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  • 1. R Winning Consumers Through the Downturn 2009 BCG Global Report on Consumer Sentiment
  • 2. The Boston Consulting Group (BCG) is a global manage- ment consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep in- sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet- itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more infor- mation, please visit www.bcg.com. This report is a product of The Boston Consulting Group’s Consumer practice and its Center for Consumer Insight (CCI), which provides world-class consumer-insight capa- bilities to the firm’s clients. Established by the Consumer practice and the Marketing and Sales practice, the CCI leads BCG’s proprietary research for publications on consumer trends and purchasing patterns.
  • 3. Winning Consumers Through the Downturn 2009 BCG Global Report on Consumer Sentiment Catherine Roche Michael J. Silverstein Patrick Ducasse Natalia Charpilo April 2009 bcg.com
  • 4. © The Boston Consulting Group, Inc. 2009. All rights reserved. For information or permission to reprint, please contact BCG at: E-mail: bcg-info@bcg.com Fax: +1 617 850 3901, attention BCG/Permissions Mail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA
  • 5. Contents Preface 4 Executive Summary 6 No Ordinary Recession for Consumers 8 High Anxiety Fuels a Vicious Cycle 8 Business Takes It on the Chin 8 Uncertainty Drives New Sentiments and Spending Behaviors 11 Trading Down Comes on Strong 11 New Ways of Coping 11 What, Where, and Who: De-averaging Required 16 Category Differences 16 Emerging Markets: A Few Bright Spots, for Now 20 Developed Markets: Trading Down Rises as Trading Up Comes Under Pressure 29 No Two Segments Are Alike 33 Eight Winning Strategies for Hard Times 37 Get Your House in Order 37 Think Value, Value, Value 37 Leverage Brand Strength 38 De-average to Find Pockets of Opportunity 38 Innovate for the Rebound as Well as the Downturn 40 Customize the Go-to-Market Playbook 40 Be a Predator Instead of the Prey 42 Rethink the Business Model and Develop Alternative Scenarios 42 Appendix: Methodology and Product Categories Covered in the BCG Consumer Sentiment Survey 43 For Further Reading 45 Note to the Reader 47 W C T  D 
  • 6. Preface F or several years, The Boston Consulting Group what consumer sentiment has been like and where it is has been tracking an important phenomenon trending as the downturn marches on. We asked consum- in consumer sentiment and spending—a pat- ers to describe their attitudes toward spending, environ- tern that we call trading up and trading down. mental issues, and life in general. We also asked them We continue to track this behavior as a van- whether, when, and why they might consider trading up tage point for understanding consumers during the cur- in the current economy, how they feel about trading rent economic cycle. down, and what emotional satisfaction they gain from buying goods and services. There is no doubt that the global recession has radically changed how consumers approach spending, saving, debt, As consumers steel themselves for a potentially lengthy and long-term investing. The great objective is to find the global recession, concerns about their sentiments have best value at the lowest price. The intensity of this focus taken on a new urgency. How can companies win them on value is reverberating around the world, putting enor- over in such turbulent and uncertain times? Our findings mous pressure on retailers and their suppliers. Yet the will help companies begin to answer some of these criti- shi in consumer behavior has also introduced new op- cal questions: portunities for smart companies to gain share in both de- veloped and developing markets. ◊ How is the economic crisis affecting consumer behav- ior around the world? This special report on how consumers are reacting to the economic crisis uses BCG’s own research to capture ◊ What impact will it have on consumer product and overall trends around the world as well as in specific service categories in 2009 and beyond? countries. Our seventh annual consumer survey, which began in October 2008 and extended into February 2009, ◊ Is this the end of trading up and the lucrative luxury covered Japan, the United States, and Western Europe— and “masstige” sectors? developed economies that we have studied for years—as well as the developing economies of Brazil, China, India, ◊ Are there opportunities for differentiated products in Mexico, and Russia.1 In all, we surveyed some 13,800 the middle market for consumers who downshi from consumers on a total of 19 product groups covering 150 trading up? to 170 product categories. Then, in March—when the cri- sis was just beginning to spike—we went back to refresh ◊ Will consumers continue to buy green products during our data with snapshots of the developed markets, in- the downturn? cluding Canada. This survey yielded an additional data- base of just over 8,000 consumers. 1. Our survey in Western Europe included consumers in Denmark, Finland, Norway, and Sweden. In this report, however, survey re- Together, our readings of the pulse of the world’s markets sults from France, Germany, Italy, Spain, and the United Kingdom, over the past six months provide a dynamic picture of weighted by population, are reported as a summary for Europe.  T B C G
  • 7. ◊ For how long will emerging markets, such as China About the Authors and India, continue to offer opportunities that have Catherine Roche is a partner and managing director disappeared elsewhere? in the Düsseldorf office of The Boston Consulting Group; she can be reached at roche.catherine@bcg.com. ◊ What will it take to win in a trading-down market? Michael J. Silverstein is a senior partner and manag- ing director in the firm’s Chicago office and the former ◊ How can consumers be encouraged to keep spending leader of the Consumer practice; he can be reached at in particular categories and to choose one company’s silverstein.michael@bcg.com. Patrick Ducasse is a se- products over another’s? nior partner and managing director in BCG’s Paris office and the leader of the Consumer practice; he can be reached at ducasse.patrick@bcg.com. Natalia Charpilo is a project leader in the firm’s Munich office; she can be reached at charpilo.natalia@bcg.com. W C T  D 
  • 8. Executive Summary C onsumers’ increasing anxiety is fueling ◊ Women have become expert purchasing agents for a vicious cycle, with spending cuts mak- their families, working actively to stretch the house- ing a deep recession a self-fulfilling hold budget even further in tough times. prophecy. ◊ The trading-up and trading-down trends are still very much in play around the world—but with a massive ◊ In the past, consumers helped their country’s econo- shi in recent months toward trading down. my by spending their way out of downturns. Today consumers are at the center of a global economy, but ◊ Trading down is increasingly the name of the game. so far they have been unwilling (and are oen unable) Consumers’ expressed intention to trade down grew to spend their way back to good times. slowly from 2004 through 2007 in the United States and Europe, and 2008 saw the largest single-year in- ◊ Most consumers are curtailing spending in anticipa- crease across all regions. tion of pain to come more than from real hardship, at least for now. ◊ The explosion in trading down is mostly at the ex- pense of trading up (rather than at the expense ◊ Anxiety about the economy has spread to every mar- of middle-market offerings), as consumers search out ket in the world—even to countries where the key eco- value at reduced prices in everything from tea to nomic indicators remain fairly positive and consumers travel. have yet to experience significantly negative effects from the downturn. ◊ Frugal is the new chic and a back-to-basics sentiment has taken root—at least among consumers in Europe, ◊ Inflation has added to consumers’ fears and declining Japan, and the United States. purchasing power in many markets, especially Brazil, India, Mexico, and Russia. Consumers are still spending in the categories that they love, but they need “permission” to indulge. ◊ Stores everywhere are filled with crowds of shoppers who fail to buy. Discounts provide great value for ◊ Taking care of oneself and one’s family remains an es- consumers but low margins for both suppliers and pecially powerful emotional hook. For example, even retailers. jittery consumers will trade up for high-quality fresh foods. Uncertainty drives new emotions and behaviors as consumers adopt clever ways to cope. ◊ Marketing messages can assuage buyer’s guilt by em- phasizing superior quality, durability, and long-term ◊ Consumers are taking refuge from the economic storm savings, as well as the great pleasure that can come by spending more time at home. from small indulgences.  T B C G
  • 9. De-averaging is a must, since spending patterns vary ◊ Focus intensively on value by gaining an understand- by product category, geographic region, and consum- ing of the ways in which consumers’ current emotions er segment. influence how they define and shop for value and by getting rid of features that consumers don’t want and ◊ Some categories, such as coffee and tea, are proving to overdelivering on what matters to them most. be relatively robust even in the downturn, whereas many luxury, masstige, and deferrable discretionary ◊ Leverage brand strength by supporting and refreshing products are suffering. iconic brands and repositioning others as effective val- ue brands. ◊ Although trading down is growing in most of the de- veloped world, trading up is still strong in China and ◊ De-average across categories, markets, and segments India. to find pockets of opportunity. ◊ Women in general are expert at hunting down value, ◊ Invest in innovation both in response to the downturn whereas young singles, dual-income couples without and in anticipation of the rebound. kids (DINKs), and income-secure empty nesters are more likely to continue spending without giving as ◊ Customize the go-to-market playbook by employing in- much thought to price. telligent pricing techniques, reallocating support to sen- sitive brands, and streamlining the product portfolio. From the findings of our research and our experience working with companies serving consumers every- ◊ Behave as predators instead of as prey by capturing where, we’ve developed eight best practices for tap- talent, real estate, and other opportunities and assets ping into consumers’ evolving sentiments about that are freed up by market turbulence. spending and addressing their need for superior val- ue. Companies that implement these practices now ◊ Rethink the business model and develop scenarios re- will succeed through the downturn and come back garding capabilities that might be required to succeed stronger than ever. We advise companies to do the in an uncertain future. following. ◊ Get their house in order by taking bold action on cash and costs in order to fuel consumer-driven invest- ments. W C T  D 
