Following coronavirus lockdowns, mounting evidence suggests retailers, bars and restaurants are struggling to entice young consumers back through the door. So where will those positive ‘animal spirits’ come from?
For many years, economists tried to fool themselves (and, by extension, the rest of us) into thinking that consumers behaved in a largely logical and predictable way. Despite famous and widely read economists like John Maynard Keynes arguing persuasively back in the 1930s that macro-economic policy should take account of people’s ‘animal spirits’ (see below), when I was being taught economics in the late 1980s, the idea of the Rational Consumer still ruled.
Arguably one of the major leaps forward of the 21st Century is that the fallacy of rational consumer behaviour has been largely consigned to the dustbin of economic history. Its replacement, a sort of behavioural-mental-rational-ish model, acknowledges that some people do irrational things (such as maxing out credit cards and not consolidating a loan at lower rates from a bank) and also do sensible things, like not go out to eat if they are a bit short of cash and the supermarket has a pleasant pre-prepared alternative at less than half the cost.
This hybrid model of behaviour is explored in a number of books, one of which, appropriately entitled Animal Spirits (2009), by two highly respected economists, George Akerlof of UC Berkeley and Robert Shiller of Yale, was written in the aftermath of the 2008 global financial crisis. I’ve been flicking through again to see what their theories might say about consumer behaviour in the era of the coronavirus pandemic – and how to interpret our recent COVID-19 Impact Report segmentation work.
Observing consumer behaviour after the 2008 financial crisis, Akerloff and Shiller point to two key factors that economists often overlook: fundamental confidence in the future (Keynes’s ‘animal spirits’) and the importance of ‘stories’ in understanding the human psyche. In their telling, if consumers believe they are at a point in their personal ‘story’ where the world is looking bleak, and threatening, this will have a visceral impact on their confidence, shifting their entire mindset towards self-protection and caution. Equally, if they feel their personal story is now at a point where things are looking great and exciting, they will make big investment decisions and take potentially irrational risks – buy a big house with a towering mortgage, or quit their job and start their own company.
Bringing this into present day, and data is starting to emerge showing the extent to which people’s personal ‘stories’ have entered a new and bleak chapter. Recent economic data has shown that major economies are bouncing back at a much lower rate than expected following periods of lockdown in April and May. In the UK, bars and pubs opened again for business on 4 July, but the anticipated surge of thirsty drinkers has largely failed to materialise. Initial survey data suggested that business was down by 45% compared with the same weekend in 2019, though some of this effect was also from there being substantially fewer outlets actually open.
The effect on retail sales has not been universal. The personal ‘story’ also seems to include a desire to live a more practical and healthy life, suggested by the enormous rise in bicycle sales around the world, including the Netherlands where sales jumped 36% at the largest bicycle distributor in May, while last week the Financial Times reported a global bicycle shortage.
Looking at our recent wine consumer sentiment data collected for the COVID-19 Impact Report series, the Akerloff-Shiller confidence-and-narrative theory seems to be holding up. Across all markets, we observed that a substantial minority of consumers – we dubbed the Halters and Reducers – were actively downgrading their lifestyles as a result of the pandemic and lockdowns. No more expensive dinners out, cancelling holiday plans (if these were even possible) and giving up on future plans for socialising in larger groups.
The Halters were the more extreme example of this, and their demographics were quite similar across markets. In Germany, Sweden and the Netherlands, Halters were most likely to be wine consumers in their 20s, and also the most likely to be earning relatively low incomes. This is also the group most likely to be in temporary employment, and / or have their job threatened by the economic consequences of coronavirus, making them feel more vulnerable – a case also made by a recent policy paper from the EU. Gen Z’s personal narrative of celebrating university graduation, finding their dream job and starting to earn decent money has been derailed. Interesting to note that affluent young people, more likely in their late 20s and early 30s, were actually more likely to appear at the other end of the spectrum, in the Hedonist segment, suggesting a strong link between current income and future expectations.
This analysis suggests that some people have faith in the future, and marketers don’t necessarily need to worry too much about getting these people to leave their homes. However, large numbers of consumers in the developed and developing world are struggling to find a positive narrative. The primary marketing message from industry and government in these markets should be to help them rediscover that positive outlook, if bars, pubs, and restaurants are going to function at anything close to normal during the remainder of this year. In other words, getting out and doing things, spending money, even though you don’t feel like it because you are worried about your job, your future, and possibly your health, is actually very important right now.