Contact Center Solutions Featured Article

March 03, 2010

"New Frugality" Will Slow Communications and Video Service Revenue

By Gary Kim


A “new frugality” might be a longer-lasting result of the recent recession, implying that retailers now face entrenched consumer behavior, according to Booz & Company.
 
As you might expect, there has been pervasive retrenchment in consumer spending across a broad range of consumer product categories, and cable, satellite and telco services providers will not escape the trend.
 
In fact, it almost does not matter whether the economy is recovering or not. If consumers do not believe it, they will continue to behave as they have during the recession. Recent consumer surveys, in fact, show worsening consumer confidence in February 2010.
 
Where confidence levels had been at 77.3 in January, confidence fell to 63.8 in February, according to the Conference Board. Only 16.7 percent of consumers expect to see an improvement in business conditions over the next six months, down from 20.9 percent the previous month. And 15.3 percent said they expect business conditions to get worse.
 
The Booz & Co. survey suggests that frugal behaviors are “sticky,” and unlikely to change quickly, though that likely now is the new conventional wisdom.
 
In the next 12 months, just 10 percent say they plan to spend at pre-recession levels on mobile phone service. One might question whether consumers will follow through on those plans, as most surveys suggest consumers are starting to spend more money on mobile devices and services.
 
Still, to the extent that spending on mobility products increases, it is logical to assume that spending on other products will fall to compensate. Since consumers have been abandoning voice lines to mobile for a decade, there is no reason to believe that trend will fail to continue.
 
Moreover, 64 percent of consumers say they'll shop at a different store with lower prices even if it's less convenient for them. That could suggest more pressure on service providers to lower prices, either in a disguised way, using bundles, or through outright price reductions, as is typical in the mobile space.
 
Some 55 percent of respondents say they would rather get the best price than the best brand. That suggests at least some potential for disruption either in selection of devices or in choice of carriers.
 
What seems incontestable is that consumers are not going to be as easy to upsell on discretionary or enhanced features. More than half of consumers surveyed reduced discretionary spending on a range of categories, including dining out (58 percent), consumer electronics (53 percent), apparel (53 percent), and media and entertainment (51 percent), Booz researchers said.
 
To the extent that purchases of new consumer electronics products drives buying of communications services, the new more-frugal attitude should lead to slower rate of growth for most communications services.
 

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Marisa Torrieri


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