  • 10. No Ordinary Recession for Consumers I n other recent recessions, consumers’ appetite for sumers and 54 percent of Russians are worried about goods pulled the economy out of the doldrums. In their financial security as well. (See Exhibit 2.) The media the current recession, many consumers have put plays a critical role in this dynamic by influencing con- the brakes on spending in order to start saving. In sumers’ perceptions of the economy. The recent deluge the United States, unemployment has grown to of bad news has tended to drown out the good, but the nearly 9 percent, housing prices have fallen approximate- messages and their intensity vary by country. ly 19 percent, and the equity markets have declined sharply. The losses may be mostly on paper so far, but the Because consumer spending is a function of perceived prospect of an actual loss of income has caused house- wealth as well as actual buying power, sharp declines are holds to cut back on discretionary purchases. occurring across all income brackets. The newspapers are full of articles claiming that differences between younger High Anxiety Fuels a Vicious Cycle consumers, accustomed to spending freely rather than saving, and previous generations shaped by the Second Anxiety about the economy has spread to every market World War and the Great Depression are fading fast. The in the world—even to countries where the key economic level of pessimism expressed by consumers in most of the indicators remain fairly positive and consumers have yet markets we surveyed (China and India being notable ex- to experience significantly negative effects from the ceptions) is unprecedented and is bringing about major downturn. For example, when we asked consumers in changes in the way people shop and in the choices that March 2009 whether they thought the economy would they make. get even worse in the next 12 months, 56 percent of re- spondents in the United States agreed or strongly The consequences of a more conservative approach to agreed—an increase of 24 percentage points from Octo- spending are profound. Because consumers are central to ber 2008. (See Exhibit 1.) In Europe, 60 percent of con- a country’s economy, a serious cutback in consumption sumers felt the same way, an increase of 11 percentage leads to slower economic growth—which, in turn, rein- points from 2008. The emerging economies presented a forces consumers’ dwindling confidence in the future. more diverse picture, with consumers in China being the least pessimistic about the next 12 months (only 23 per- Business Takes It on the Chin cent thought things would get worse), while consumers in Russia and Mexico were the most pessimistic (59 percent Current market data show that manufacturers and retail- and 50 percent, respectively). ers are feeling the pinch everywhere, albeit to varying de- grees. (See Exhibit 3.) The steep discounts that many re- Confidence is plummeting worldwide—by some meas- tailers are offering are providing great value for consumers ures to historic lows in Japan, Spain, and the United but little margin for suppliers and retailers. U.S. retail States. As many as 33 percent of employed respondents sales fell faster in the fourth quarter of 2008 than in any in the United States and 26 percent in Europe said they quarter in the past 30 years, dropping from about −1 per- feel insecure about their jobs, and 53 percent of U.S. con- cent in September 2008 to −9 percent in January 2009.  T B C G
  • 11. Exhibit 1. Pessimistic Consumers Are Bracing for a Slow Recovery United Europe Japan Canada Brazil Russia India China Mexico States 55 56 43 32 36 “The economic situation is 27 23 20 as bad as it will get; things 8 11 will only get better.” 3 56 60 55 59 50 24 11 40 37 40 “The economy will get even 23 worse in the next 12 months.” 53 37 43 “I don’t think the economy 34 27 26 29 will improve, at least not for 2 7 20 14 the next several years.” Respondents who agree or strongly agree (%) Percentage point increase from October 2008 through March 2009 Percentage point decrease from October 2008 through March 2009 Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. Exhibit 2. Most Consumers Are Worried About Jobs and Finances How secure do you feel your Which statement best characterizes your current job will be in 2009? feelings about your personal financial situation? United 33 United 53 States 14 States 19 Europe 6 26 Europe 7 44 Japan 27 Japan 46 Canada 14 Canada 36 Brazil 19 Brazil 39 Russia 43 Russia 12 54 India 6 India 11 China 20 China 12 Mexico 31 Mexico 47 Very insecure (%)1 Somewhat insecure (%)1 I am in financial trouble (%) I am not financially secure (%) Percentage point increase from February or October 2008 through February or March 2009 Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. 1 Percentage of employed respondents only. Retirees, housewives, and the unemployed were excluded. W C T  D 
  • 12. Exhibit 3. The Economic Crisis Has Weakened Retail Sales in Many Markets Year-on-year change in retail sales (%) 25 20 18 15 10 5 4 3 0 0 –2 –5 –5 –6 –10 –9 May June July August September October November December January 2008 2009 China Brazil Russia Europe Japan Mexico Canada United States Sources: National boards of statistics; Thomson Datastream; BCG analysis. Note: Retail sales for Europe were calculated by averaging the sales indexes of France, Germany, Italy, Spain, and the United Kingdom, weighted by GDP. Among U.S. retail giants, only major discounters, such as The problems that consumers are facing in the current Wal-Mart and Costco, showed slight gains. In 2008, retail crisis are unusually severe, even if those problems are an- sales in parts of China, Europe, and Japan managed to ticipated rather than actual for many, at least so far. As hold up relatively well, but in the first quarter of 2009 nervous consumers tighten their purse strings, they inad- they showed signs of weakening in many markets. (For vertently tighten their stranglehold on the global econo- instance, retail sales in Germany in February 2009 were my as well. Yet it is in such times that companies can take down 5 percent, year on year.) advantage of the opportunities that arise by innovating, exploring low-cost models, changing design specifications The drop in consumer spending in the United States to radically lower costs, and achieving growth with prod- caused at least 45 major retailers and restaurant chains ucts that offer higher value. there to declare bankruptcy in 2008, including such long- standing companies as Circuit City and Sharper Image. Retailers in many markets are bracing for a much stron- ger impact from the downturn in 2009. Several key industries, such as automotive, telecommuni- cations, and media, are expected to suffer declines in vol- ume in 2009. In the consumer goods sector, spending as- sociated with vacation travel and deferrable big-ticket items, such as automobiles, has been and continues to be especially hard-hit. However, private-label brands and discounters are gaining market share as consumers begin to see them in a more positive light.  T B C G
  • 13. Uncertainty Drives New Sentiments and Spending Behaviors C onsumers are at the center of the global Exhibit 5.) Shopping has become an exercise in home- economy but so far have been unwilling work, focus, patience, and legwork. (and are oen unable) to spend their way back to better times. Instead they are devel- That said, some consumers are still interested in trading oping new behaviors to cope with the eco- up—but everywhere they are being much more selective nomic crisis, especially when it comes to how they shop about their choices, and they are trading up in fewer cat- and spend. egories overall. The middle market, which until recently had been under pressure in many categories in Europe Trading Down Comes on Strong and the United States, may benefit in this environment as companies try to attract consumers who want to step Trading up was a powerful trend in the first half of this down from trading-up brands but not as far down as decade, and it continued to drive spending in emerging private-label and value brands. economies through 2008. But trading down has begun to pick up, especially in Europe and the United States. (See New Ways of Coping Exhibit 4.) It is now the prevailing inclination across all markets as consumers stretch their budgets. Through Besides trading down, consumers are adopting a variety 2008 and into the first quarter of 2009, year-on-year in- of coping mechanisms to help them deal with the need creases in consumers’ intention to trade down (and cor- (real or imaginary) to spend less, consume more modest- responding declines in their intention to trade up) were ly, and shop smarter. The following are just a few. the largest we have seen since we began tracking these trends. Furthermore, trading down is taking on a different Cocooning. Consumers are turning inward as a way of meaning than it had in the past. weathering the economic storm. “Cocooning,” as trend spotters are calling the growing tendency to seek comfort Until recently, trading down was more about treasure and safety by staying close to home, is a natural inclina- hunting for bargains—the thrill of getting a good deal— tion in stressful times. It happened in the United States than about making compromises out of necessity. And aer 9/11, and it is happening now in many markets as the market responded with a proliferation of products family finances become increasingly uncertain. that performed well and were remarkably affordable. But over the past year, the desire to trade down has begun to Cocooning has spawned two related trends that signal a stem from anxiety—anxiety about a deep and lasting re- sea change in consumer spending: in-sourcing and stay- cession and about future financial constraints, job loss, cations. In-sourcing is the rediscovery of home economics and the prospect of being unable to care for one’s family. and self-sufficiency: instead of buying, consumers are making it themselves; and instead of paying others to do Consumers are cutting back on spending by deferring things, they are doing it themselves. A staycation is a va- nonessential purchases, buying products at promotional cation spent at home: taking day trips to nearby attrac- prices, and shopping around to find the best deals. (See tions and festivals, for example, or just puttering in the W C T  D 
  • 14. Exhibit 4. Trading Up Is Losing Ground as Trading Down Accelerates Percentage of category buyers United States (2002–2008) Europe (2005–2008) Percentage Percentage point change point change (2007–2008) (2007–2008) 13 –7 26 20 –6 26 20 31 27 28 22 37 37 31 32 33 33 30 32 33 32 31 30 29 48 56 9 7 47 38 43 40 41 45 42 33 34 2002 2003 2004 2005 2006 2007 2008 2005 2006 2007 2008 Trade up Neither Trade down Sources: BCG Consumer Sentiment Survey, 2002–2008, in the United States; BCG Consumer Sentiment Survey, 2005–2008, in Europe. Exhibit 5. Homework, Focus, Patience, and Legwork Are Key to Spending Less Spending tactic United Europe Japan Canada Brazil Russia India China Mexico States Cut spending on nonessential 81 72 87 57 63 59 82 48 76 items Defer major expenses that 82 74 69 65 75 71 75 53 65 can wait Buy more products on promotion 75 80 70 67 82 31 65 48 75 Spend more time in stores to find 71 71 61 61 69 33 68 51 65 the best prices Shop in discount 70 59 70 49 65 36 66 43 71 stores more oen 1 Respondents who agree or strongly agree (%) Top spending tactic Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. 1 Multiple selections were allowed.  T B C G
  • 15. garden. But cocooning, in-sourcing, and staycations aren’t spending. And when times get tight, it is women (espe- just about saving money. They also offer emotional re- cially mothers) who have the task of making the budget wards in terms of quality time spent with the family, the stretch as far as possible. It’s a role that they take on will- rediscovery of lost traditions, and the satisfaction of get- ingly, but it’s also a stressful one—especially during hard ting back to basics. (See the sidebar “Let’s Stay in To- times. In fact, our survey results show that, in Western night.”) markets in particular, women are feeling more stressed and underappreciated than men during this downturn. Frugality: The New Chic, for Now. Frugality has become They are also more likely than men to trade down and to ubiquitous. Most of the consumers we surveyed in Eu- make deeper overall reductions in spending. They’ll cut rope and the United States said they have lost consider- back on products for themselves, especially apparel and able trust in big corporations and institutions—a view accessories, before sacrificing products for the family that is no doubt fueled by continuing bonus payouts to (which can include cherished pets). (See the section “No top executives and the sense that transparency into what Two Segments Are Alike” on page 33.) is really happening in the financial markets is lacking. Most consumers agree that “spending more doesn’t feel Trading Up, but Much More Selectively. Some catego- like the right thing to do now” and “basic simple products ries (particularly fresh foods, which speak to the need to are all we need.” Although consumers in Europe and the “take care of me and my family”) are seen as just too im- United States believe that their new-found frugality will portant for compromise. Consumers are still open to com- endure beyond the downturn, that remains to be seen. pelling claims about a product’s superior technical, func- More likely, a balance will be struck between the free- tional, and emotional benefits and will trade up in those spending exuberance of the past and today’s tendency categories that they feel are most important. (See Exhibit toward belt-tightening. 6.) They will also find room in their budgets for smaller “spirit liers” for themselves and affordable indulgences Mom: The Family’s Purchasing Agent. In most house- for their loved ones. But in the current climate, guilt is as- holds, women are responsible for the bulk of day-to-day sociated with most nonessential purchases. To overcome Let’s Stay in Tonight The desire to become reacquainted with the simple pleas- ◊ Netflix, the top U.S. online DVD rental company, sur- ures of home, family, friends, and pets was a constant re- prised analysts and company executives (who had been frain in our consumer surveys as well as in personal inter- predicting slower growth) when its share price jumped views. Such statements as “I am happiest when I’m home” 8 percent in January aer it posted unexpectedly rosy and “My home is my castle” resonated with more than 75 quarterly results propelled by growth in its Internet vid- percent of consumers—both men and women—across eo-streaming service and 2 million new subscribers. all markets. Smart companies have found innovative ways to take ad- Understandable as the cocooning trend is, it is hardly good vantage of the stay-at-home trend and to downplay the news for the entertainment and restaurant sectors. Still, if dreary side of budgeting. Grocers are offering prepack- some categories are suffering, others—such as video and aged ready-to-eat meals, including wine and dessert, that board games, DVD rentals, and video on demand—are provide customers with an attractive compromise be- benefiting. tween eating out and preparing meals at home. ◊ As families rediscover the pleasures of spending time Of course, whether customers embrace these trends will together, the toy industry is enjoying a renewed interest depend, to some extent, on the product category and their in traditional family games, such as Monopoly and Clue. own age and income bracket. Still, dining in on comfort Between 2007 and 2008, sales of board games in the food and watching the same 1930s musicals that cheered United States rose 6 percent, while total sales of toys de- up an earlier generation in hard times sounds like a pretty creased 3 percent. Home video games are also selling good way to spend an evening, whether you are rich or quite well. poor, young or old. W C T  D 
