Consumer Behavior in an Economy in Distress

Elena Milanova, University of Oxford
ABSTRACT - Since the fall of communism in 1989, Bulgaria experienced several painful years of political turmoil and economic deterioration that culminated in a severe economic crisis during 1996-97. Bulgarian consumers have experienced hardship unknown in the recent history of the country. Drawing on in-depth interviews and secondary data sources, this paper discusses consumer responses to material pressures originating from the extreme economic conditions, as well as to pressures originating from the marketplace, and symbolic pressures generated by the Bulgarian cultural milieu.
[ to cite ]:
Elena Milanova (1999) ,"Consumer Behavior in an Economy in Distress", in NA - Advances in Consumer Research Volume 26, eds. Eric J. Arnould and Linda M. Scott, Provo, UT : Association for Consumer Research, Pages: 424-430.

Advances in Consumer Research Volume 26, 1999      Pages 424-430


Elena Milanova, University of Oxford


Since the fall of communism in 1989, Bulgaria experienced several painful years of political turmoil and economic deterioration that culminated in a severe economic crisis during 1996-97. Bulgarian consumers have experienced hardship unknown in the recent history of the country. Drawing on in-depth interviews and secondary data sources, this paper discusses consumer responses to material pressures originating from the extreme economic conditions, as well as to pressures originating from the marketplace, and symbolic pressures generated by the Bulgarian cultural milieu.


Bulgaria is one of the new democracies which emerged out of the profound changes in Eastern Europe at the end of the 1980s. The country had been under communist regime for nearly 45 years. The communist rule came to an end after a "palace coupd’etat" which took place on 10 November 1989, and subsequently political pluralism and democratic system were introduced. The country embarked on reforms ushering market economy; however, the transformation has been slow and to a great extent unsuccessful to date, bearing a high social cost for a significant part of the population.

The discussion in this paper is informed by previous studies on consumer behavior in Eastern Europe (e.g., Feick et al., 1995; Shama, 1992; Lofman, 1993; Ger et al., 1993; Shultz II et al., 1994), which explore consumer responses to the changing socio-economic conditions in Eastern Europe in the wake of marketization. The dramatic societal changes from central planning to market-driven economy accompanied by economic and political upheavals have direct impact upon the patterns of consumer spending and consumption experiences in all countries from the region. This impact is particularly pronounced in Bulgaria, where the difficult transition brought about severe adjustments and growing consumer skepticism. The extreme economic conditions suppressed consumption endeavors and transformed raised expectations for consumption into frustration and despair.


Challenging Economic Environment

Several years of delayed reforms and inconsistent, primarily short-term oriented government policies brought about a severe economic crisis during the winter of 1996-97. Although the country has managed to end the crisis with the stabilization of the Bulgarian lev and the introduction of the Currency Board regime, a real economic recovery is yet to come. The delayed privatization and industry restructuring undermined the prospects for sustained economic growth of the country. Gross Domestic Product and industrial production have been significantly declining since 1989. In 1997 GDP was 62.5% of its 1989 level. The most spectacular decline was in 1996 when GDP growth reached -10.1%, followed by a less significant decrease of -6.9% in 1997. Inflationary pressures have been strong since the liberalization of the prices in 1991 and remained persistent throughout the years of transition. By the beginning of 1997 Bulgarian currency plummeted; in February 1997 the BGL depreciated 243% compared with the previous month, and the end-of-year inflation reached 578.6%, representing the highest rate in Eastern Europe. One of the consequences of the collapse of the currency was the almost complete dolarization of some markets. Not only real estate but also a number of consumer goods had been sold against hard currency in breach of regulations. Accumulated problems with credits given to both state and private enterprises brought about a deep crisis in the banking system in 1996, and eighteen banks were closed and put under special supervision. Unemployment, virtually unknown in the years of central planning, has risen sharply during the first years of transitionBfrom 1.5% in 1990 to 11.5% in 1991, to its peak of 16.4% in 1993. In 1997 unemployment was officially recorded at 13.7%. In reality unemployment rate may be higher as many unemployed do not register; unemployment benefits are insignificant, and the jobs available at the Employment Offices are very limited. However, these effects are partly offset by the significant scale of unregistered activities that account for 30% of GDP according to the Economist Intelligence Unit estimates. Unemployment is yet to rise during the following years as a result of the accelerated industrial restructuring and closures of the unprofitable state-owned enterprises, and is expected to reach 17.0% by December 1998 (Hilfe Country Report, 1997).

