Posts tagged ‘consumer behavior’

Prices Matter

On September 12 last year, I linked an article in the Arizona Republic that I declared to be ridiculous wishful thinking on the part of the author, completely disconnected from how people have responded to price changes in the past:

The worst oil shock since the 1970s has put a permanent mark on the American way of life that even a drop in oil's price below $100 a barrel won't erase.

Public transportation is in. Hummers are out. Frugality is in. Wastefulness is out....

As prices come falling back to earth, Americans aren't expected to drop their newfound frugality. The jarring reality of $4-a-gallon gasoline stirred up an unprecedented level of consumer angst that experts say will keep people from reverting to extravagant energy use for years to come - if ever again....

"I see a permanent shift," said Kit Yarrow, a consumer psychologist at San Francisco's Golden Gate University who has studied how high oil prices have affected Americans' buying behavior. "Historically, when gas prices come down, people use more. But we've learned a lot of new things during this period and it will be hard to go back to our gas-guzzling ways."

Thank God for consumer psychologists.  From the LA Times last week:

Americans have cut back on buying vehicles of all types as the economy continues its slide. But the slowdown has been particularly brutal for hybrids, which use electricity and gasoline as power sources. They were the industry's darling just last summer,  but sales have collapsed as consumers refuse to pay a premium for a fuel-efficient vehicle now that the average price of a gallon of gasoline nationally has slipped below $2.

"When gas prices came down, the priority of buying a hybrid fell off quite quickly," said Wes Brown, a partner at Los Angeles-based market research firm Iceology.


Prices matter.  Nearly every other form of communication, from advertising to public education to presidential fireside chats to go-green guilt promotion campaigns pale in comparison to the power of prices to affect behavior.

Postscript: I studied a lot of marketing in business school and was a marketing guy for years in corporate America.  I wonder how a marketing guy and a "consumer psychologist" differ?  The only differences I can think of are 1) a marketing guy's pay will suffer over time when he is this wrong and 2) I found in marketing that bringing facts to the table often yielded better forecasts than simply applying my personal biases and wishful thinking.  About 10 seconds of looking at how consumer focus reverted away from conservation after the oil price collapse in the 1980's might have given these guys a hint.   Particularly since the price shock of 2008 was far shorter and less severe than the shocks of the 1970's.  Here is my measure of gas price pain (I have not updated it for the recent price collapse):