  • 16. Exhibit 6. Consumers Are Still Open to Spending—but Selectively United Europe Japan Brazil Russia India China Mexico States “Some products 63 62 78 76 84 75 67 45 are too important 2 8 1 to scrimp on.” 1 Still spending. . . “Even when the 35 35 15 17 19 24 33 18 economy is bad, I will spend on 9 5 5 7 affordable luxuries.” “I concentrate my 65 73 74 81 71 86 59 56 spending on the few categories that 2 5 5 1 matter most.” ...selectively “I scrimp, save, and 72 75 75 cut back ... to have 40 44 32 35 48 enough money for 1 0 0 17 the things I like to splurge on.” Respondents who agree or strongly agree (%) Percentage point increase from February or October 2008 through February or March 2009 Percentage point decrease from February or October 2008 through February or March 2009 Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. that guilt, consumers need to be reassured that their pur- luxury and masstige sectors have clearly been hurt by the chases represent smart choices and that they still have downturn, but the degree of its impact depends on the “permission” to spend and even to indulge, especially in specific segment. (See the sidebar “Luxury: Down but small, relatively inexpensive daily luxuries. The overall Not Out.”)  T B C G
  • 17. Luxury—Down but Not Out Aer a decade of spectacular growth—driven primarily by unscathed. (That may not be the case this time around.) increasing numbers of wealthy households, particularly in In contrast, entry-level luxury products (or masstige emerging markets—the luxury sector is taking a direct items), to which the middle class aspires in normal times, hit. Experts predict that global sales of luxury goods will tend to be vulnerable in recessions because middle-class fall by as much as 7 to 8 percent this year. budgets are more exposed. Many affluent consumers have concluded that they no The luxury sector also varies considerably by region. In re- longer have the money for conspicuous consumption, cent years, most of its growth has occurred in emerging while those who can still afford it feel uncomfortable in- markets such as China and Russia, as well as in the Mid- dulging themselves when everyone else seems to be tight- dle East. As more consumers in these markets begin to ening their belt. It’s even been reported that shoppers in feel the impact of the downturn and alter their spending Milan and New York are asking for logo-free bags to carry accordingly, this source of potential buoyancy may begin away their designer purchases. “Flaunting is out and sham- to flag. ing is in,” as one observer of the fashion scene put it. Yet even when the general economy and the luxury sector Of course, the luxury segment as a whole usually tracks as a whole are suffering, innovative players with well-posi- GDP growth in major markets, yet it has outperformed tioned brands can thrive. The LVMH Group, for example, the general economy in past recessions. And it continues has managed to outperform world GDP growth by an aver- to be an area of relatively attractive margins in many cat- age of almost 6 percent per year over the past ten years. egories. However, in order to understand the dynamics of The group scored a big hit with fashionistas early in 2009 this sector and approach it strategically, it is essential to when designer Marc Jacobs’s updated Stephen Sprouse de-average. collection hit the stores. The Louis Vuitton handbags, bearing Sprouse’s signature splash of roses and Day-Glo The recession’s impact on “so luxury” items, such as de- graffiti, lend a burst of color in dark times—at $175 to signer handbags and accessories, tends to be less severe $2,555 apiece. Louis Vuitton chairman and CEO Yves Car- than on “hard luxury” products, such as jewelry and high- celle says the brand is more about desire and emotion priced watches. The purchase of many so-luxury prod- than money. He believes that during a recession people ucts has strong seasonal and impulse components, which discover the real value of luxury brands, such as high- make them more resilient in a downturn. Furthermore, quality materials and manufacturing. so-luxury goods are oen sold in their own brand stores, whereas hard-luxury products are usually sold by third- The bottom line is that consumers will continue to desire party retailers, over which producers have less influence a little luxury in their lives, even when times are tough. To when it comes to marketing the products. be sure, middle-income consumers will cut back on some indulgences, buy less oen or in smaller quantities, and Price tier also plays a role. In past recessions, “super lux- downshi to less expensive but still attractive products. ury” purchases, such as trophy yachts, automobiles, and High-income consumers will continue to buy fine prod- custom-designed high-end jewelry—which only the very ucts, but they will be more careful to spend their money wealthiest can afford—tended to be unaffected because wisely. More than ever, they will insist on superior design, the bank accounts of these consumers escaped relatively attention to detail, and lasting value. W C T  D 
  • 18. What, Where, and Who: De-averaging Required W hether consumers are trading up, Category Differences trading down, or looking for a com- promise in the middle, all categories Fiy-nine percent of consumers in developed markets are vulnerable in the downturn. and about 43 percent of consumers in developing mar- kets, on average, plan to cut spending this year. (See Ex- But spending patterns differ depending on product cate- hibit 7.) Trading down is strong and gaining ground in gory, geographic region, and consumer segment. That’s categories that consumers view as commoditized or less why it is critical for companies to de-average the chang- important to them personally. ing needs and spending trends within their own catego- ries and among their own customers by region and demo- Basic services (such as car rental and postal and ship- graphic group. ping services) and pantry staples (such as household Exhibit 7. Most Consumers—Except Those in China and India—Say They Will Cut Spending Respondents’ discretionary-spending intentions over the next 12 months (%) United Europe Japan Canada Brazil Russia India China Mexico States 14 4 21 43 26 34 47 42 53 55 57 63 73 50 50 36 43 37 32 37 32 21 17 16 25 10 13 15 6 4 6 Average planned spending 18 14 12 15 13 14 9 9 13 decrease (%) Percentage point increase from February or October 2008 Decrease About the same Increase through February or March 2009 Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. Note: Some percentages do not add up to 100 because of rounding.  T B C G
  • 19. Exhibit 8. In the United States, Trading Down Is Rising in Most Categories Change in percentage of category buyers who are trading down, 2005–2008 14 Average increase Bathroom décor and remodeling in trading down: Exercise equipment and home gyms Kitchen décor and remodeling 6 percentage points Skin care and cosmetics 12 Home furnishings Sharpest increase and décor Prepared meals Lingerie in trading down: Fragrances and perfumes 13 percentage points 10 DessertsTakeout food Biscuits Car rental Men’s hygiene products Over-the-counter health remedies (exercise equipment Entertainment Children’s clothing Hair-care services Frozen bread and home gyms, and Lodging Dress watches Fashion accessories Frozen meat Bath and body products Sports drinks bathroom décor) 8 Jewelry Personal clothing Hair-care products Chilled products Frozen ready to eat Cake mixes Lotteries and gambling Bakery and pastry products Health clubs and personal trainers Bath linens Energy drinks 6 Mobile phones Bottled water Mobile phone contracts and services Paper products Toys and games Spas and spa services Sporting equipment So drinks Jam and other spreads Fast-food restaurants 4 Baby care Snack foods Cereal Shaving products Laundry detergent Household cleaners Postal and shipping services Frozen foods 2 Chocolate and candy Other dry goods Change in percentage of category buyers Manicures and pedicures who are trading down, 2005–2008 15 Condiments and dressings 0 Bathroom decor and/or remodeling Exercise equipment/home gym other home remodeling projects 48 Kitchen decor and/or remodeling Facial skin care and cosmetics 50 52 54 56 58 60 62 64 66 68 70 Lingerie 10 Sit-down restaurants Home furnishings Men’s hygiene products n’ d Desserts Prepared meals Fragrances, perfume Percentage of category buyers Furniture Processed meat Oral care products Frozen meat t Takeout food Lodging Kid’s clothing d’ Over the counter remedies B scu H Ha Hair-care services Bath and body products Biscuits Car rental who are trading down, 2008 Dress watch Frozen bread Travel/Vacations Personal clothing ot Accessories My home or appartment itself Dairy products Entertainment Hair-care products Sport drinks Cookware Ethnic foods Bakery and pastry products Personal computers Jewelry Home entertainment products Vitamins and supplements Athletic shoes Chilled products Toys and games Cake mixes Meatt Cars Salads Lotteries and gambling Bedding Bath linens h s Mobile phone Energy drinks 5 Washer/Dryer y Kitchen appliances Personal education Women’s hygiene p n’ yg products Gourmet foods Eggs Shoes Paper products Jam and other spreads Frozen ready to eat Bottled water Health clubs/personal trainers rozen e ttled wate Spas and spa services Ø 5%1 Grocery Pet food Sp Sporting equipment Shaving products Mobile phone contract and services Fish and sea food Cheese Coffee/Tea Fresh produce fruits and vegetables Internet service provider Wine Ice cream Soup Butter and margarin Other dry goods r Baby care Snack foods Fast-service restaurants Nongrocery Liquor Cereal Frozen foods So drinks Oral care services Voluntary/optional medical care and services (nutritionis Laundry detergent Postal/Shipping services Household cleaners Juices Chocolate/Candy Caa Beer Condiments and dressings d Manicure/Pedicure Pet-care products p Organic foods g 0 Pay TV Canned foods Average percentage of category buyers Life insurance Pet food Financial planning/Investment management services Car insurance Personal information appliances Home cleaning services Cosmetic surgery/procedures who are trading down: 48 –5 30 35 40 45 50 55 60 65 70 Average: 48 A Average: 48 Percentage of category buyers who are trading down, 2008 Source: BCG Consumer Sentiment Survey, 2005–2008. Note: U.S. adults with household incomes greater than $35,000. cleaners and paper products), as well as home décor and percent worldwide, on a year-on-year basis. The combina- bedding, have long been top trading-down categories in tion of descending volumes and reduced prices is squeez- the United States, Europe, and Japan. But now the ner- ing OEM margins, particularly in the United States—and vous market has triggered gains in trading down in near- several companies have asked for direct support from ly all of the approximately 150 categories that we sur- their governments. veyed in these regions. And some categories, such as bathroom décor, experienced astounding surges in trad- The sector is not yet out of the woods. More than one- ing down from 2005 to 2008. (See Exhibit 8.) But the situ- third of the respondents to our survey who had car pur- ation varies greatly depending on the category, as the fol- chasing or leasing plans have either postponed or can- lowing examples illustrate. celled them. Approximately 46 percent of the consumers we surveyed in Europe, Japan, and the United States in- The Auto Sector: Stuck in Neutral. Automobiles are tend to cut back on vehicle spending. (See Exhibit 9.) among the hardest-hit categories in the downturn. Sales Even among the most affluent consumers in these mar- of passenger cars in all markets declined sharply from kets, about 40 percent said they will reduce their spend- September 2008 to February 2009—down a total of 18 ing on cars. W C T  D 
