Feeling insecure, consumers stick to frugality

Wed Nov 17, 2010 2:10pm EST
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By Bernd Debusmann Jr

NEW YORK (Reuters) - American consumers are sticking to the frugal spending habits they adopted at the beginning of the economic crisis in 2008 because they lack confidence there will be an upswing soon, according to a new study.

The poll by international management consulting firm Booz & Company revealed high levels of uncertainty about the economic situation and the impact it will have on shopping habits.

"The uncertainty is still here. People are not confident. They are not expecting a big change in the coming year. Last year we found that almost 30 percent of people thought they'd be better off. This year it's 14 percent," said Marcelo Tau, of the New York-based firm.

The internet survey of 2,000 consumers across the United States showed that only 10 percent of people who said they expected to be better off in the coming year said they planned to trade up in brands. Only 15 percent said they planned to increase spending in certain, discretionary categories.

According to the study, frugal spending habits are more likely to persist in categories where consumers felt unpunished in terms of quality by purchasing a less expensive brand.

"What we've seen happen in some categories is that people realize there is not much difference in some areas -- garbage bags, for example. People realize that there is not much reason to spend more for a very similar product," Tau said.

Another example of an unpunished category is gasoline. Increases in the price of gasoline may lead to consumers switching to a cheaper brand, but many are unlikely to return to the more expensive brand in better economic conditions as long as their car continues to run reliably.

Tau added that in categories such as apparel, shoes and electronics, consumers were more likely to feel punished when they purchase a product of inferior quality, which they felt was an undesirable trade-off.

"If people see a considerable difference in design and quality, they will be more likely to simply postpone buying the higher quality item when they can," he said.

(Reporting by Bernd Debusmann Jr., Editing by Patricia Reaney)