The delayed economic reforms, prolonged instability, and the associated high investment risk hampered the influx of foreign capital, and to date Bulgaria has attracted an insignificant amount of foreign direct investments. By th end of 1996 Bulgaria recorded only US $831mn of cumulative FDIs. A Currency Board has been introduced in July 1997 which managed to curb inflation during the second half of 1997 and throughout 1998. The measures adopted by the newly elected government in April 1997 accelerated the reforms, and some signs of positive economic growth are observed since the last quarter of 1997. The improving economic climate in 1998 is expected to attract considerable foreign interest, and foreign direct investment is estimated at US $0.5-1.0bn for 1998 (Hilfe Country Report, 1997).

Material Pressures upon Bulgarian Consumers

The aggravating economic conditions throughout the 1990s induced a dramatic fall in the standard of living. Consumption was drastically reduced and the quality of consumed necessities deteriorated. Among the factors contributing to this downswing are the rapid decline of wages in the state-owned sector, the gradual weakening of social protection, and consumer expectations about future incomes, employment and inflation (see Zhetcheva, 1994). In 1996 real income fell down to 34% of its 1990 level. The average monthly net wage in the country is below US $100, and government wage control in the state-owned enterprises as well as increasing unemployment will prevent its upward movement in short-term. The effects of the spectacular currency collapse in February 1997 upon real incomes have been particularly adverse. In that month the average income and expenditures per capita reached their lowest points of respectively US $8.2 and US $10.2 (NSI, 1997a, 1998). Income inequality has been increasing, and the ratio between the incomes of the 20% of the wealthiest and 20% of the poorest households in the country grew from 3.5 in 1989 to 5.8 in 1996 (NSI, 1996). The growing income disparity brings about deepening social stratification, and at present the middle class is virtually non-existent. Poverty is rising and according to a nationwide survey 43.3% of the respondents perceive themselves rather poor, whereas 20.8% perceive themselves extremely poor (NSI, 1997b).



Bulgarian consumers not only have experienced a decrease in their real wages, but also have to cope with the increasing burden of expenses. Rising prices of all consumer goods brought about significant changes in the spending side of the households’ budgets. The share of food in the average expenditures per capita has been increasing since 1990, reaching its highest figure of 54.4% in 1997 (NSI, 1998). The continuous rise of energy prices increased the share of expenses for energy and heating in the household budgets, thus becoming the second largest item after food in the household expenditures. Consumption of clothing and footwear, alcohol beverages, culture and leisure, and household furniture has been reduced. Expenses previously covered by the state are to be met now by consumers themselves. In particular, consumers have to allocate larger portion of their budgets to cover the increased health related expenses. Reduced public funding transformed the system of health care (still free on paper) into virtually market based, as patients have to give donations to provide the medical teams with medicines and medical accessories for their own treatment, which otherwise are not available in the hospitals. Consumption is further affected by consumer pessimism about the prospects for economic recovery and the associated anticipation of further income decline. According to a recent nation-wide survey (BBSS, 1998b), households’ incomes of three-fourth of the population are lower than their customary expenditures. Sixty six percent can buy only necessities, and 32 percent cannot afford to buy even goods absolutely necessary for their existence.

In view of the challenges outlined above, the inevitable question which emerges here is: What are the responses of Bulgarian consumers to these adverse conditions and how do they cope with the pressures originating from the tough economic environment?

