#Pent-up demand and the “High wire”

As a “seemingly early voice against the whole “advertise during a recession” debate (see my twitter @jcphankins ) it does now look as though the dialogue has flipped, which is good. However in keeping with trying to stay ahead its now worth detailing what i think will happen as restrictions are relaxed. I flagged it on twitter a few weeks ago but now i’m going to extend it with a little tutorial. Admitedly i’m reusing something i produced over a year ago as part of my quarterly economic update that i do for my business and also media owners (tap me up if interested in seeing 1hr 30 mins of economic goodness) but its worth it. In addition and new to this debate is my predicted shape of the short term recovery (for most categories) as a concept. Obviously different categories will respond slightly different but i believe the universal shape will be defined by the “High Wire”, a peak followed by a dip and a return to peak. I’ll explain….

Here is a chart that looks at the last recession and the bounce back as a result of pent-up demand. Pent-up demand is basically demand that is held back until confidence returns. This data is official Nat Stats data. Key point to make but the area under the curve is not matched until several years after (the bounce back is NOT the same size as the original dip). This works because households DO have some money and are just delaying discretionary purchases. In the case of covid-19 its not even as though they are actively reducing buying, they literally can’t. The impact on motor and home purchases is the most striking of these shifts because there are rarely fewer than 1 million houses sold per annum (people always need to move) and 3million private sales is about median for a post 2008 world. These happen no matter what (unless you live in lockdown).

So what we have is a lot of delayed demand. People who want/need to move and people who want/need to buy a car (me amongst them). But; we can’t do it now.

That brings me on to the “high wire” shape. This is how i believe the short term “pent up” demand pattern will play out

The initial rise will be due to all that immediate demand that has had nowhere to go. Households will rush in spend money and demand will spike. This will diminish over the next few time periods as the remaining “demand hungry” HH’s enter a little bit later, return to work etc. But; what about the second peak? The thing to remember is that purchase cycle has been damaged for many people. Anyone who would have normally entered the process will have stopped or deferred. That means that they have to start and this is going to take a period of time, to push people through. Initially a large number of people will start the process as we go back to normal and this will emerge as the second peak as HH’s move through that process and will be governed by that categories purchase “pathway” average time.

That’s how you can easily plot this. If it takes 1 month on average then that “high wire” line is going to be a month long if its 3 months (house buying) then ergo the line will be roughly 3 months long. The “dip and rise” is because that purchase pathway time is variable, some are quicker some are shorter. I have spoken about purchase pathways on this blog previously here https://theeqplanner.wordpress.com/2020/03/05/a-quick-history-of-the-path-to-purchase-consumer-pathway/. Its been edited to include my favourite worst innovation the “infinity curve” (but thats another story).

When putting in place plans for investment for business it would be wise to acknowledge this as acquisition costs will change rapidly and busiensses need to hold their nerve as demand drops off again after that initial bounce. It will return of course 🙂

Anyway this sets out a simple concept for brands and businesses to predict the likely flow of demand as we return to normal-ish. The pent-up demand “high wire”. A double peak with early demand and then a build up due to allow for the purchase pathway. The width of this high wire conicides with the time length to go through that process (on average). As to the initial peak, don’t be surprised for it to happen very quickly.

Advertisement

One thought on “#Pent-up demand and the “High wire”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s