  • 20. Exhibit 9. Nearly Half of Consumers Plan to Cut Spending on Cars in the Coming Months Recent spending and intentions to spend on cars United Europe Japan States 20 29 Have already cut and will cut further 38 49 47 43 23 18 Have not cut but will cut 11 5 Have already cut but will not cut further 12 12 44 Have not cut and don’t expect to 35 36 Have increased or will increase 4 5 8 Percentage of respondents Source: BCG Consumer Sentiment Barometer, March 2009. So who will continue to buy cars? We found in Europe car payments for buyers who lose their job—and by that about 50 percent of young, single men in our survey allowing returns if the loss of income persists. In Italy, and about 47 percent of DINKs will either continue their Volvo offers consumers incentives, on top of government normal spending on cars or spend more. subsidies, to purchase low-emission vehicles. In some European countries, the government has imple- Beauty and the (Recession) Beast. Fragrances, skin- mented measures to support new-car sales, such as offer- care products and cosmetics, hair-care products, and bath ing bonuses to consumers who buy green vehicles. Ger- and body products have enjoyed solid growth in recent many’s scrapping scheme has been particularly successful. years but are now suffering from falling sales, with no Consumers who trade in their old gas guzzlers for scrap growth predicted in many segments. Forecasts from Eu- receive €2,500 toward the purchase of a new car in 2009. romonitor International indicate that demand is stagnat- ing worldwide. This was confirmed by our survey, which To compete in such a challenging market, OEMs need to suggests that consumers plan to cut back in these catego- be more sensitive to consumers’ needs. For example, ries in particular in the coming months. among consumers who still plan to purchase a car in the next 12 months, a large majority in Europe, Japan, and Although spending has decreased across most markets, the United States say they are interested in green cars, more consumers in the United States than in Europe or primarily for reasons of fuel efficiency. Japan have either cut spending on personal-care products or intend to do so. Fragrances and perfumes have taken A few companies have already come up with some inter- the biggest hit: 70 percent of U.S. consumers say they esting strategies to address consumers’ concerns during have cut back on what they perceive to be a highly discre- the downturn, such as “altruism marketing.” Hyundai, for tionary purchase. As for skin- and hair-care products, con- example, plans to address its U.S. customers’ uncertainty sumers have become very price sensitive and say they are regarding employment by covering three months of new- actively searching out sales and promotions. Private la-  T B C G
  • 21. bels are expected to make considerable gains in several Downturn Pick-Me-Up: A Good Cup of Coffee or Tea. beauty segments, but this is less likely in fragrances, Among the most robust products in our study, coffee and where brand image and loyalty remain powerful. tea have enjoyed steady growth in recent years. Despite the downturn, industry experts expect that growth to con- Families and divorced women are cutting back on per- tinue, especially in developing markets. sonal-care products more than other segments. Young, single men and empty nesters are least willing to de- When we asked in which categories consumers in devel- crease their spending in these categories. Of the various oped countries intend to cut spending, only about one- ways to spend less, not purchasing at all or purchasing third of our respondents said they would spend less on less oen wins out for fragrances, whereas purchasing coffee and tea. (See Exhibit 11.) Coffee and tea may even less oen and buying on promotion are popular tactics benefit from consumers who consider them to be a less for skin care and cosmetics and for hair-care and body expensive alternative to other nonalcoholic beverages, products. (See Exhibit 10.) The downturn is also driving such as so drinks and juices. a shi in favor of lower-price channels, particularly in hair-care and body products. Most consumers view coffee and tea as necessary sta- ples—although certainly not as commodities, since peo- Some beauty segments may actually benefit from the ple are particular about the brands they consume. Conse- downturn. For example, some budget-conscious consum- quently, there is a strong affinity for national brands in ers who used to go to a professional salon for hair color this category, although private-label sales of coffee in or other treatments are now planning to do it themselves some markets are relatively high (28 percent in Germany, in their own homes, using “salon quality” products pur- for instance). chased off the shelf. Many retailers and manufacturers are catching on to this trend by offering more trading-up If they feel they must reduce spending on coffee and tea, and professional-quality hair-care products. consumers are more likely to drink these beverages less Exhibit 10. Budget-Stretching Strategies Vary Across the Beauty Category Fragrances Skin care Hair-care and and perfumes and cosmetics body products Not buying at all 43 20 6 Quantity Buying less oen 30 41 37 Buying in smaller quantities 7 12 14 United Buying on promotion only 13 21 27 States Price Switching to private labels 2 9 16 Shopping at places offering 10 15 20 better prices Not buying at all 25 16 8 Quantity Buying less oen 42 37 32 Buying in smaller quantities 8 12 13 Europe Buying on promotion only 15 21 29 Price Switching to private labels 5 9 16 Shopping at places offering 10 12 15 better prices Not buying at all 34 4 3 Quantity Buying less oen 38 38 30 Buying in smaller quantities 10 14 14 Japan Buying on promotion only 10 24 34 Price Switching to private labels 1 12 12 Shopping at places offering 10 18 26 better prices Top two spending tactics Percentage of respondents1 Source: BCG Consumer Sentiment Barometer, March 2009. 1 Multiple selections were allowed. W C T  D 
  • 22. Exhibit 11. Two-Thirds of Consumers Will Maintain Their Spending on Coffee and Tea Recent spending and intentions to spend on coffee and tea United Europe Japan Canada States 7 9 6 Have already cut and will cut further 13 6 12 13 7 Have not cut but will cut 10 9 7 Have already cut but will not cut further 10 78 81 Have not cut and don’t expect to 69 72 65 71 65 67 Have increased or will increase 6 2 3 3 Percentage of respondents Source: BCG Consumer Sentiment Barometer, March 2009. frequently, seek out promotions, or avoid expensive There are still some bright spots for a few other catego- brands away from home in favor of high-quality but less ries in which consumers’ desire to trade up or maintain expensive brands at home. Some makers of coffee presses their current spending levels has remained fairly stable. and noncommercial espresso machines claim that users The most resilient categories are family related and in- can save more than $1,000 per year drinking premium clude high-quality foods (particularly fresh foods) and coffee at home. Indeed, retail coffee giants are facing stiff- green products—especially those that offer energy cost er competition from coffee and espresso makers made for savings or health and safety benefits. Another category in the home, as well as from fast-food outlets offering bet- which consumers are reluctant to trade down is health ter-quality coffee drinks (such as McDonald’s McCafé). care (when it is not publicly funded). Since most coffee and tea drinkers are unwilling to sacri- Emerging Markets: A Few Bright Spots, fice quantity or quality but still want good value, compa- for Now nies in this sector should avoid deep and lasting price cuts and focus instead on promotions that encourage con- Emerging markets present a mixed picture, which is not sumers to sample their products. They should also in- surprising considering their varied economic, demograph- crease package sizes to encourage stocking up while con- ic, and cultural profiles. Some, like China, have yet to feel tinuing to deliver value through quantity discounts. the full brunt of the global downturn, and consumers Finally, they can play to consumers’ cocooning inclination there are still eager to trade up. Others, like Mexico, are by pointing out that even gourmet blends are much less deeply concerned that the recession may bring disaster to expensive when prepared at home than coffee or tea pur- their economies. Still, across most emerging markets, chased at a shop. These days, enjoying a really good cup trading down is on the rise. (See Exhibit 12.) of coffee or tea with a friend may be one of the few af- fordable luxuries still available to most consumers—any- China and India: Cautious Optimism. China and India where in the world. remain comparatively optimistic despite the troubles in  T B C G
  • 23. Exhibit 12. Trading Down Is Rising in Emerging Markets, Including China United Europe1 Japan2 Brazil Russia2 India China3 Mexico States1 3 5 6 13 7 3 17 8 10 8 20 20 32 37 42 31 32 33 46 30 31 89 56 53 48 50 34 38 32 7 9 1 11 8 Percentage of category buyers Trade up Neither Trade down Source: BCG Consumer Sentiment Survey, 2008-2009. 1 Arrows denote percentage point increases and decreases from October 2007 through October 2008. 2 Arrows denote percentage point increases and decreases from February 2008 through February 2009. 3 Arrows denote percentage point increase and decrease from summer 2007 through January 2009. the rest of the world. A sizable segment of consumers in The two groups with the highest degree of security (that both countries continue to trade up for products that offer is, at least 90 percent report feeling “somewhat” or “very” higher quality or a sense of achievement and social status, financially secure) either live in the largest cities and and a better brand name is still an important incentive. have the highest incomes or live in the smallest cities and (See Exhibit 13.) Chinese and Indians are willing to spend, have relatively lower incomes. The former group consists but in a more focused and price-sensitive manner. mainly of white-collar workers, many in international companies; although they have healthy savings accounts, The question on everyone’s mind is how long China and these people would be highly exposed in a downturn. We India will remain bright spots. The government in both label them “secure but anxious.” Consumers in the latter countries, and especially in China, is working on stimulus group have been benefiting from the relocation of busi- measures to boost domestic spending and protect em- nesses to the inner provinces; they enjoy the highest rate ployment. Employment in both markets is under pres- of expected income growth and are typically purchasing sure as exports to struggling Western markets continue to their first home appliances. The phrase we apply to this slump. Domestic spending, particularly in China, would group is “Downturn? What downturn?” have to pick up a great deal of slack to fully cushion the blow to exports. Therefore a note of cautious optimism is Consumers who are wary but still hopeful (their attitude warranted for these two important markets. can be expressed as “life goes on”) mainly have middling incomes and live in China’s midtier cities. Although these China. Although the Chinese are generally more opti- people have heard of the global crisis, they feel fairly se- mistic about their economy than Westerners are, some cure about their jobs and savings. parts of the country are more optimistic than others. A de-averaged analysis of consumers, differentiated by in- Consumers who are most worried about their future— come and city tier, shows four distinct segments emerg- the “insecure”—live mainly in second- and third-tier cit- ing. (See Exhibit 14.) ies and have the lowest incomes. They are aware of the W C T  D 