Consumers’ Strategies for Coping with Hardship

The economic distress caused a considerable decrease in consumer purchasing power, and significantly affected the consumption practices of Bulgarian consumers. Maintaining previous consumption patterns has become difficult, and several coping strategies have been adopted, depending among other factors on age and education. The uncertainty about future incomes and unemployment made people more cautious about their spending. The first and still prevailing coping strategy among Bulgarians is consumption reduction and rejection of material goods and services. Consumption of clothing and footwear, alcohol beverages, culture and leisure, furniture and maintenance has shrunk and food with lower nutritional qualities is being bought. Fewer services are purchased, and do-it-yourself is the main way to do repairs and other maintenance work at home. Consumers, experiencing financial difficulties, are economizing on health care services by delaying their visits to the doctor, and postponing teeth repair. According to a recent survey, one-third of the population is financially unable to buy the needed medicines and to pay for health care, and nearly half of those surveyed experience difficulties in meeting such expenses, having to deprive themselves from other things (NSI, 1997b).

The rise of energy prices prompted a wave of partial or complete disconnection of residential central heating in the autumn of 1996. The scale of this phenomenon increased significantly in 1997 and 1998, when the dramatic drop in incomes as well as the rising share of this item in the households’ expenditures (seven percent in 1997) urged more households to stop their central heating. Switching back to less expensive energy sources such as coal and timber, two generations gathering together throughout the winter months, and predominant use of electrical appliances during the night when the electricity is cheaper, are also among the coping strategies of the households against the continuous rise of the energy prices.

Data about the average incomes and expenditures per capita in US dollars (see Figure 4) for the period April 1996-March 1998 reveal that household expenditures exceed incomes in 14 out of the 24 months, and only in 9 months the average income is higher than expenses. These data suggest that consumers have resorted to their savings in order to finance the higher spending, and/or an additional income has been earned from the black market, which remains unregistered in the official income statistics, but is manifested in the expenditure data. In general, all official statistics on households’ incomes are to be treated with caution, as the unregistered individual income is estimated to amount from 20 to 44% of the average salary in the country. The latest release of statistical data reveals that the trend of expenditures exceeding incomes has been preserved until August 1998, and the difference of nearly 10% has been covered through massive use of savings by consumers (Pari, 1998). Bulgaria is a country with strong saving culture and major purchases are usually financed through savings. However, at present the majority of the population does not have income surplus in order to make savings. Those who are able to save safeguard their money against inflationary pressures by converting their savings into hard currency (usually US dollars or German marks). Extensive use of consumer credit is not typical for the Bulgarian mentality, which makes this source of financing household budget shortages less important. Moreover, consumer credit is offered on a limited scale, obtaining such a credit is difficult, and it is usually provided for major purchases such as a house, a car, or expensive household appliances.







These passive strategies, however, are far from giving a full account of the coping behavior of Bulgarian consumers. The cultivation of a private plot of land is emerging as a main coping strategy that is contributing to meet the basic food needs of a significant part of the population. The share of household private plot of land in the average income per capita has increased from 14.7% in 1989 to 24.9% in 1997, thus becoming the second major income source after th salary/wage earnings. Cultivating land bears certain national specifics. Consumption within the family is the main driving force behind household agricultural production, and the agricultural products of three-fourth of those engaged in agricultural activities never reach the market. Only 5% are realizing profits from selling agricultural products, and the rest are occasionally selling surplus (see Naidenov, 1997). In many cases products are sold out of the marketplace, between acquaintances and friends. There is also a partial return to natural exchange, particularly in the rural areas where barter transactions occasionally take place.

According to a recent survey, 90% of the population is preserving food in jars (see Naidenov, 1997), and the welfare of nearly 63% of the population is dependent upon own agricultural products and food preserved by the family (BBSS, 1998b). Several factors surface in an attempt to explain the significant scale of this activity. Home-grown and home-preserved food is an effective means for surviving in the adverse conditions of falling incomes and rising unemployment, and apart from the existing cultural tradition of growing and preserving food from the households from both ends of the income distribution, an accumulated stock of preserved food provides psychological comfort and security for its owners. Further, preserving in jars is used as an effective defense against inflationary price rises, and for avoiding the speculative prices set by fraudulent merchants. Besides, home-preserved food is viewed as a cheaper and higher quality food source by majority of the households.

