Customer Confidence Fizzles to Lowest Level in 25 Years
Not since the early 1980s has the country seen a customer sentiment index this low. April results of the Reuters/University of Michigan index came in at 62.6, nearly three points lower than the previous month and more than 24 points down from April 2007. Survey respondents attribute rising inflation, higher joblessness, and uncertainty of income gains as reasons for hindered spending.
"Income uncertainty has caused consumers to second guess purchase plans and engage in more delaying and postponing than they have in the past," points out Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers.
Curtin says that marketers should take note of two issues at play. First, "The problems of higher prices for food and fuel have most impact on lower income [households]. The upper income [households] are not as constrained, and are more willing spenders; although, everyone will be more cautious. It's an immediate issue that I don't think will change." Secondly, he says that there will be an obvious reallocation of budgets among consumers. "Many people expect that food and fuel will not come down in price. Maybe the rate of inflation will go down, but prices will not revert to those in the past."
That being said, Curtin estimates that purchase of discretionary clothes and entertainment products will likely decrease. According to the sentiment survey, retail purchasing in the areas of furniture, appliances, and home electronics has seen the biggest drop since the 80s. Car sales have been the lowest since 1990. Consumers cited uncertainty about jobs and incomes as well as the escalating price of gasoline as primary reasons in the halt of purchases.
Consumers are not expecting the economy to improve anytime soon. The survey shows that nearly nine out of 10 consumers thought the economy was already in a recession and three out of four thought that the poor financial state will continue for at least one more year. Additionally, the index points out that only one in five expects personal financial gain in the next year. All of these index results represent bottomed-out scores since the poor economical state of the early 1980s.
The Michigan Consumer Sentiment Index uses telephone surveys to gather consumer expectations and spending habits regarding the economy. The index gives a snapshot of whether or not people feel like spending money. Curtin says that this is the biggest drop in 26 years; however, it is not the greatest decline within a year's time span. Curtin, who has been involved in the index for 30 years, says that although the findings are significant, hardly anything surprises him anymore.
So what does this mean for CRM vendors and consumers? Perhaps customers can expect to see more strategies to "recession-proof" CRM and less expensive, more innovative marketing techniques. Jeffrey Kaplan, managing director of SaaS consultancy THINKstrategies, maintains that the On-Demand sector of CRM will not fall prey to recession cut backs. He says, "I think the SaaS industry will benefit from the low index ratings because corporate end-users and executives alike are seeking more effective alternatives to traditional, on-premise applications."
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