  • 24. Exhibit 13. Brand Is a Key Reason for Chinese and Indian Consumers to Trade Up Reasons for trading up United Europe Japan Brazil Russia India China States Products give better results 73 44 47 60 62 78 70 Meaningful technical 65 45 65 57 62 73 71 differences Categories are more important to me 60 39 58 57 60 71 57 I enjoy the feeling of using these products 38 34 24 60 54 73 53 I can afford to 32 25 16 50 43 73 55 I deserve it 27 27 19 64 53 72 48 Better brand name 27 17 15 52 33 79 71 I enjoy the feeling of 20 24 16 55 41 74 46 buying these products Respondents who agree or strongly agree (%) Top two reasons Source: BCG Consumer Sentiment Survey, 2008–2009. Exhibit 14. Confidence Is Not Spread Evenly Among Segments of Chinese Consumers Percentage of consumers who feel “somewhat” or “very” financially secure Household income (RMB/month) “Secure but anxious,” >8,000 high-income consumers 5,000–8,000 “Life goes on,” middle-income consumers 3,000–5,000 “Downturn? What downturn?” “Insecure,” low-income low-income consumers consumers 2,000–3,000 <2,000 Top three cities Tier 1 cities Tier 2 cities Tier 3 cities Tier 4 cities Less than 80 percent 80 to 89 percent 90 percent or more Sources: BCG Consumer Sentiment Survey, 2009; BCG analysis. Note: The cities surveyed were as follows: top three cities = Beijing and Shanghai; tier 1 = Chengdu, Jinan, and Xiamen; tier 2 = Changchun, Xi’an, and Nanchang ; tier 3 = Jingzhou and Zhongshan; tier 4 = Chenzhou.  T B C G
  • 25. China’s Emerging Middle Class: Kelvin Is Financially Secure but Wary About the Economy Kelvin’s story 33 years old ◊ “When I married the woman I love, I paid cash for a small Married with no children; he and his wife both work apartment for us and furnished it. Although I like our place, I would like to trade up to a bigger one someday.” Owns an apartment in ◊ “I’m not too particular about my wardrobe. The most expen- Shanghai sive item I ever bought was a slim-cut designer suit for my Senior manager at an IT wedding.” company ◊ “I think of myself as ‘progressive’ rather than ‘aggressive’ in my career. I believe in working hard and climbing the career ladder. My wife and I oen bring work home from the office, and then we don’t have time to prepare meals.” ◊ “We have a lot of interests in common—badminton, travel- ing, and, of course, our puppy.” His dreams His fears Having a baby Not living up to his personal standards ◊ “I’d love to have a boy I could play with.” ◊ “I fear making careless mistakes at work.” A higher standard of living Missing out on a bargain ◊ “I would like a bigger house.” ◊ “I bought an LCD TV for $900. But then my friend bought ◊ “My wife seems to have an unlimited de- one with a bigger screen at a lower price. I think I pur- sire for premium clothes and jewelry.” chased too quickly.” Traveling the world Boredom ◊ “We would love to go on vacation more ◊ “It makes me sad when I have nothing to do—life should oen.” be lived to the fullest.” Views on the downturn How he copes Reasons to trade up and down ◊ Does not feel that the downturn has ◊ Plans to shi from stocks to more sta- ◊ Trades up for food because freshness had a big impact in China, and hasn’t ble investments is important changed his spending habits ◊ Is deferring large expenses, such as a ◊ Trades up for home furnishings be- ◊ Is confident of the government’s abil- bigger apartment cause he prefers a “modern” look ity to support the economy ◊ Takes time to consider purchase op- ◊ Trades up to international brands in ◊ Believes it will be some time before tions and seeks advice from friends consumer electronics the world economy revives ◊ Arranges group discounts for large ◊ Trades down for apparel because fit is purchases more important than brand name worldwide economic troubles because they have seen January 2009, whereas trading down increased 8 percent- factories close and jobs disappear. This group also has the age points. On average, consumers are trading down most highest proportion of retired people, who are among the oen in basic services (mobile phone and land-line con- most vulnerable in a downturn. tracts, Internet service providers, and pay TV), out-of- home entertainment (including fast-food restaurants), Half of our Chinese respondents said they expect their and vacation travel. (See the vignette “China’s Emerging discretionary spending to remain the same, with the re- Middle Class.”) mainder split between those who expect it to increase and those who expect it to decrease. Even wealthy con- India. With its low levels of household and corporate debt sumers are watching their budgets. When cutting back, and limited reliance on international trade (approximate- the wealthy reduce spending on vacations and fashion ly 20 percent of GDP), India’s economy is relatively apparel. But they continue to spend on fresh and high- healthy. Yet the effects of the global downturn can be quality food. seen in rising unemployment that is expected to exceed 7 percent in 2009. Indians are also concerned about such Trading up remains very strong in China, yet it dropped potentially destabilizing factors as the country’s relations 10 percentage points between the summer of 2007 and with Pakistan. W C T  D 
  • 26. For all of these reasons, consumer confidence in January and 38 percent trade down). But even in a downturn, In- 2009 dropped 20 percentage points from January 2008, dians will not compromise on fresh foods or name brands. while GDP growth is forecast to fall from 9 percent in They are most likely to trade down for out-of-home enter- 2007 to 6 percent in 2009. About 62 percent of Indian tainment, vacations, and cars. Sixty-nine percent of Indi- consumers feel anxious about the future in general, and ans who trade down—a higher percentage than in Eu- 40 percent expect the economy to get even worse in 2009. rope or the United States—told us that they particularly However, only 14 percent think the economy will take enjoy the feeling that they are saving money. (See the vi- several years to recover. While they are working hard and gnette “India’s Urban Middle Class.”) clearly feeling anxious, 83 percent of our survey partici- pants reported being happy with their lives, particularly Brazil: Wait and See. Brazil has enjoyed moderate in their homes and communities. growth in GDP of about 3 percent per year since 2000. Private consumption rates among the emerging middle Although two-thirds of Indians are not ready to cut back class have been rising steadily, driven primarily by falling on spending, almost all claim to be very selective in their interest rates and easy access to consumer credit. Infla- purchases and sensitive to prices. Approximately 80 per- tion was stabilized in 2002, and the government has been cent of our respondents said they will concentrate their improving its support programs for the poor. Consequent- spending on a few categories that matter most. Their pri- ly, consumer confidence rose 45 percentage points be- mary motivation is to save more, and many consumers tween 2003 and 2008. told us that savings on discretionary items would be ap- plied mainly to their children’s education and their own Now, with the downturn settling in, GDP growth is ex- retirement. (See Exhibit 15.) pected to hover around 1 percent in 2009, and consump- tion is not expected to increase. Brazilians anticipate Indian consumers trade up and down very actively across higher unemployment and reduced wages. Consequently, the 89 categories we asked about (32 percent trade up consumer confidence has fallen 15 percentage points Exhibit 15. Saving More Is the Main Reason Indian Consumers Spend Less Reasons for decreasing United Europe Japan Canada Brazil Russia India China Mexico spending States Expect to be saving more 46 42 44 43 44 40 72 35 41 Expect to be earning less in salary 31 27 51 20 11 37 15 40 16 Worried about job loss 30 27 24 17 21 37 4 33 38 Expect to be earning less in dividends 28 18 13 18 10 2 14 43 8 and capital gains Expect to have less access to credit 27 17 8 15 18 4 6 19 4 Percentage of respondents Top two reasons with intentions to decrease their discretionary spending Sources: BCG Consumer Sentiment Survey, 2009; BCG Consumer Sentiment Barometer, March 2009.  T B C G
  • 27. India’s Urban Middle Class: Narender and Neetu Are Moving Up in Life Despite the Downturn Narender and Neetu’s story 34 years old (Narender) and 32 years old (Neetu) ◊ “We are quite proud of India’s recent achievements—and op- Married with a daughter and timistic about its future.” a son ◊ “One of our favorite activities as a family is shopping. We look for quality first in just about everything we purchase.” Live in New Delhi ◊ “We shop for groceries about once a month, mostly at More Narender is a manager in a supermarket, where we can find everything under one roof. private insurance company It’s not the cheapest store, but its prices are reasonable.” ◊ “We usually buy brands, although we’re not particularly loyal, Neetu is a housewife except in personal-care products. Brands provide good quali- ty, aer-sales service, and a guarantee of performance.” ◊ “Our family is healthy, and we are enjoying this stage of our lives.” Their dreams Their fears and concerns Owning a big, beautiful home in a posh Becoming ill location ◊ “Only if our health is okay will life be bright.” ◊ “In Delhi, having a home matters very ◊ “Initially there was not much money. But now we have much. We have purchased a flat in Farida- enough. Now life is comfortable.” bad and are planning to move into it in ◊ “We have health-related worries. Health and wealth go November 2009.” hand in hand.” Buying social-status symbols ◊ “In our new flat, we will buy all new things. We will buy an LCD TV and a computer, and I will upgrade my car to a Honda City or a Hyundai Accent to reflect my status.” Views on the downturn How they cope Reasons to trade up and down ◊ Are aware of the downturn but are ◊ Feel no need to change their shopping ◊ Trade up for long-lasting value, health- not currently affected by it habits, but plan to take some precau- related purchases, electronics, food, ◊ Express concern that friends and rela- tionary measures, such as cutting and personal-care products tives with their own businesses al- down on home entertainment ◊ Trade down in products with imper- ready feel the pinch expenses ceptible quality differences among ◊ Are confident about doubling their ◊ Definitely won’t cut back on health- brands wealth in the next ten years, despite related expenses, such as food and ◊ Research products before buying but the downturn personal care are also persuaded by dealers ◊ Don’t like bargaining and prefer prod- ucts with fixed prices since September 2008. As many as 45 percent of Brazil- down—to balance their budgets, save money, and find ians now say they are anxious about the future. One out good deals. That percentage is about the same as in the of every two Brazilian consumers in our survey said they United States, but it is higher than in any other develop- plan to decrease their spending by an average of 13 per- ing country except Mexico. Consumers in Brazil are most cent, especially in discretionary categories, although the likely to trade down in out-of-home entertainment, travel, amount varied depending on the demographic segment. consumer electronics, home décor, appliances, and appar- While this number is high, it is actually lower than in most el and shoes. Although some consumers intend to con- of the other markets we surveyed (except China). Retail tinue trading up, they will focus on a few select catego- sales have already been affected in big-ticket categories, ries, such as high-quality foods and products that offer such as automobiles, furniture, and appliances. personal gratification. Brazilians have also become much more price sensitive, Despite all the economic gloom, 75 percent of our Brazil- with 50 percent of respondents saying they plan to trade ian respondents said they are generally happy with their W C T  D 