In the Bulgarian cultural milieu where strong extended family bonds and social nets exist, financial and other material support from relatives, grown children and parents plays an important role for surviving in the difficult economic environment. Consider the following interview quote:

"I and my husband work on shifts, quite often we do not see each other for a whole week. My husband has also a second job, but this is not enough, because we have two grown children who finish now school and have their own needs. The money we earn is sufficient to cover expenses only during the first half of the month, and after that ... We would not be able to survive without the financial aid of my parents. My father is a pensioner, but he continues to work and to support my mother, himself, and my family." (Female, 40 years, nurse)

Entrepreneurial activities are growing, though still accounting for 5.5% of the average income per capita. Searching for alternative income sources came to battle the sharply declining standards of living, and nowadays people are increasingly willing to be retrained or to occupy a less qualified, or a second job; although less paid jobs are less attractive, they are not excluded when the needed income is to be secured. The negative effects of the shrinking households’ incomes and growing unemployment are partly offset by women’ s active participation in the labor force. Women’s full-time involvement in the work force had been encouraged during the years of central planning, and female labor supply remains high during the years of transition, accounting for 46.8% of the labor force in the country.


Challenging Market Realities

The prolonged exchange rate instability of the Bulgarian currency in the period before the introduction of the Currency Board resulted in constant price structure adjustments and considerable disproportions, which created confusion about price levels among consumers. This confusion has been amplified by existing deviations in the price levels; prices of identical products vary enormously between retail outlets,sometimes reaching a difference of more than 100%.

One of the particularities of the Bulgarian market is the considerably higher level of retail prices compared to the level of wholesale prices. It is estimated that prices rise about 2-3 times between the warehouse and the retail outlet for apparel and footwear (24 Hours, 1997), and about 50-60% for the foodstuff (Trud, 1997). The long chains of distributors and commercial intermediaries, existing monopolies and the weak competition in a number of sectors push up the prices. Additionally, many merchants are aggressively pursuing short-term profit goals in their trading activities, and are trying to make fortunes at the expense of Bulgarian consumers. Charging significant mark-ups, creating of artificial stock shortages and thus inducing further price surges is a frequent and widespread practice in the marketplace. So are the sales of counterfeit products, as well as the incompetent sales assistants’ advice and misleading information about product qualities.

Bulgarian consumers have to cope not only with the influx of a variety of foreign brands, but also with continuous changes in the product assortment of the stores, which are mainly due to the lack of long-term relationships between suppliers and retailers. Stores are ostensibly full of merchandise, but in fact there are shortages of certain goods. Further, consumers are confronted with openings and closures of shops, and the changing number and types of retail outlets add further bewilderment and confusion.

The retail sector in Bulgaria is highly fragmented and dynamic, and modern retail formats are yet to become reality in the country. The privatization and restitution processes as well as the limited interest of foreign retail investors have contributed significantly to this state of the retail infrastructure. As of today, no international investor has operations in the grocery sector, and foreign retailers have been attracted mainly in the clothing and footwear sectors. The small shops below 50 sq.m. are prevailing in the retail landscape, and shop density is 93 shoppers per outlet. The highly fragmented and dynamic retail network makes one-stop shopping impossible. Further, it inevitably induces daily screening of the market, with visits to several shops before making a purchase decision, which makes shopping a time and energy consuming activity.

All these changes in the macro-marketing environment require significant adjustments in consumers’ cognitive structures and learned patterns of purchase behavior. Bulgarians may be defined as skeptical buyers, and their skepticism is fed by price distortions, deceptive advertising, counterfeit products, and in some cases by incompetent and fraudulent sales advice. Making an informed purchase decision is difficult in an environment of significant distortions where country-of-origin, brand name, price levels and store location are not necessarily signals of quality. Thus it is of no surprise that consumers are confused when it comes to shopping.

