Download Research on Consumer Behavior Changes and Corresponding Countermeasures in Financial Crisis

Research on Consumer Behavior Changes and Corresponding
Countermeasures in Financial Crisis
LI Ruihua
School of Economics, Wuhan University of Technology, P.R.China
School of Business, Inner Mongolia Finance and Economics College, P.R.China
Abstract: This paper presented that the over-consumption was the direct cause of the US financial crisis.
Based on the financial crisis, the author analyzed consumers expected decline in revenue leading to the
lack of consumer confidence; rational consumer behavior was replaced by the blind, impulsive buying
behavior; consumers’ price sensitivity was increased, and they also emphasized on cost-performances of
products and services; in order to improve competitiveness, consumers’ psychology and behavior
changed such as the developing consumption was welcomed. The author put forward countermeasures
to address the financial crisis for government and corporate, in which the author particularly highlighted
that the Government should promote consumer with correct concept of consumption, achieving civilized
consumption; from the perspective of sustainable development to carry out consumer education; finally,
the author took various measures to effectively contain foams.
Keywords: financial crisis, over-consumption, consumer behavior, change, countermeasures
1.
Introduction
Since September 2008, the subprime mortgage crisis in the US triggered the financial "tsunami", has
been sweeping across the world. The crisis is so ferocious that the world's major countries without
exception are subject to impact in different extents, leading to a global recession. A number of scholars
have done depth research in the causes of the US financial crisis, such as Wang Lei (2009) thought that
"the US financial crisis broke out, to a large extent, is the release of conflict in world's political and
economic order in the system and structure level." Liu Guoguang, et al. (2009) referred that the
intensification of the basic contradictions in capitalism is the deeper reason of the US financial crisis.
Zhou Diankun, et al. (2009) analyzed the causes of the financial crisis from the angle of the system
evolution and consumption patterns. Jin Chengxiao, et al. (2009) explained that the root of the US
financial crisis is the US economics’ distortional growth and imbalances in the economic structure, and
analyzed the influence of the financial crisis on the global economy and economy of China, then,
proposed countermeasures of the financial crisis for China. Shao Changbin (2009) analyzed the impact
of financial crisis on consumers` buying behavior. Tang Yun (2008), Cheng Xiuhua (2009), Cheng Liang
(2009) researched consumer behavior and marketing strategy during the financial crisis. From the
research that has been on the financial crisis, most of the research focused on the analysis of the
characteristics of consumer behavior, and proposed marketing strategies for enterprises. However, no
academics involved in guiding the consumer response to the financial crisis, in addition to the enterprise,
what responsibility the government should take, which is an important goal why the author wrote this
paper.
2.
Over-consumption is a direct cause of the US financial crisis
In Mid-19th century, Europe and the United States have achieved major industrialized capitalization,
which resulting in polarization of rich and poor and in a relative surplus in capitalist production. For
consuming the surplus material wealth, the "consumerism" trend emerged to inspire people to lavish.
Consumerism is a way of life that pursuit the unlimited possession of material wealth and the excessive
consumption greedily as life value. Its characteristics are: greed - without limits on the demand for
material goods, it seems that the world failed to meet the demands of consumerist; profligacy - the
consumerist show off extravagance and waste as their own advantage; spread - consumerism has strong
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contagious, it can spread from one group to another group; fast - consumerism pursuit the stimulation of
the first time sensory. If they can not be met in the first time they feel meaningless about life. This way
of life dominated the consumerists that are to pursuit a decent consumption life, desire the material
enjoyment and entertainment on the excesses of life. Since the 90s of last century, the United States
entered into a "new economy" era, the trading of financial derivatives became more and more active,
and the virtual economy has replaced the real economy that became to the entity of the economy. The
economic bubble led to revenue growth continued, making the "consumerism "ideas spread to large
areas. To use consumer credit to loan house and car become fashion, conspicuous, extravagant
consumption behavior has become a social atmosphere. Now, the United States consumed about 2070
million barrels of oil per day, accounting for the total world daily oil consumption of 8700 million
barrels, which is of 23.8%. So if the world 1 / 3 of the population is living as the current US. production
and consumption patterns, the consumption of a day is 1.7 times on the current world consumption of oil,
which is contrary to the requirements of sustainable development.
US economic growth depends on its over-consumption. In US GDP, the highest proportion is consumer
spending, about 70%, while the proportion of the production sector is small. From the 80s of 20th
century, consumption gradually has become the main driver to promote US economic growth.
