Coming Out of a Recession - Investigating the (Persistent) Consequences of an Economic Downturn on Consumer Shopping Behavior

• Applicants: Professor Dr. Maik Eisenbeiß; Professor Werner Reinartz, Ph.D.
• Subject Area: Accounting and Finance
• Term: from 2013 to 2017
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 244422352

Rarely are consumers more worried about their future than in times of an economic downswing. In expectation of a rising cost of living or even unemployment, consumption expenditures are often reduced and maintained at a base level until clear signs of economic recovery appear. Lessening or completely ceasing purchases of certain products is one possibility to effectuate these savings; however, for fast moving consumer goods, quantity adjustments are only feasible up to a certain degree and hold only limited savings potentials. Instead, consumers focus increasingly on the prices of their desired products. In this way, some households shift their purchases from non-discount formats like Rewe, Real or Edeka to discount stores like Aldi, Lidl or Penny. Others substitute expensive manufacturer brands with low-priced private labels or turn towards items that are temporarily on sale.For retailers and manufacturers, a recession causes demand not only to change quantitatively but also induces structural adjustments. Thus, in order to react more deliberately to future market shocks, a holistic understanding of a crisis' complex effects on private consumption is highly valuable to them. In this regard, not only the immediate effects during the recession itself are of interest. Especially the long-term adjustments in subsequent phases of the business cycle are meaningful. In spite of the topics' recurring relevance, however, few academic studies have analyzed in which way and to what extent consumers respond to a recession.The present project seeks to tackle these issues via the following research questions:1. How is shopping behavior adjusted after the beginning of a recession?2. Can differing adjustment strategies be identified for different households? And how can these adjustments be explained by household-specific characteristics and attitudes?3. Which adjustments arise in the long run when the recession is over? Do consumers return to old habits ("return to normal"), or are certain adjustments perpetually maintained ("return to a new normal")?These questions shall be addressed on the basis of a panel dataset that contains the most recent financial and economic crisis. For 20.000 German households, all purchases in 39 FMCG categories between 2004 and 2013 will be analyzed and modeled.The essential contribution of this study comprises the development of so called transition matrices. With these matrices, consumption adjustment strategies of individual households can be explained after the beginning of the recession and subsequent to its ending. In addition to academic insights, important managerial implications for future crises are generated.

• DFG Programme: Research Grants