Effect of recession on consumer buying behavior

EFFECT OF RECESSION ON CONSUMER BUYING BEHAVIOUR
Table of Contents
INTRODUCTION .................................................................................................................................. 1
Effects.................................................................................................................................................................................... 1.2
Objectives........................................................................................................................................................................ 1.3
CAUSES THAT LEAD TO WEAK ECONOMY RECESSION ...........................2
Problem Statement ...................................................................................................................................................... 2.1
Research Question .................................................................................................................................................. 2.2
Research Objectives ..................................................................................................................................... 2.3
Introduction of Variables ........................................................................................................... 2.4
THEORY OF THE STUDY ............................................................................................................ 3
Among Variables ...................................................................................................................................... 3.1
Theoretical Framework....................................................................................................................... 3.2
Hypothesis................................................................................................................................................. 3.2
METHADOLOGY ................................................................................................................................ 4
LOCATION & SAMPLE DETERMINATION ............................................................... 5
INTERVIEWS .......................................................................................................................................... 6
RESULTS .................................................................................................................................................... 7
CONCLUSION ........................................................................................................................................ 8
Results Summary.................................................................................................................................. 7.1
BIBLOGRAPHY .............................................................................................................................. 9

1 INTRODUCTION
Recession is when the economy declines significantly for at least six months. There is drop in the
following five economic indicators.
A recession has domino effects, where increase unemployment leads to less growth and a drop in
consumer spending, affecting businesses, which lay off workers due to losses. A recession occurs
when there are two more consecutive quarters of negative gross domestic product (GDP) growth.
“Consumer often postpone consummation of luxury goods because they
consider the expenses on these goods not necessary”
(Jabriela Valaskova & Kliestik, 2015)
When an economy facing recession, business sale and revenues decreases, which causes
businesses to stop expending. When demand is not high enough businesses start to report losses
and first try to reduce their costs by lowering wages or keeping wages where they are finish to
hire new workers which increases the unemployment rate.
Economic recession has harmful effects on manufacturing industries a significant income is
lost by manufacturing industries through reduction in share prices, capacity utilization, labor turn
over, unsold inventory and fall in prices.
It compares the pattern of retail sales in the current recession to that observed in the recession of
1990’s. It concludes that the observed growth in retail sale has been supporting by falling retail
prices and a flexible labor market that has limited the effect of unemployment on house hold
consumption.
Low interest rate also effects in government incomes so they avoid to give more loans, open
less tender on leasing basis.
The study indicates the link between recession and the consumer buying behavior. Studies have
supported,
“The nation that consumers cut their consumption during recessions,
usually in proportion to their wealth and income and that expenditure on luxuries are more
susceptible to being cut”
(Nunes, Dreze & Han, 2010)

1
1.1 EFFECTS
Today it is recognized that consumer purchases of durable goods and many other flexible
expenditures vary to a much greater extent than income and it is broadly accepted that they are
dependent not only on ability to buy but also on willingness to buy
The dependent variable was the consumer buying behavior i.e , behavior towards shopping
goods , convenience goods , specialty goods and other items
Recession has significant effects on consumer buying behavior for
 Convenience
 Specialty
 Income
 Number of household members
1.2 OBJECTIVES
The purpose of this study is
To examine which factors bring change in consumer buying behaviors.
To identify the categories which gets effected during recessionary period from consumer
perspective
2 CAUSES THAT LEAD TO WEAK ECONOMY RECESSION
a) Slow Economy, Weak Demand
A recession is when the economy declines significantly for at least six months. That means
there's a drop in the following five economic indicators: real GDP, income, employment,
manufacturing and retail sales.
Reduced Returns on investments (less profit) mean less purchasing power meaning reduced
demand for GAS.
b) Reduced Consumer Confidence means less demand:
The customer in recession period avoids buying new things which are not so necessary for them
now because they don’t even have any idea of their future income and promotion. They delay
their Purchasing decision for the time being.

2
c) Exchange rates up or down, Economic Uncertainty:
Exchange rates up or down, economic uncertainty become one of the major reason of recession
because these two factors effect each and every business strongly. Tax revenue also less people
avoid to pay taxes to save for their future living.
d) Less income causes less investment.:
Due to decrease in taxes returns govt. income is less so they doesn’t open new projects this will
cause many peoples who are mainly labor, govt. contractors, govt. tender holders, due to all this
Disposable govt. income also less
e) Interest rates less:
Low interest rates also effect in govt. incomes so they avoid to give more loans, opens less
tenders on leasing basis
f) Reduced direct foreign investment:
Foreign investor moves back by taking all of its income and no new foreign investment comes
in country which will effect directly in the market and the rates start to go down.
2.1 Problem Statement:
When Foreign Exchange Rates goes up or down
Certain Change in Govt. Policies regarding Import
2.2 Research Question:
Q.1 How to save company from negative effects of recession?
Ans. In recession to save our company from negative effects we should avoid to charge heavy
margins we have to ask for customer feedback, suggestions regarding improvement in services
from customer.