  • 28. Brazil’s Next-Billion Consumers: Rosana Manages Despite a Severely Restricted Budget Rosana’s story 31 years old ◊ “My parents used to work in the countryside before they Married with two children moved to São Paulo to earn more money. But the money nev- Earns less than the er appeared.” minimum wage ◊ “I work as a coordinator of a community association in the Lives in a favela in São slums, where I help youngsters stay out of trouble through Paulo sports and cultural activities. People praise me for my work, although I also encounter a lot of envy.” ◊ “My friends live far from the city, so instead I spend time with colleagues. My work takes up a lot of time, and I don’t go out oen, except to church once a week.” ◊ “My home is my refuge—where I can feel safe with my hus- band and kids.” ◊ “I have faith in Obama’s ability to solve the world’s problems.” Her dreams Her fears and concerns Escaping the favela Growing criminality ◊ “My greatest dream is to see all my family ◊ “My family suffered a lot; the criminality has infiltrated my out of the favela, owning their own houses.” family.” Being able to afford more and better ◊ “All the youngsters on the streets are smoking pot.” products Seeks shelter at home ◊ “If I had more money, I would buy more ◊ “I love my house...it’s important to love it.” things and better quality.” ◊ “My house is my refuge—where I can rest and where I feel safe with my family.” ◊ “I have just painted the walls and the ceiling.” Views on the downturn How she copes Reasons to trade up and down ◊ Doesn’t understand the reason for the ◊ Canceled her credit cards as a way to ◊ Splurges on perfume and hair-care crisis, but is alert to it control spending products once in a while ◊ Believes the downturn will last at ◊ Looks for sales in supermarkets ◊ Won’t buy cheap pasta or rice be- least a year ◊ Occasionally switches to discount cause they don’t taste as good ◊ Fears that she and her husband will brands ◊ Goes to barbecue restaurants once or lose their jobs as businesses cut back ◊ Buys apparel at secondhand stores twice a month ◊ Worries about government pressure ◊ Carefully balances the tradeoff be- ◊ Trades up for products that last long- on informal markets tween quality and price er or are more effective ◊ Is not able to save because most of ◊ Trades down when there is little dif- their money goes for groceries ference among products ◊ Avoids green products because of the price, but believes in the cause lives, despite high levels of stress. They are starting to get nificantly affect their lives, so when it arrived at the end worried about the economy but are not quite as negative of 2008 its impact was particularly severe. GDP in 2009 is as people in other countries. (See the vignette “Brazil’s expected to shrink—with negative growth of about 2 per- Next-Billion Consumers.”) cent—inflation is rising, the value of the ruble against the dollar and the euro has fallen drastically, and consumer Russia: An Unexpected Blow. Aer several years of sig- credit is scarce. Consumers are wondering whether nificant growth in real wealth and GDP growth in excess growth and confidence will return as quickly as they did of 5 percent per year, as well as increasing employment aer the 1998 crisis. and rising export prices for natural resources, Russia is taking a beating in growth and consumer confidence. When we asked Russian consumers whether they felt Most Russians did not expect the global downturn to sig- anxious about the future, 71 percent said yes (up 10 per-  T B C G
  • 29. Russia’s New Frugality: Maria Hopes to Survive the Crisis by Careful Budgeting Maria’s story 25 years old ◊ “I care more about my family than my career, and taking care Married with one child of them is fulfilling.” Works part-time as a nurse ◊ “Living with my in-laws isn’t bad.” and psychologist ◊ “My husband and I would like to have our own apartment. Lives with her husband’s But if we moved out, we would have other problems.” parents in a three-bedroom ◊ “We spend time together at home in the mornings and eve- apartment in Moscow nings.” ◊ “It is also important to spend time with friends. They can make you miss home, but when you return, your good mood is infectious.” Her dreams Her fears and concerns A new car Unemployment ◊ “We cannot afford to buy a new car, al- ◊ “If one of us loses our job, it will be even more difficult for though we need one.” us to survive.” Her own apartment Money shortage ◊ “We share our apartment with my in- ◊ “Money is definitely not a source of joy for me—I’m unhap- laws—five of us living in a three-bedroom py when I want something and can’t afford it.” apartment.” ◊ “It would be better not to have to care about the price ◊ “We would love to have our own housing.” when we go shopping.” Views on the downturn How she copes Reasons to trade up and down ◊ Is fairly confident about job security ◊ Purchases only essentials ◊ Still trades up when the product of- for now, but worries about the ruble’s ◊ Avoids credit cards fers superior quality devaluation ◊ Is deferring expensive travel and ◊ If paying full price, chooses name ◊ Is anxious about what she hears re- a new car brands for prestige as well as function garding the downturn in the media ◊ Hunts for bargains and discounts ◊ Won’t trade down for medicine or and from friends ◊ Buys clothes for herself only when doctors ◊ Feels she is “just surviving” and can really needed ◊ Won’t cut food expenses because she afford only necessities ◊ Looks for cosmetics deals from is a nursing mother—but is open to catalogs private labels in some categories, ◊ Won’t buy online because of per- such as yogurt ceived poorer quality centage points from 2008) and 59 percent said they do them. Of the many ways to spend less, deferring expenses not believe the economy will recover in 2009. Fully 43 that can wait is preferred by 71 percent of the Russians percent of employed Russians now feel insecure about we surveyed, while 59 percent said they will cut spending their jobs, and 50 percent are worried about their person- on nonessential items, such as vacation travel and fashion al finances. accessories. As in other countries, however, fresh foods will be spared. Seeking out promotions is for Russians the Most Russians plan to spend less in 2009, with the num- least popular money-saving tactic. ber who expressed this intention up a staggering 43 per- centage points from just 12 months ago. (See the vignette Russian consumers cited several reasons for tightening “Russia’s New Frugality.”) These consumers are focusing their budgets but appear to be motivated primarily by spending on those categories that are most important to the need to save more in the face of lower salaries and W C T  D 
  • 30. job loss. Still, many respondents noted that with rising in- Heightening these emotions is a sense of inevitability as flation and a devalued ruble, they might just as well consumers look back to the country’s volatile political “spend it while they have it.” and economic history. Indeed, the economy has suffered considerably over the past year—a significant devalua- Russian consumers actively seek opportunities to trade tion of the peso and considerable price volatility have up and down across categories. In terms of trading down, generated expectations of higher inflation. (See Exhibit they intend to do so in as many as 87 out of 99 product 16.) There has also been a significant drop in exports and categories. Levels of trading up remain high when com- a strong outflow of foreign capital. As a result, consumer pared with several other markets we surveyed (including confidence has declined 20 percentage points since the Brazil, Europe, and Japan), but there are signals that Rus- spring of 2008. sians will be more selective in response to the crisis. First- quarter results for 2009 showed a significant soening in Half of the Mexican consumers in our survey reported the intention to trade up, with the willingness to splurge feeling insecure about their jobs and financial future. down 17 percentage points from 2008. Still, 60 percent of Plans to trade down far exceed plans to trade up. Howev- Russians said they expect to trade up in five or more er, it is important not to take these extreme responses at categories. face value. When confronting a potentially serious down- turn, consumers oen resolve to forgo spending out of a Mexico: An Outlier. Aer a period of relative stability sense of urgency and a need to assuage feelings of help- and economic development, Mexico is facing a recession lessness. But they don’t always follow through on these that many in the media are billing as a potential setback resolutions. Furthermore, when we asked in which catego- for the country’s economic future. Consumers are react- ries consumers were most likely to trade up and down, ev- ing with extreme anxiety and pessimism—the intention ery single category was chosen as an area for trading to trade down is higher there than in any other country down by nearly 90 percent of respondents—suggesting in our survey. that the responses were more emotional than reasoned. Exhibit 16. Mexico Is at the Extreme End of Trading Down Situational factors Structural and historical in trading down factors in trading down An imported crisis: A crisis mentality: “All this is coming from the United “It’s 1994 all over again. I’m scared.” States, of all places.” Struggling middle class: Price increases: “I save on everyday purchases so “I already adjusted my budget last year. that I can upgrade and access Will I need to do it again?” new categories.” The devaluation of the peso: High relative prices across nonfood “We are already at 15, and Banco categories: de México cannot stop it. Will it “Cars and clothes will get more get to 20?” expensive again.” Intense media coverage: Increased violence and insecurity: “Every single day is crisis, “The government’s war on drugs crisis, crisis.” has backfired. The situation is out of control.” An aggressive government response: “Something must really be wrong for them to do all this.” Source: BCG analysis.  T B C G
  • 31. Mexico’s Self-Sacrificing Mom: Doña Vero Believes Above All That Family and Loved Ones Come First Doña Vero’s story 46 years old ◊ “I’ve been married for 18 years. I became pregnant with my Married with two sons—one still at first son when I was 15 and had to drop out of school. Since home—and a then, my life has centered on my family.” granddaughter ◊ “I worked for six years to help support the family, but stopped to take care of my youngest because he wasn’t doing well in Stays home to care for nursery school. Aer that I tried part-time work, but health her son complications forced me to quit.” Lives in Mexico City ◊ “I live in the same apartment complex in which I was born, and my mother lives below me. My two brothers have stable jobs—one is a civil engineer and works in construction in the United States, and the other is a mechanical engineer with graduate degrees from Germany, where he lives.” ◊ “I am very proud of my family—especially my granddaughter, Frida, who is the center of my life.” Her dreams Her fears and concerns A better life for her children Poverty ◊ “I see my older son staying close by; he’s ◊ “My biggest worries are my kids and their well-being in this never wanted to leave even when he’s had crisis. It’s a difficult situation, and I tell them to prepare the chance. I see my younger son pursuing themselves.” big things, maybe abroad.” Illness A new car and vacations ◊ “My sister had a tumor and my father died—it was awful.” ◊ “If I had 200,000 pesos, the first thing I would buy is a new car, and then we would take family holidays.” Views on the downturn How she copes Reasons to trade up and down ◊ Is grateful that her husband’s job is ◊ Stretches the budget for cleaning, ◊ Trades up for Internet services for her secure but worries about how others shopping, and preparing meals children and to communicate with will survive the crisis ◊ Purchases basic foods in bulk with family outside Mexico ◊ Plans to support her sons if necessary her husband’s company discount ◊ Purchased an Apple computer for ◊ Is confident that her siblings abroad ◊ Tracks prices carefully her son will provide help if she needs it ◊ Buys fresh fruits and vegetables in ◊ Loyal to brands in hand creams and season coffee because they have proved superior over the years ◊ Trades down for dishwashing soap and bleach because no one notices the difference We also found that while more affluent Mexican consum- Despite the strong inclination to trade down across all in- ers tended to claim frugal shopping behaviors on camera, come segments, Mexican consumers are not among the they admitted off camera that they continue to trade up most parsimonious consumers in our surveys. Rather, like in their most cherished categories. When trading up, high- most consumers around they world, they are inclined to income consumers in Mexico tend to favor such catego- spend selectively rather than stop spending altogether. ries as gourmet foods, luxury apparel, out-of-home enter- (See the vignette “Mexico’s Self-Sacrificing Mom.”) tainment, and consumer electronics. Developed Markets: Trading Down Rises Low-income consumers in Mexico tend to trade up for ev- as Trading Up Comes Under Pressure eryday goods, such as a favorite brand of cooking oil or cereal. When they do trade up in big-ticket items, these Trading down continues to surge in Japan, the United consumers typically use some form of credit payment. States, and Western Europe, fueled by mounting anxiety W C T  D 