Especially after 2000, the contribution rate of consumption to economic growth has been about 80%. In
2002, it even reached to 120%. To the end of 2008, the contribution rate of consumption increased by
nearly 20%than in the early 80s of last century. In a consumption-driven economic growth, the
government is bound to encourage consumption and expand the credit. According to Federal Reserve
statistics, the total US national debt relative to GDP has increased from 255.3% in 1997 to 352.6% in
2007; which the ratio of real estate and financial products, respectively, has increased from 66.1% and
63.8%in 1997 to 99.9% and 113.8%. This led to the expansion of sub-prime mortgage market, resulting
in a lot of foam. Meanwhile, the over-consumption has made the saving less, resulting in excessive
deficit and current account deficit increased. Growing US current account deficits eventually lead to a
decline in the exchange rate, which led to the increase in prices of imported goods, resulting in
inflationary pressures. In order to maintain price stability, the US monetary authorities inevitably raise
the federal rate, which led to the financial market bubble burst, triggering a financial crisis.
3.
Changes of consumer behavior in the financial crisis
In recent years, under the influence of Western culture, "consumerism" trend has spread in China. Some
people blindly follow the extravagant consumption patterns of United States, such as, long-distance
driving to work as live in rural areas, leading to urban road congestion, oil consuming rising, and air
pollution increased; some high-income people interested in conspicuous and extravagant consumption,
driving luxury cars and houses, overseas travel routinely; using public funds to enjoy, and so on. If we
let them continue, the potential threats are very dangerous. Fortunately, most consumer advocates saving
as our virtues, oppose extravagance and waste, so some scholars think that over-consumption has little
influence as a direct trigger of the financial crisis on China's consumption. Indeed, from the surface, the
impact of financial crisis on China's consumers is lower than the euro zone countries and Japan and
South Korea, but if in-depth study of consumer psychology and behavior, we can easily find China's
consumers psychology and behavior has changed greatly in the financial crisis.
3.1 Expected incomes decline in consumer, resulting in lack of consuming confidence
The influence of the financial crisis has conducted from virtual economy to real economy, resulting in
unemployment rising and consumer income reducing, thereby affecting consumption. In particular, it
affects the expectations of consumer for future, such as consumers expect that revenue will continue to
decline, job opportunities will decrease, which led to lack of confidence in consumer. According to
Nielsen released first half of 2009 Global Consumer Confidence Index survey (survey time: 19 March-2
April) shows that the confidence index of global consumer has fallen from 84 points in September 2008
to 77 points. Indonesia topped the list with 104 points, the world's most pessimistic country is in South
Korea, and the index is only 31 points. China's consumer confidence has fallen from 96 to 89. In those
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50 countries and regions that Surveyed, in addition to China Taiwan, all of the consumer confidence
index fell.
3.2 Rational consumer behavior replaced Blindness, impulse buying behavior
The financial crisis has made a lot of uncertainty factors to economic development, so consumers
become more and more calm and rational, and purchasing decisions are prudent every time. Consumers
will be strictly in accordance with: Cognitive NeedsLooking for InformationCompare and
BalanceDecision-makingBuying Evaluation, the process to make decision. Irrational and random
consumption has declined. Blindness and impulse consumption behavior that droved by victory
purchasing motivation with psychological and mental vanity become less and less, which replaced by
rational consumer behavior. Although the crisis led to commodity price fluctuate, on which consumer
has had a strong holding capability. Consumers will analyze, compare and balance goods and services to
make rational purchasing choices by their own consumption experience and a variety of consumer
information.
3.3 The price sensitivity of consumers increased, emphasis on cost performance
Financial crisis led to the price of goods and services fluctuated frequently, and with impaction of
consumer expectations and rational consumption, the consumer is extremely sensitive to the price of
goods and services. In the process of decision-making, in addition to search and compare the
consumption information, the consumer will also make efforts in price decision-making. They will
inquiry and bargain patiently, and strive to get the most suitable price of commodity and to accept the
services at the most appropriate price. Meanwhile, they will highlight the effectiveness and durability of
products as equally important with price. Therefore, the multi-functional products are more popular than
that with a single function, durability and easy maintenance products are also welcomed by consumers.
3.4 In order to improve competitiveness, the developing consumption are sought after
During the financial crisis, s economic growth has slow down; production is in relative surplus,
unemployment problem is serious, unemployment rate is increasing. In such a grim situation, everyone
has a sense of crisis, and they do not want to become a member of the unemployed. Thus, in order to
have better performances to keep stability and development in career, the developing consumption that
help to raise self-improvement value for consumer become the new hot spot. To improve their
professional standards, knowledge and training, People seek opportunities to learning and studies
actively. In bookstores, professional courses and research training in counseling, examination room, it is
able to see more and more working-class figures, which aims to enhance their quality and
competitiveness in the workplace and reduce the risk of being replaced. At the same time, this sense of
crisis has affected investment in children's education. For a child's future, parents are increasing their
child's education expenses. On every Saturdays, Sundays and winter and summer vacations, children are
lantern-like shuttling between the various types of remedial classes.
4.