Consumer Response to Market Pressures

Bulgarian consumers have adopted different strategies in their attempts to cope with the difficult market realities. Continuous screening of the market and prolonged search (one whole day or several days) have become a routine practice. A large number of Bulgarian consumers actively search for and exchange information about stores, products’ qualities and prices. Daily exchange of information with friends and colleagues is used as one of the ways for coping with the market dynamics and for filling the information gaps. Personal experience with the brands, as well as word-of-mouth about brand experiences of close friends provide valuable guidance in making buying decisions. As one of the interviewed stated,

"Every day during the break we sit and talk about our shoppingBwhat is available, where it is available, how much it costs. This is the most important theme in our conversations and the most valuable informatin we exchange. We talk about it before everything else." (Female, 27 years, kindergarten teacher)

Although international brand awareness has risen significantly during the years of transition, particularly in the urban areas, Bulgarian consumers still face difficulties in distinguishing between the qualities of the foreign brands. However, consumers make a special effort to avoid mistakes when buying a brand, since small consumer incomes exclude "trial and error" as a way to get acquainted with brand qualities, especially of expensive products. One of the ways to overcome insufficient knowledge of brand qualities is by copying the consumption of respected people considered knowledgeable of foreign brands. This behavior is observed in relation with several product categories such as cars, watches, and perfumes.

Bulgarian consumers are well educated; they usually read the labels for country-of-origin, fibers or food content and producer name, and collect information before making a purchase. The tags of local brands are more trusted, because consumers believe that nobody would falsify them, whereas the tags of foreign brands are regarded with cautiousness. Country-of-origin is not always considered as a useful guide for purchase decisions, particularly when the product origin cannot be verified. Often the labels (especially clothing ones) do not provide such information, or they are simply false, and consumers do not necessarily trust the information provided by the sales assistants. Consumer preferences have shifted from foreign to Bulgarian brands, especially in the food, apparel and footwear product categories, and this may be considered as a safeguard against dubious quality and origin of imported goods. Bulgarian products are perceived to be of good quality and in general to provide better value for money. In a recent survey (BBSS, 1998a), nine out of ten respondents agreed that Bulgarian goods are not worse than the imported ones. This is a new attitude, opposite to the popular consumer opinion during the planned economy equating foreign goods with high quality, while "Made in Bulgaria" was associated with inferior products. In the view of Baron and Mueller (1995), Western food products are perceived to outperform the local ones in packaging and appearance, and modestly so on quality. During the in-depth interviews conducted for the purpose of this study, nine out of the twelve informants expressed preference for Bulgarian food and clothing products because of their high quality and reasonable prices. For example, one of the interviewed stated,

"I prefer Bulgarian goods because they are made of natural materials, have longer durability and lower price... Foreign food products have better wrapping, but they are of lower quality compared to Bulgarian products." (Male, 66 years, retired)

In their attempt to avoid higher prices, as well as to purchase quality products, consumers are trying to shorten the stretched distribution chains and to approach directly producers when possible. Meat, milk, cheese, honey as well as other agricultural products are among the foodstuffs frequently bought from their producers. Besides, large quantities of meat, vegetables and fruits are often purchased when the prices are favorable, usually in the seasons with the highest supply of the products, and subsequently stored in freezers or home-preserved in jars for later consumption.

Store reputation, store suppliers and to a certain extent price levels are used as clues for brand originality. However, reassurance from the sales assistants is often sought. The mistrust and suspicion of Bulgarian consumers may sometimes reach an unreasonable scale. Consider for example the following interview quote:

"Before buying customers almost always ask if the jeans we sell are original, although the same customers have previously bought jeans from our sore." (Male, 23 years, shop assistant in a Levi’s store)


The symbolic pressures expressed in the willingness of Bulgarian consumers to buy modern branded goods are particularly strong due to increased expectations and desires for consumption of such goods that were scarce in pre-reform Bulgaria. In that period the basic needs for food and shelter had been satisfied, even though at a low level, and people experienced greater thirst and appetite for quality possessions such as cosmetics, apparel and footwear.