  • 32. about the economy. Worries about employment are up 6 equipment and home gyms and in home-related catego- percentage points in Europe and 14 percentage points in ries, such as bathroom and kitchen décor and remodel- the United States. In Japan, consumers are even more ing, and home furnishings and décor. anxious about the economic outlook than their U.S. and European counterparts, and levels of trading down there Despite all the bad news, U.S. consumers still feel positive are even higher. Japanese consumers remember recent about trading down: 63 percent say that they trade down recessions and are pessimistic about the future, despite in some categories in order to finance trading up in oth- relatively healthy savings. ers. Only 32 percent expect to trade down because of fi- nancial constraints. Our surveys in Canada, Europe, Japan, and the United States show large reversals in spending intentions among Trading up is still alive but is becoming much more selec- consumers not yet directly affected by the downturn. tive. About two-thirds of U.S. consumers are willing to More than 50 percent of consumers in all four regions trade up in five or more product categories (down from believe that the crisis will continue to worsen in 2009. 78 percent in 2007). (See the vignette “A Busy Mom in the Everyone is saving up for what may be an extended pe- United States.”) riod of rainy days ahead. Approximately 73 percent of U.S. consumers, 63 percent of Europeans, 53 percent Canada: A Lower Dose of Anxiety. Canadians register of Canadians, and 47 percent of Japanese consumers lower anxiety levels about the economy than respon- said that they plan to cut back on spending in the com- dents anywhere else in the developed world. Only about ing year. 14 percent of employed Canadian respondents with household incomes of more than $35,000 per year said Many categories are already hurting and many will suf- that they worry about losing their jobs, whereas 33 per- fer even more, including out-of-home entertainment, cent of employed U.S. respondents at that income level fashion accessories, and home-related items. Indeed, said they are worried. Canadians also believe that they there is a rising backlash in developed markets against are better positioned than U.S. consumers to weather the the more conspicuous forms of consumption that con- effects of the downturn, and their lower levels of house- sumers associate with the corporate excess that many hold indebtedness and exposure to falling property val- feel contributed directly to the economic troubles they ues reinforce that view. As many as two-thirds of Cana- are now enduring. dian respondents reported that they are happy with their lives despite the turmoil, and 44 percent feel that the cur- The United States: At the Center of the Storm. The rent environment is “part of an economic cycle that is U.S. economy is reeling from what most economists are likely to improve.” Still, Canadians are watching their predicting will be the first year of negative personal-in- largest trading partner to the south with trepidation, and come growth since 1949. In 2008, the country suffered they are spending more cautiously and embracing the the worst retail sales in 30 years. Other key industries, back-to-basics trend. such as oil and gas, banking, and construction, were also hard-hit. Although unemployment has crept up in recent The European Big Five: A Varied Picture. Like consum- months, by far the biggest effect on consumer spending ers everywhere, Europeans are worried about their na- was the sudden spike, in late 2008, in consumer savings, tions’ economies and uneasy about their personal financ- the effect of which was three times larger than the reduc- es. But among the Big Five markets, unease is particularly tion in disposable income in the fourth quarter of 2008. strong in Spain, where in March 2009, 84 percent of our survey participants said they were anxious about the fu- Fiy-three percent of U.S. consumers now report feeling ture—up 45 percentage points from October 2008 and in financially insecure, up 19 percentage points from Octo- marked contrast to an overall European average of 60 per- ber 2008, a level matched in our survey only in Russia. cent. Worry about job loss and personal finances is great- And with 73 percent of U.S. survey respondents now look- est in Germany, where as many as 55 percent of consum- ing to cut their spending, trading down in the United ers feel financially insecure (up 10 percentage points from States has accelerated in nearly all categories since Octo- October 2008), compared with 44 percent of Europeans ber 2007. The sharpest increases have been in exercise overall. Thirty percent of the employed Germans in our  T B C G
  • 33. A Busy Mom in the United States: Donna Wants More Time for Family and Friends Donna’s story 33 years old ◊ “I have five friends who understand that I don’t have a lot of Married to her second husband time to socialize—it’s hard to find friends like that. I love weekends. Being home, relaxing and spending time with the Has a 14-year-old boy and a kids, is my idea of heaven. The TV is on morning to night, but 3-year-old girl I don’t mind—even if it’s just background.” Works with her husband ◊ “I like to go dancing with my husband—also bowling, to the for a service equipment movies, and to the casino. But we don’t do a lot by our- company selves—maybe just once a month.” ◊ “If I had a lot of money, I’d buy a big house, pay some hospital Owns a condo in a suburb of Chicago bills, and put the rest in savings.” Her dreams Her fears and concerns Buying a house with a yard Unemployment ◊ “I really want a house—with a big yard for ◊ “My husband hasn’t worked at the company as long as I the kids.” have, and I worry that he might get laid off.” Spending more time with her family and ◊ “If we both lost our jobs, we would not be able to pay the friends mortgage aer three months.” ◊ “I don’t want to be a stay-at-home mom, Financial insecurity but I’d like to reduce my work hours.” ◊ “I worry about our finances—we have always lived mainly ◊ “I wish I had more free time. That’s when paycheck to paycheck.” I’m happiest. I want to spend as much ◊ “It’s not good that we don’t have anything to fall back on— time with the family as I can.” what have we been doing?” ◊ “I’d love a nice romantic vacation in Jamai- ca—just the two of us.” Views on the downturn How she copes Reasons to trade up and down ◊ Recognizes that when the economy ◊ Chooses not to have credit cards: “If ◊ Shops mostly at the supermarket be- got bad, so did morale at work—it you can’t pay cash, you shouldn’t buy cause it is close, but goes to a dis- used to be a fun office, but now it’s it” counter for cheese, other dairy prod- somber ◊ Tries to budget, but it’s hard ucts, and staples ◊ Used to love work, but lately it’s been ◊ Drinks at home before going out for ◊ Avoids buying online very stressful the evening to save money ◊ Feels guilty when she buys things for ◊ Worries about losing money on their ◊ Spends money on home entertain- herself condo and not being able to build ment—such as video games—be- ◊ Almost never buys generic products— their dream house cause it’s cheaper than going out believes in brands ◊ Worries about her husband’s ◊ Uses coupons as much as possible ◊ Buys the cheapest gas health—he started smoking because ◊ Is skipping a vacation this year and ◊ Sticks with basic cable and forgoes of the stress taking day trips instead HBO, but trades up on game consoles ◊ Is not very optimistic—doesn’t think ◊ Waits for sales and markdowns for the kids anything is going to make the econo- ◊ Has just one debit card and controls it my better for a long time carefully survey said they feel insecure about their jobs, whereas Consumers’ plans to decrease discretionary spending are only 20 percent of Italians feel that way. similar across Europe. On average, 63 percent intend to spend less in the next 12 months, up 4 percentage points When asked about the economic outlook for 2009 and from October 2008. The use of budget-stretching tech- the prospects for a recovery, Spanish and German con- niques, such as buying more products on promotion, de- sumers were the most pessimistic. As many as 68 percent ferring major purchases, and cutting out nonessentials, of Spaniards and 64 percent of Germans—much larger grew in recent months in all European markets. Fiy-nine percentages than in 2008—believe that the economy will percent of Europeans (and 71 percent of Germans) said get even worse in the next 12 months. they would shop more frequently at discount stores. Eu- W C T  D 
  • 34. ropeans also told us that they intend to shop less at con- Compared with their U.S. and European counterparts, venience stores and supermarkets for their groceries. Japanese consumers are more selective and trade up in a much smaller number of categories. For example, only 3 Many categories that have already been hard-hit by percent of Japanese consumers claim to trade up in 15 or spending cuts, such as fashion accessories, restaurants, more categories, compared with 17 percent of Europeans and home furnishings, are at risk of further losses as Eu- and 43 percent of U.S. consumers. ropeans pare back in the months to come. (See Exhibit 17 and the vignette “France’s Active Empty Nesters.”) So how is it that Japan remains one of the world’s largest markets for luxury goods overall? The answer lies in the Japan: Increasingly Selective Spending. Japanese con- difference between the total amount that the Japanese sumers are more pessimistic about the prospects for an spend on luxury goods and the number of luxury catego- early economic recovery than any other group in our sur- ries in which they participate. Japanese consumers pur- vey. Only 11 percent think the situation is as bad as it will chase products in only a few of these categories, but they get, and 53 percent expect the recovery to take more than are very willing to “rocket” their spending in the catego- several years. Worries about job and financial security ries that matter to them the most. Winning luxury are high, yet only 47 percent of Japanese consumers say categories to date have been consumer electronics, fresh they intend to cut spending in the coming 12 months foods, and vacation travel. (See the vignette “Japan’s ‘Six (fewer than in any other developed market). Pockets’.”) Exhibit 17. Many Weakened Categories in Europe Will Suffer Further in the Coming Months Percentage of category buyers who plan to cut or cut further in the future 80 Watch out Hardest hit 60 40 Average: 38 percent 20 More resilient Maybe over 0 10 20 30 40 50 60 Average: Percentage of category buyers who 32 percent cut spending in the last six months Percentage of category buyers who Percentage of category buyers who plan to cut or cut further in the future plan to cut or cut further in the future 40 70 Hardest hit Energy-efficient appliances Chocolate Environment-friendly home-cleaning products and candy 65 Food seasoning, Fish and seafood So drinks Fashion accessories ketchup, and sauces Children’s clothing 30 Baby and children’s food Frozen foods Hair-care and body products 60 Home furnishings and décor Home-cleaning products Juices Bakery and Toys and games Restaurants and Cereal Bottled water pastry products Fragrances and fast food 55 perfumes Pet food Meat Spirits and other Consumer electronics alcoholic beverages Coffee Dry and canned foods 20 and tea 50 Home appliances Vacation travel Dairy products Home or apartment Snack foods Eggs Fresh fruits and vegetables Women’s and men’s clothing All-natural cosmetics 45 Skin care and cosmetics Cars More resilient Wine and beer Organic food products Shoes 0 40 10 15 20 25 30 35 30 35 40 45 50 55 Percentage of category buyers who Percentage of category buyers who cut spending in the last six months cut spending in the last six months Grocery Nongrocery Source: BCG Consumer Sentiment Barometer, March 2009.  T B C G
