Impulsive Shopping, Temptation and Self-Control Reply

Photo of Professor Mark Fenton-O'Creevy
Guest blogger: Professor Mark Fenton-O’Creevy, Professor of Organisational Behaviour and Associate Dean External Engagement, The Open University Business School.

 

And I am a weapon of massive consumption
And it’s not my fault it’s how I’m programmed to function
Lily Allen, The Fear, 2009

The financial crisis that hit us in 2008 has been analysed in great detail by economists and journalists. A good deal of comment, including mine, has focused on the behaviour of bankers and traders. However this was also a crisis that was fueled by a bubble of debt fueled consumption. Perhaps we should be paying more attention to the psychology of consumer spending.

I want to delve into the emotional underpinnings of conspicuous consumption. Much of what I write below is illustrated more poetically in Lily Allen’s song, ‘The Fear’. At first, she appears to be singing a paean to conspicuous consumption and the relentless pursuit of a celebrity lifestyle, but as the chorus kicks in ‘I’ve been taken over by the fear‘; it become clear that this is a tale of the fear and emptiness that lies behind this impulsive consumption. This too is the story revealed by our research.

Mass consumption is the other side of Fordism.
(Photo credit: Wikipedia)

Retailers, marketing agencies and even academic researchers in the retail marketing field tend to consider impulsive buying behaviour as either harmless fun or a positive social good; certainly as something which retailers should exploit and obtain financial benefit from. For example:

“Marketers need to understand such consumer behavior in order to formulate appropriate marketing strategy, allocate marketing budget below-the-line and design effective marketing tactics…… In such instances the acts may be normatively positive and leave the shopper feeling good”

Bayley and Nancarrow 1998: 99

“…the profiles of high impulsives…may be identified, so that promotions and events can be targeted at those individuals”

Beatty and Ferrell 1998: 188

Myself and Adrian Furnham collaborated with the BBC to launch The Big Money Test, which was launched on the BBC flagship consumer affairs television programme Watchdog. Around 110,000 people responded to the survey which looked at their emotional and psychological relationships with money.

chromeshopWe found that people who were high on impulsive buying behaviour tended to be people who had poor strategies for managing their emotions and were more sensitive to the highs and lows of positive and negative emotion. In other words it seems likely that for many people impulsive shopping acts as a substitute for more effective ways of managing their emotions.

If impulsive shopping helps people feel good, does that mean it is a problem? Surely, as many retailers would argue, this ‘feel good factor’ we get from shopping is a positive part of the ‘retail experience’.

The story is not that positive. We also looked at the relationship of impulsive shopping to financial outcomes. Those high on impulsive buying behaviour were much more likely to find it difficult to make ends meet and much more likely to suffer adverse financial events. The problem with the way that retailers target impulsive spenders is that they often have most success with those who are more likely to be financially vulnerable.

  • Are you or is someone you know an impulsive spender?
  • Do you think that there is too much pressure on people to spend, spend, spend; or is shopping just an enjoyable part of a modern lifestyle?

You can read more about our study in this report on the outcomes of the  BBC Big Money Test and in this report we produced for the Friends Provident Foundation who kindly funded some of the analysis. There is also a BBC news magazine article. Those with an appetite for more academic discourse can find the research paper online.

Join us to gain further insights and share your knowledge on this topic at our forthcoming complimentary Business Perspectives Festive Networking event on
Thursday 1 December 2016 at 17:00 – 19:00. For more information and to register, please visit our website.

Financial Management summary report Reply

Financial Management summary report imageHere we introduce you to our sixth Business Perspectives summary report in the series, which concludes the financial management quarter.

This report takes a look at the wider world of Financial Management and the latest trends relating to organisation, data, responsibility, people and customer 3.0.

We invite you to download and share the report and send us any comments. If you would like to contribute your perspective towards future themes, please contact our Business Perspectives Editor at oubs-alumni@open.ac.uk.

Click here to download the report.

Responsible Financial Management webinar ON DEMAND! 126

Did you miss the latest webinar held on 12 March? If so, you have the chance to listen again to the panellist’s contribution and watch video highlights from the Responsible Financial Management Thought Leaders Roundtable discussion, which took place on 20 February 2014 in London.

Facilitating the virtual event was OUBS MBA alum and Associate Lecturer Peter Wainwright, Director, Askyra Limited. Our webinar panellists included Dr Devendra Kodwani, Associate Dean, Learning and Teaching, OUBS; Anthony Nutt, previously Fund Manager, Jupiter Fund Management PLC (recently retired); and John Thompson, Managing Director at Trans Capital Associates.

You can now view the webinar on demand.

You can also see what delegates had to say about the event on Twitter, and get the latest updates on events, offers and thought leadership pieces by following us @OUBSchool #OU_BP

New behavioural finance software launched 1

Professor Mark Fenton O’Creevy, Associate Dean (International Strategy) at The Open University Business School, gave a speech at the launch event on 12 March 2014 for a new software program aimed at improving fund managers performance by identifying how behavioural biases affect trading.