3
2.3 Research Objectives:
Q.1 How to stable sales in recession period in Automobile industry?
Ans. In recession to stable sales in recession we have to give different offers, give some gifts
related to our products, give extra attention on customer satisfaction
Q. 2 How to maintain market share?
Ans. To maintain market share we have to buy cars locally rather if they doesn’t give u more
margin but they will help you to maintain your market share and to main your customers.
2.4 Introduction of Variables:
1- Foreign Exchange Rates:
Because a slightly change in them can cause a big difference in costs.
2- New Models of Vehicle’s:
When new models of vehicle’s arrives the price of older one goes down which will affect the
buyer who buyed without getting information regarding the new models.
3- Govt. Policies & Taxes:
Govt. policies effect very strongly when they are changed without any intimation. Importers
have to suffer much.

4
3 Theory of the Study:
Theory of study is when the recession takes place in automobile
industry the dealers and importers get very much affected just because the government is also not
in their favor when there is time to import and the foreign exchange rate is low they put heavy
duties and taxes so that the private dealers ran out of this business. If some of them remain stable
the bump of foreign exchange affected them badly. To increase in this business the private
dealers have to make their association stronger because they are paying more taxes than the 3s
dealerships in Pakistan. Although there are some bad dealers I this field which import accidental
cars and do fraud with peoples but there are also some registered companies, Dealers which are
giving you a quality we have to visit them and stand with them because they are the one who are
giving us the good quality vehicles for our transportation which are more than 100 times better
than the cars given by 3s companies which are playing in monopoly and increases prices but
decreasing the quality of materials using in their vehicles. All registered dealers have to take step
if they want to secure their future business by first locate and stop the dealers doing fraud and
then contact with govt. so that the fix policy for their business will also get fixed. In this they
will get less effected seasonally.
3.1 Relationship Among Variables
Govt. policies are depended on Foreign Exchange Rates. Because when the exchange decreases
govt. increase taxes to stop import and when the exchange rate goes up they stable the taxes and
in this case due to exchange rate everyone gets affected.
3.2 Theoretical Framework
3.3 Hypothesis:
Customer becomes uncertain, majority is middle class or lower class, don’t have any idea of their
future income, job so they avoid buying extra products they prefer to save their money. The
recession affect them mentally and emotionally if they want to go for a best option they will go
only for a good option just to save some amount which they are paying to get best.
GOVERNMENT
POLICIES & TAXES
FOREIGN EXCHANGE
RATESDEPENDABLE

5
4 METHODOLOGY:
The process used to collect information and data for the purpose of making business decisions.
The methodology may include interviews, surveys and other research techniques, and could
include both present and historical information so that we can easily predict about the coming
time of recession.
1- History Learning:
Must have to study at least last 5 years’ data and look up the economic
conditions in these last 5 years
2- Interviews:
We have to visit different private showrooms ask for their experience in this field what they
are seeing / predicting in future how they are increasing their sales
3- Survey’s:
We have to survey the showrooms of different areas and to see how they are dealing
with customer, what they are selling in market, which type of techniques they are adopting to
satisfying a customer.
4- Online Interview:
Now a day due to internet facility we have can easily get in touched with other
cities showroom owners/dealers and get the knowledge of what they are selling, what
they are importing, where they can see their industry in future.

6
5 STUDY LOCATION, POPULATION AND SAMPLE
DETERMINATION:
Study Location:
The location of this study is North Punjab. Only 65000 imported nationwide, 80%
car sold in north Punjab, Federal, and Sindh
SAMPLE DETERMINATION:
COMPANY CITY
MYCAR (LAHORE)
MEDIA Inc. (LAHORE)
SOCIOLOGIX (LAHORE)
HI TEK ENGINEERING (LAHORE)

7
6 INTERVIEWS
General Comments from Peoples from Industry
No. #1
Interview of Mr. Rashad Iqbal Nadeem CEO of Media in corporative. Our business is of
computer electronics. “Now a days due to recession market there is no customer in market
also people don’t have buying power.” This doesn’t mean people don’t have money this is
because of government is declaring that worst economical condition people are holding their
money and not buying any thing because of this there is too much recession.
No. #2
Interview of Mr. Umar Rashad CEO of “MYCAR.PK”. Pakistan is going through hard
economic situation, customer buying behavior change which gives ad versed effect on ever
business. The demand of regular products goes down we have to replace expensive products with
low price products which in return also lower the profit margin sometime it goes cost to cost. As
our business is of Automobiles and due to currency devaluation the price of low price cars
increase but the budget of customers remain same. People have to compromise on quality of cars
as the purchasing power of customers reduces and the availability of used low budget cars goes
down which in return create inflation in market because the demand is high and supply is less
also government imposes tax on imported cars which increased their prices.
No. # 3
Interview of Mr. Sheharyar Khan CEO of “SOCIOLOGIX”. Our business is of Online
Marketing, Due to current inflation in market owners of brands also reduces there budget of
online marketing and the impose of new ratio of taxes already reduces our margin, which is
directly affecting our business badly.
No. #4
Interview of Mr. Asad Jamal Khan CEO of “Hi Tek Engineering” Our business is of
assembling of Electrical Panels, Electrical Contractors and services. Our Business is related to
industries and because of current recession in market all industries are facing bad economic
situations which directly affect our business. As they reduces their budgets and not upgrading /
installing new units that’s why there is no new work in openings in market.

