory (used cars, housing, and color TVs). But a longer term decline in total advertising revenue is in the offing unless markets expand and consumers’ willingness to spend improves.

Although fewer consumers are paying attention to ads these days, anxious consumers concerned with staying informed about rapidly evolving current affairs have increased their use of the print and broadcast media which keep them abreast of the news. The average number of different kinds of print and broadcast media used in the past seven days jumped from 2.6 in April to 3.1 in September.

Of those with Internet access, the percentage of people going to the Internet for news in the past seven days went from 45% in April 2005 to 52% in September 2005. Use of blogs grew explosively, as the percentage of those with Internet access reporting they ever read a blog went from 16% in April to 23% in September and the percentage of those with Internet access reading a blog within the past seven days doubled, from 7% in April to 14% in September.

The State of the Union

The United States is a shaken nation. Across the income spectrum, consumers are not only pessimistic about prospects for the nation, but also less sure of their own financial future and less happy personally.

Seven in ten (71%) of consumers in September felt that “things are getting worse for the country”– up 10 points from August — and 62% of consumers feel that the economic picture for the U.S. is getting worse. About 57% of consumers did not feel the country would move in the direction they want it to.

On the home front, the percentage of consumers feeling able to get along and pay their bills dropped seven points from 39% in August to 32% in September. And observers expect high-priced heating oil and natural gas to hit pocketbooks hard this winter. The rising price of petroleum drives up the price of nearly everything else. Hurricane Rita, striking with surgical precision at the petroleum processing heartland, could push prices even higher for a time.

Planned reductions in spending for virtually all consumables and for autos, houses, travel, and other major purchases are more severe and more widespread than warranted by the cash drain on spending power affected by high gasoline prices. They reflect consumers taking the high price of gasoline as an omen of greater trouble to come.

If the storm clouds clear, however, there might be a silver lining for retailers and their newspaper partners. Given a smooth recovery, pent up savings and a release from a restrained urge to spend could flood the market with ad dollars.

The Bottom Line

Falling or stable gasoline prices and, if it comes to pass, better news for a nationwide recovery from Katrina and Hurricane Rita may still not be enough to ease consumers’ jitters. A lower inflation rate — or at least the expectation of such — is likely to be necessary to stem consumers’ worries about their ability to get along and pay their bills.

Historically, however, faint consumer confidence remains over a long period of time, willingness to spend can resurge abruptly in response to breaking events.

As long as consumers’ anxiety persists, they will turn with greater regularity and intensity to the media for information across a wide spectrum of issues. News media are in a profound state of flux at the same time that demand for news is rising. This is a condition that fosters quantum media evolution. And these rapidly evolving news media have an added challenge in that they are chasing a shrinking advertising dollar.

A Nail-Biting Christmas for Retailers?

Katrina knocked any wind out of already bleak Christmas spending plans. The percent planning to spend more this year than last — 27% in August 2004 and 20% in August 2005 — fell to 16% in September 2005.

On the bright side, across-the-board spending cuts that consumers intend to make could put enough burning cash in their pockets to trigger a last-minute buying spree at Christmas. There’s still a long way to go before the full intensity of the Christmas shopping begins, and there are plenty of examples of Christmases past, including some in recent years, when a dramatic reversal of downcast prospects occurred in the homestretch of the holiday sales season. Media advertising marketers will need to be extra-flexible this protean holiday season, watching the signs and being able to pounce if the opportunity presents.

***

— As Christmas approaches, SAGE will chart and analyze holiday sales outlook trends and developments for both Editor & Publisher and at www.sagegrowth.com, a site that tracks a variety of business-minded consumer behavior and media trends.

Leave a Reply

Your email address will not be published. Required fields are marked *