Described as a behavioural finance thought leader, Professor Fenton O’Creevy commented that effective management of emotions is not the same as suppressing or avoiding them.

Read the full article on the Global Banking and Finance Review website.

How is Business Finance DOWN when GDP and House prices are UP Reply

John ThompsonGuest blogger: John Thompson for Trans Capital Associates. Founded in 2011, Trans Capital Associates is a financial and strategic consultancy providing solutions for SME owner managers in distressed, underperforming or growth potential businesses.

Business Finance still falling

The Bank of England’s latest Trends in Lending survey released last week shows that business funding fell by some £4.3bn in the three months to November 2013.  Whilst the decline was less than in the corresponding three months in 2012 – it was still a significant drop in net lending, and a massive fall on the previous three months to August 2013 when the drop was just £2.3bn.

The fall in November alone was £3.7bn.

Mortgage Lending increasing

At the same time the Bank and a separate survey from the Council of Mortgage Lenders reported that mortgage lending was at its highest levels since 2008.

Mortgage lending was approximately £17bn in December, nearly 50% higher than for December 2012.  Gross lending in the fourth quarter of 2012 was the highest since the third quarter of 2008.

What is the Bank of England doing about it?

The Governor of the Bank seems to have recognised this lack of balance and in November of 2013 he announced that mortgage lending was being dropped from the Funding for Lending scheme from the beginning of 1014. Other tools to stop the house prices getting out of hand have been threatened.

I have commented on this issue in previous blogs, first in May 2013, when we raised the potential for a new house price bubble,  and then again in September 2013 when commenting on how the Funding for Lending scheme (mortgages) and the Help to Buy scheme had miraculously saved the economy…….

GDP Growth zooms ahead

…… It has just been announced that GDP Growth for 2013 was the strongest since 2007.  In the final three months of the year Gross Domestic Product rose by 0.7 percent meaning that there was growth in each quarter of the calendar year for the first time since 2010.

This surge in the last quarter meant GDP for the year was a comparatively very healthy 1.9%.  The main driver of this increase in growth was the Services sector and there are continued concerns about the lack of balance in the Turnaround of the UK economy. 

To put this in context, the Services sector is now 1.3% larger than it was in the first quarter of 2008 (before the crisis hit), whereas the Manufacturing sector is 8.2% below pre-recession levels and Construction is down by some 11.2 %.

The big concern of economists is that the turnaround of the economy is too heavily biased towards the supply side, and it is predominantly consumer driven. 

Is some Growth better than no Growth

I sometimes struggle to understand how many of these commentators view the alternative.  I would like to think it is a given that some growth is better than no growth.  Lest we forget, it is exactly 54 weeks ago, just before the release of the GDP numbers for third quarter 2012, that the media and many of these same commentators were bewailing the fact that we were just about to enter a triple dip recession!

If we don’t consume the product here in the UK, the demand has to come from overseas.  For the avoidance of any doubt, the rest of the world is not fantastically buoyant at the moment, especially our main customers in Europe.

If the growth doesn’t come from the consumer feeling a bit better about stuff because the government has engineered a rise in house prices through FLS, Help to Buy and a lack of new builds, where is it going to come from?  The price of globalisation, is that you can’t devalue and export your way out of recession as we have done in the past.

This post was originally published on the Trans Capital blog.

Risk Management Remains Financial Priority for Large Businesses Reply

Laurence WebbGuest blogger: Laurence Webb for AMEE (Avoiding Mass Extinctions Engine). Founded in 2007, AMEE (@ameeHQ) uses data and technology at scale to address critical business sustainability challenges and enable more intelligent use of resources. 

New research based on over 250 treasury and finance professionals demonstrates that managing financial risk is by far and away the top priority for major organisations.

Chinese steel manufacturers

News that the financial health of Chinese steel manufacturers is becoming critical demonstrates how financing difficulties and the failure to better manage supply and demand can spell potential ruin for an entire industry

The need to manage financial risk is indicative of the current economic mood, for example political uncertainty in the Eurozone and the latest growth data released by China.  

Such uncertainty undermines the value of cash flows, financial positions and business contracts.  

The research by treasury management firm Kyriba indicates that visibility over global cash flows is integral to dealing with financial risk.  

For example, daily reporting of a company’s bank accounts is no longer sufficient. Instead there needs to be real-time account automation and cash-flow insight, enabling organisations to deal with the risks, costs and barriers of moving cash between regions. 

Supply Chain Management

Another significant risk raised by the treasury and finance professionals pertains to the supply chain.  According to the research one of the most effective ways to mitigate supply chain risk is the ability to accurately predict revenue streams from certain customers. 

This in turn helps to identify potential business exposure, for example: “If supplier x cannot meet production requirement y, we put our relationship with customer z at risk”. 

That is why visibility into future cash flows is one of the most important risk management tools that a treasurer and CFO can have. 

Treasury management technology enabling visibility into financial assets, market liquidity, interest rates, currency fluctuations and commodity prices holds the future for better risk management decisions.  

This post was originally published on the AMEE blog. Tyler Christie, CEO of AMEE, has given permission for republication as Laurence Webb has since left the organisation.