Income data may be quite a misleading indicator in defining the size of the luxury goods market, and a low average income figures may conceal a lively luxury market (Saporito, 1993). Cultural traits can also exert strong influence upon consumption of luxury goods and can create other market segments that are worth of investigating (Dubois and Duquesne, 1993). Bulgarian culture has a strong emotional element, which affects consumer motivation and buying decisions. Consumers give priority to publicly visible goods such as clothes and cars at the expense of less visible products such as furniture and household equipment. The groups most inclined to indulge in symbolic consumption are the new rich, the youngsters, the upwardly mobile and the women. However, the demand for symbolic brands may well be spread among demographic groups between teen age and 55 year old.

Symbolic pressures are intertwined with material pressures experienced by consumers as household financial constraints curb the satisfaction of symbolic needs. Consumers with the lowest incomes resolve the conflict of material and symbolic pressures by purchasing counterfeit products, even though they are well aware that these are not original brands. Consumers with the highest incomes buy branded goods regardless of price considerations. Those who resolve the conflict in favor of the symbolic needs, but are financially constrained, are screening the market for the best price offers or are postponing purchase for the end-of-summer and Christmas sales. As one of the interviewed puts it,

"The young people who cannot afford to buy Levi’s jeans at their regular price frequently visit the store and ask when do we plan to have sales." (Male, 23 years, shop assistant in a Levi’s store)

Another consumer segment avoids going out for shopping with the exception of food shopping, because if a brand is appealing, the psychological pressures to buy are very strong. As an interviewed stated,

"I don’t go shopping to avoid unreasonable spending because if I like something, I don’t think, I buy it." (Female, 35 years, housewife)


Bulgarian consumers have been adversely affected by the harsh economic conditions; their savings have melted and their incomes have been drastically reduced. Consumers are confused by frequent price changes, originating not only from the exchange rate instability, but also from the unsettled distribution networks. The influx of previously unknown foreign brands and constant changes of the product range in individual stores have also added to their confusion. Consumers are exposed to continuous openings and closures of shops, deceptive advertising, counterfeit products and shortages of certain goods. For many consumers these new market realities are startling and necessitating considerable adjustments.

Consumption patterns have considerably altered under these material and market pressures, and consumption behavior has been shaped by maor considerations for survival. Different active and passive strategies were adopted by Bulgarian consumers, which allow them to cope with the pressures originating from the distressed economic environment and the dynamic marketplace. Reducing consumption of certain goods and services, developing alternative income sources and reliance on home-grown and home-preserved food emerge as the most frequently utilized coping strategies. Preferences towards particular types of coping behavior vary significantly among different age, income and education groups.

The challenges posed by the new market realities are numerous, and so are the elicited responses of Bulgarian consumers. Buying decisions are guided not only by personal experiences, but also by purposefully collected information about product quality, prices, store reputation and suppliers. Consumers respond to the market dynamics and insufficient information about products and prices with continuous screening of the market and daily exchange of information with friends and colleagues. The experience of Bulgarian consumers with low quality foreign goods that flooded the market in the early 1990s brought about a shift in attitudes towards the qualities of the goods produced in the country. At present Bulgarians demonstrate preference towards local brands as far as food, clothing and footwear are concerned. Consumers buy directly from producers when possible because of the guaranteed quality, and in order to avoid speculative prices. The uncertainty stemming from the unknown qualities of imported goods is dealt with by emulating the consumption of people considered knowledgeable of foreign brands. The material and market pressures intertwine with the particularly strong pressures for symbolic expression, which resolution requires a trade-off between the satisfaction of physiological and symbolic needs.


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