8
7 RESULTS:
7%
5%
4%38%
17%
Strongly Agree Agree Neutral Disagree Strongly Disagree
Do You Think You Need Advertisement
42%
34%
8%
8%
8%
Does the Recission Lower your Morale

9
8%
13%
17%
18%
44%
Will You Be Able to put in Extra Effort
42%
42%
3% 8%
5%
Durable Items Sale will be greatly affected

10
3%
7%
22%
51%
17%
There can be Positive Outcomes
62%
25%
7%
4%
2%
Recession Equal to Lower Profit

11
39%
33%
17%
8%
3%
Do you Think to offer Special Promotion
8%
13%
17%
18%
44%
Do You Think you can Overcome your
Competition

12
39%
33%
17%
8% 3%
Do You Think You Need to Improve your
services for dealing
39%
33%
17%
8%
3%
Recession Requires Focus and Planning

13
We calculated result on the basis of reviews given by 60 peoples and around 35% peoples
strongly disagree with the recession effect on consumer buying behavior and 10% result are
neutral and only 15% agree with current market situation. Rise in prices of items and basic
necessities of life due to inflation, unemployment and low GDP creates a pre-recessionary
situation which slowly and gradually affects the buying behavior of consumer of market .
Moreover now a days mean reason of recession is due to implement of heavy taxes.
The consumer behavior changed and it has negative effect on sale. All the industries got very
deeply effected. Furthermore the income remains the same but expenses increases, the economic
situation of peple getting because of daily increase in necessary. People are giving more taxes
then the actual cost of the product . As compare to economic condition of our country in 2018
was much better then 2019.
54%
23%
23%
Results Summary
Strongly Agree Agree Neutral

14
 Do You Think You Need Advertisement?
Yes, we need more effective and targeted advertisement to increase our sales
 Does the Recession Lower your Morale?
Yes, it lowers our morale because it decreases sales and low revenue.
 Will You Be Able to put in Extra Effort?
Yes, we have to put extra effort than regular times to maintain sales.
 Durable Items Sale will be greatly affected?
Yes, the durable items sale is affected very deeply because they are quite expensive and
purchasing power of customer is low.
 There can be Positive Outcomes?
No there are no practical positive outcomes because of less customer confidence and
negative growth.
 Recession Equal to Lower Profit?
Not necessary if you are aware of customer’s changing requirements and change
accordingly there is always an opportunity.
 Do you think to offer Special Promotion?
Yes, we need to offer unique special promotions to increase our sales.
 Do you think you can overcome your Competition?
Yes if we put extra effort and consider customers changing behavior we can overcome
our competition easily
 Do You Think You Need to improve your services for dealing?
Yes, we need to improve service dealing, as there is always a room for improvement.
 Recession Requires Focus and Planning.?
Yes, focus and planning is deeply required in recession times as there is no room for
error.

15
8 CONCLUSION
The consequences of this situation are receiving attention from economists. There suggestions
for understanding public service systems from the customer’s point of view, rather than through
the historical focus on target and performance indicators.
Some of thing that could have been done are:
Focus on the increase on unemployment.
Creates ways to balance jobs with population growth.
Keeps the taxes and loans that people work getting in an equal level.
Make ways of investments more easy for peoples so they can invest and the cash flow in
economy increases
Understanding both the business cycle and your individual investment style is key to surviving a
recession.
Finally, people with low credit score taxes rate for their items should have been increasing so
they could pay their expenses without getting any loan.

16
9 BIBLOGRAPHY
Questionnaire about impact of recession on consumer buying behavior
This survey is going to be conducted to investigate the impact of new policy on outcomes in
automotive Sector. The information you will provide will be kept in confidential and only be
used for research purpose.
Gender: ☐ Male ☐ Female
Age (in years): ☐ 21-30 ☐ 31-40 ☐41-51 ☐51-61 ☐61& above
Experience in Automobile (Yrs.): ☐ Below 5 ☐ 5-10 ☐ Above 10
Please give your opinion on a Scale of 1-5 (where 1= Strongly Disagree 2= Disagree
3=Neutral 4=Agree and 5=Strongly Agree.
Strongly
Disagree (1)
Disagree
(2)
Neutral
(3)
Agree
(4)
Strongly
Agree (5)
Work Outcomes:
1. Do you think you can keep sales steady?
2. Do you think you need advertisement?
3. Does the recession lower your morale?
4. Will you be able to put in the extra effort?
5. Durable items sale will be greatly affected
6. There can be some positive outcomes
7. Recession = Lower Profit
8. Recession Require Focus and Planning?
9. Do you think in this situation you can
overcome your competition
10. Do you think to offer special promotional
offers?
11. Do you think you need improve your
services for dealing in recession period
Thanks for your Cooperation.

Effect of recession on consumer buying behavior

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