Consumer choice and decision making is a near-constant feature of our work at Trajectory, and the tyranny and paradoxes associated with choice formed the basis for this month’s Trajectory Trends Breakfast. The subject choice was stimulated by the recently announced pension reforms – and led to a wide ranging discussion on the rational consumer and choice theory.
The rational consumer is one that strives to maximise their utility from each individual purchase – with perfectly informed decisions based on access to comprehensive knowledge together with the time and capacity for effective evaluation.
Of course, such a consumer is hypothetical – although we can all rationalise any purchase decision we make, we remain human, and vulnerable to subjective preferences, decision fatigue and inertia. This is further complicated by the need, more often than not, for a purchase to satisfy more than one person – anyone shopping for a household will be aware of the necessity to balance competing needs and objectives. Brands also play a crucial part in ensuring that we remain largely non-rational consumers – allowing consumers to simplify complex choices by defaulting to brand preferences.
The idea of the rational economic agent sits at an idealistic end of the spectrum, but is closely related to the empowered consumer – people who (typically using the latest consumer technology) are able to navigate choice in such a way that they maximise their utility. Research from the European Commission suggests that 44% of EU citizens fall into this group (described as Confident Consumers).
At the other end of the scale sits a group of ‘compromised’ consumers – ineffective market participants – who as well as feeling under time and financial pressure, also – crucially – admit they feel a low degree of freedom of choice and control (together with low life satisfaction).
New analysis of Trajectory’s Global Foresight data has revealed that 27% of people in the UK fit our definition of the ‘compromised consumer’. This rises to 31% of full time employees and 38% of parents.
Expected future rises in income polarisation and the difficult future prospects for the ‘lost generation’ together with the overall impact of increasing complexity, choice and the Deregulation of Life suggest that this group will increase in number as financial pressures continue well into the wider economic recovery.
But finance is only a part of the story – the compromised consumer can be found across all income brackets – the key aspect is a negative mind-set resulting in alienation, non-participation and/or inertia within different markets.
While these dynamics are also driving non-participation in party politics for example (and interestingly our TGF data shows compromised consumers to be more open to populist arguments – Bankers, Europe, Immigration etc.) their economic impact could be particularly significant into the future, forcing us to consider how brands, regulators and other stakeholders might address issues such as contagious mistrust, the decline of deference and the perception that in many markets choice is more of a chimera than a reality.
Addressing these issues will be critical to the success of the pension reform proposals as well as to the long term health of the economy – with informed consumer decision being crucial to driving competition and innovation and so long term international competitiveness and economic growth.