Countermeasures of the government and the enterprise in the financial crisis
Although scholars believe that the outbreak of the financial crisis has so many reasons from the social
system, from the world's political and economic order, also from the US economic policy. But one thing
is beyond doubt that is over-consumption as an important incentive lead to the US financial crisis. The
way Government increase revenue is to advocate residents to consume more, such as make no tax of
goods in the price system; through the improvement of the social security system to enhance consumer
confidence and encourage more consumption. It is the policy of this series, together with other
deep-rooted reasons, resulting in today's recession, which the US government has inescapable
responsibility. Therefore, to response the financial crisis, the government should take the responsibility.
They must base on changes in consumer psychology and behavior to develop countermeasures. Of
course, in which enterprises have to choose reasonable measures to address the financial crisis. Only by
this can they tide over the difficulties.
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4.1 Government’s countermeasures
1) To advocate consumer with a correct concept of consumption, achieving civilized consumption
United States has long history of over-consumption, which can be traced back to the earliest 1620, the
British immigrants’ time, when immigrants took boat by installment payment, since then, the United
States have had consumer credit. After that, the consumer credit got a rapid development. By 1970, the
US consumer credit is roughly equivalent to 20% of personal after-tax income. Today, in the United
States, consumer credit has become popular to purchase consumer goods. The consumption of this
reckless expansion greatly exceeded the capacity of residents and the government, and lead to the crisis
situation today. Therefore, the Government should take warning from advocating the consumer with the
correct concept of consumption, widespread consumption knowledge in psychology and consumer
behavior, and guide consumers to conduct consumption decisions scientifically, avoid excessive
consumption, mindless consumption, and abnormal consumption, improve the consumption behavior,
and realize civilized consumption.
2) From the perspective of sustainable development to carry out consumer education
Over-consumption patterns are unsustainable. Because of the worldwide spread of this consumption,
exacerbated the consumption of natural resources, especially in energy, which makes the world to face
the danger of drying up oil after 40 years and natural gas after 70 years; this consumption lead to
shortages in energy supply, caused international political and military conflicts; harmful gas emissions
rise rapidly and increase the greenhouse effect, resulting in disaster-prone. Therefore, the Government
must launch from the perspective of sustainable development to conduct consumer, highlighting the
dangers of excessive consumption, warning consumers with moderate consumption (moderate
consumption more than income) are healthy and sustainable consumption patterns, promote and
encourage consumer to choose public spending and concentrated consumption patterns in order to
improve the quality of consumption.
3) Take various measures to effectively curb various foams
Although the over-consumption has its theoretical origin, such as Friedman's permanent income theory
argument assumes that consumers can greatly exceed the current expenditures with current income;
Morgan’s consumer decision-making affecting revenue assumption shows that consumer can completely
seek to increase income with need of expenditures, so that at a period of time, the family has been
spending more than the current income. But the reality has given us a hard lesson: If mishandled the
"degree" of excessive consumption, not only can not achieve to expand demand and stimulate economic
growth, it actually will cause a recession. The indisputable fact warns us that, as the market's rapid
economic development, the virtual economy presents over-expansion trend apart from the real economy.
The economy bubbles increase, such as the IT bubble, the stock market bubble, property bubble, asset
bubbles, etc., sooner or later the bubble will be broken, once the bubble burst, it will inevitably be
impact on the economy seriously. Therefore, in the same time of promoting economic growth, the
Government must take a variety of measures, such as adjusting economic structure, strengthening
infrastructure development efforts, increasing social protection and health and education expenditures,
raising the tax threshold of personal income, reducing the corporate tax burden, increasing export rebate
rate, and implementing a moderate monetary policy, to curb various foams effectively.
4.2 Enterprises’ countermeasures
Financial crisis has changed the concept and behavior of consumer. The enterprise, who focuses the
market demand as the center, must adjust marketing strategies promptly to adapt to the changes of
consumers in mental and behavior. The enterprise must provide the products and services that are able to
meet with consumer demand to improve their competitiveness, and win more market opportunities.
Academic research has been put forward options to respond for enterprises, such as building consumer
confidence, adjusting product structure, improving products` cost performance, expanding marketing
channels and providing Value added services, I agree with scholars point of view, so will not repeat them
here.
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5.
Conclusion
The financial crisis is thought-provoking, and it hit an alarm for the world economy. Further confirms
whatever the social system, whatever the economic system, whether nation, corporate or individual
consumers, everyone must respect the objective economic laws, all activities that disobey the objective
economic law and practice will get the most severe punishment. Therefore, countries should be fully
played guiding roles in developing economy; based on maintaining the national interest, enterprises
must focus the consumers` demand as the center; the consumers behavior must towards sustainable
development goals. To build a resource-saving society, an environment-friendly society, a harmonious
society needs the state, enterprises and consumers work together.
Author in brief:
Li ruihua(1968- ), female, Mongolia, born in Inner Mongolia Chifeng City; Industrial Economics PhD
in WuHan University of Technology, Inner Mongolia Finance and Economics College of Business
Associate Dean, professor, mainly engaged in marketing, consumer behavior research.
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