How to live with austerity

The parallels with the 1970s are clear. But how big an impact might this have for brands and how should they best position themselves to deal with it?

One powerful factor is the macro trend I call My Price. It has resulted in a perfect storm in some sectors. Not only has austerity increased the importance of price to many, but the consumer now has the power to compare prices in a way that was unimaginable 40 years ago. The rise of internet price comparison websites together with instant price checks on smart phones means it is very difficult to maintain profitability for some brands.

Cutting back

The austerity and strikes of the mid-1970s caused many to cut back. We are seeing a similar effect now. A recent survey conducted by Join The Dots showed that consumers are planning to buy less “stuff”. Luxury or non-essential items are worst hit, with 25% saying they will put a stop to treating themselves, 23% will stop eating out, 19% will stop taking holidays abroad and 18% plan to stop taking UK holidays. Closer scrutiny is also likely to be paid to other expenditure, with consumers already cutting items like non-essential insurance payments and certain components of their TV, internet or phone packages.

But consumers are still spending in some areas. As noted in the first Comley Report, there appears to be a ‘sacred box’ of items that are less affected by austerity. Having a mobile phone package, an internet connection and running a car are considered ‘must haves’ – but many are now seeking better deals on them.

The unaffected

And yet there remains a sizable minority of the population who are unaffected by austerity – and that was equally true of the 1970s. Indeed for many of that decade, standards of living increased: partly thanks to a decrease in prices for some luxury goods like electronics, and partly due to dual income households and the continued rise in working women, especially part-timers.

Our own surveys suggest that half of the UK population has not been affected that much by the economic downturn and 14% say it has not affected them at all. The least affected are likely to include pensioners on index- linked salary scheme pensions and also some younger people without children in certain well-paid professions. For these groups, the current situation is arguably an opportunity rather than a problem. Competition is keeping prices in check and loaning money is cheap.

So part of the opportunity now for brands is to tap into this counter-trend. Sales of certain (lower priced) luxury goods and technology products like the iPad are ever-increasing.

But austerity also brings with it challenges that encourage businesses to change and review established practices. I’ll look in more detail at those in my next article.

Pete Comley is founder of Join The Dots