  • 35. France’s Active Empty Nesters: Elisabeth and Michel Say That the Good Life Is Their Life Elisabeth and Michel’s story 59 years old (Michel) and 56 years old (Elisabeth) ◊ “We have a formula for a balanced life: one-third of our time Married with three children is for the two of us, one-third is for our children, and one-third and two grandchildren is for our professional lives.” ◊ “We’ve attained that balance and are happy for having done CEO (Michel) and retired it. We don’t consciously budget and we don’t have to, but we CEO (Elisabeth) at think it’s fun to search out bargains and save coupons. It’s public-sector organizations one of the things we enjoy doing together.” Own a home in a suburb ◊ “We have had 35 good years together, and we have an active near Paris social life, traveling with old friends and getting together with business associates.” Their dreams Their fears and concerns Satisfied with their current situation; not Uncertainty over their pensions many needs or aspirations; difficulty iden- ◊ “When we are very old and ill, there will be no one to pay tifying an unfulfilled wish for us.” ◊ Michel: “I don’t have any wishes and Health issues dreams. We are very happy with the lives ◊ Michel recently suffered some illnesses we have.” ◊ Both fear the end of their active lives Staying in good shape and health, and also looking for new challenges ◊ Elisabeth: “If I had to name one wish, I would say that it is finding what to do now that I’m retired. I cannot imagine myself staying at home doing nothing.” Views on the downturn How they cope Reasons to trade up and down ◊ Are not affected by the downturn or ◊ Chose public-sector jobs in the 1970s ◊ Trade up for good furniture for the liv- particularly worried about it, although because of job security ing room friends who own businesses have ◊ Shop at factory outlets and purchase ◊ Trade down at Ikea for furnishing oth- been greatly affected good brands on sale er rooms ◊ Got out of stocks last September ◊ Search out bargains for travel on the ◊ Feel that quality is more important ◊ Michel has never seen such a low Internet than quantity for food purchases level of activity at work ◊ Never purchase on impulse ◊ Purchased a Cartier wedding ring for ◊ Believe that the downturn may be their thirty-fih wedding anniversary more severe than past recessions but ◊ Like dining at high-end restaurants that it will pass ◊ Like high-end appliances ◊ Worry about their pensions and who will pay for their needs in their old age No Two Segments Are Alike Experts estimate that U.S. millionaires have lost an aver- age 28 percent of their net worth since September 2008. Consumers in general are curtailing their spending in an- The affluent in the United States are more likely than ticipation of pain to come more than from real present their counterparts elsewhere to decrease spending in the hardship. But these anxieties do not affect all segments next 12 months—67 percent told us they would do so, equally—and some continue to spend. The following are compared with 58 percent in Europe and 44 percent in Ja- a few segments that are demonstrating unique reactions pan. But they are also more optimistic about the economy to the downturn and call for special attention. over the long term than middle-income consumers. The Worried Affluent. Even the affluent are cutting For this segment especially, the impact of the downturn back, as their dividends and (on-paper) equity dwindle. so far has been more psychological than financial—an as- W C T  D 
  • 36. Japan’s “Six Pockets”: Sayuri Benefits from Six Pockets by Living with Her In-Laws1 Sayuri’s story 33 years old ◊ “I feel that I’m very lucky to be living with my husband’s par- Stay-at-home mom with banker husband and two ents because they pay for so many things, from gis to every- children day expenses. Practically all of my children’s toys were sup- plied by them, and my mother recently bought the children Lives in her in-laws’ duplex passports to Disneyland. The only problem is that we are run- outside Tokyo ning out of space for all the things.” Doesn’t think she needs to ◊ “Because the grandparents are so generous with the children, follow a strict budget my husband and I can spend money on good brands, which are much better in quality and last a long time.” ◊ “In addition to Louis Vuitton, we like Max Mara and Burberry, and I love Le Creuset kitchenware. Any money that is le over goes to saving for our children’s education.” Her dreams Her fears and concerns Children’s success in life The bad habit of sometimes spending too much money ◊ “I want our children to attend a premium ◊ “I am the only person who spends a lot in my family.” school so that they will be able to find ◊ “If I submit my wish list to my husband, he will make it well-paid jobs.” happen—but sometimes I fear I’m too demanding.” ◊ “My children will have every opportunity to live their dreams.” Renovating the house Visiting Disneyland with her family regu- larly Views on the downturn How she copes Reasons to trade up and down ◊ First noticed the downturn in January ◊ Saves money on housing and chil- ◊ Has cut back on dining out at restau- 2009 when the interest income from dren’s expenses by living with her in- rants from once a week to twice a her mutual funds began to decline laws month ◊ Doesn’t spend time thinking about ◊ Favors long-lasting quality over low ◊ Continues to purchase luxury brands the crisis prices because they last longer: “Louis Vuit- ◊ Encourages her children to save mon- ton products are much better than ey for their education the Uniqlo brand” ◊ Shops on weekends at shopping malls ◊ Sees no reason to delay purchases or for basic goods to shop less oen 1. Japanese couples who receive monetary as well as physical support from their parents are called “six pockets.” sault on the psyche. As one CEO put it, “I can’t buy a new brand, shop around for lower prices, or give up a product Bentley right now—I just laid off a bunch of employees.” entirely. Still, affluent consumers are much more likely than middle-income consumers to resume their former The categories most affected by the desire not to show off levels of spending once the recession is over, especially in one’s wealth are luxury apparel and fashion accessories, the United States. restaurants, toys and games, and vacation travel. But some categories continue to withstand the pressure to cut Women Weathering the Downturn. Women drive all back. Compared with middle-income consumers, the af- consumer economies, and in 2008, they were responsible fluent in the United States continue to spend on fragranc- for more than two-thirds of total discretionary spending. es, while affluent European and Japanese consumers are But when the economy goes into a tailspin, women trans- still spending on all-natural cosmetics. When it comes to form themselves into expert purchasing agents for their spending less, the affluent in all three regions prefer to households, fulfilling their families’ needs on a limited spend less frequently rather than switch to another budget. Therefore it is crucial for companies to under-  T B C G
  • 37. stand how women, in particular, are being affected by the centage), buy less, defer purchases, trade down, or search downturn. out better prices (except in Russia and China). Women are also more likely than men to purchase products on As noted above, in the West, women now report feeling promotion, go without sweets, seek out private-label and even more stressed, overworked, and pressed for time value products, and shop at discount stores. Although than men, yet they feel less appreciated for what they do. women still like to pamper themselves (once the family’s Particularly in Europe and the United States, women are needs have been met), in most markets, they are reluc- more worried about personal finances than men. And al- tant to admit that they splurge. In developed markets, though women and men are about equally pessimistic however, women will not cut back on fresh food for the regarding the economy, women in the United States and family (or on pet food), and they are not willing to go Brazil are markedly more negative than men. It’s hardly downscale on tea and coffee. surprising, then, that women are leading the trend toward cocooning. Across most countries, women more than men Still Spending. As the gloom settles in over high streets, say that their home is their castle and that they are hap- main streets, and shopping malls, one wonders if anyone piest at home. is spending on anything beyond the basic necessities. The truth is that some consumer segments are still spending Yet despite the downturn and the added stress it is caus- and willing to trade up in the categories they value ing for many, women say they are happy with their lives most—including luxury apparel, fashion accessories, and overall and are managing to meet the economic challeng- out-of-home entertainment. But they have to be con- es that lie ahead. That means a lot more homework, fo- vinced of a product’s value to make a splurge worthwhile. cus, patience, and legwork go into hunting for values. Women everywhere employ a number of tactics as cost We identified three life-stage groups that are more likely busters for their family. For instance, women generally to spend: young singles (especially men), DINKs, and are more likely than men to cut spending (by a larger per- empty nesters with secure incomes. (See Exhibit 18.) Exhibit 18. Most Single Men in Europe Say They Will Keep Spending Recent spending and intentions to spend Young, Young, DINKs Married Divorced or Empty single single with kids separated nesters men women women Have cut and will cut further 13 16 21 25 21 28 Have not cut but will cut 19 17 15 17 Have cut but will not cut further 7 16 13 14 11 8 12 12 Have not cut and will not cut 53 61 46 48 51 53 53 44 43 54 47 47 Have increased or will increase 8 7 5 3 4 3 Percentage of respondents Source: BCG Consumer Sentiment Barometer, March 2009. W C T  D 
  • 38. Most young singles, it seems, would prefer not to be sin- How can companies appeal to these more resilient seg- gle, especially during hard times. As one young woman ments? Perhaps more than other consumers, these groups told us, “No one likes to be lonely in a crisis.” So they are “buying” emotions rather than products when they spend on things that they think will strengthen their con- spend. So marketers need to home in on the right emo- nections with others: apparel, electronic gadgets, enter- tional cues and find the best ways to respond. By catering tainment, and gis for friends and loved ones. Products to these consumers’ specific needs, marketers can create and services that cleverly target this need are still proving that “gotta have it” dynamic even in the gloomiest of successful, even in the downturn. Buckle, a specialty re- times. tailer that offers fashion-conscious young people advice on style, along with famous (and oen pricey) brands and its own exclusive labels, is among the few U.S. retailers F that have seen sales increase over the past months, or companies looking to do more than just survive thanks to a strong service orientation and savvy targeting the downturn, the point is not that most consum- of young consumers through online marketing. ers are spending less and trading down. Instead, what’s important is whether a company’s potential cus- DINKs are more flush with cash than most other seg- tomers are buying its products and, if they are not, how ments. They don’t have the financial responsibilities that they can be encouraged to do so in various categories and come with having children, and they are oen unencum- regions. The key to profitability and market share during bered with mortgage payments because they rent. That the downturn will be knowing how open different seg- makes their attitude toward spending more buoyant. Still, ments are to spending, understanding the specific cues they are not unaffected by the downturn. Although that can entice them to buy particular products (by giving DINKs have less of a real need to cut back, many of them them permission to spend, for instance), and de-averag- told us that they are beginning to be more cautious in ing across categories, regions, and segments so as not to their spending—everyone else seems to be cutting back, miss out on attractive pockets of demand. and they would feel guilty not doing the same. Empty nesters are a diverse group, but those who have secure incomes also seem willing to continue spending during the downturn. Most of their financial goals have already been realized, which leaves more room for flexi- bility now.  T B C G
  • 39. Eight Winning Strategies for Hard Times I t will take time and a string of good news for the Deeper actions are required to free up resources and fund anxiety of today’s consumers to ease and their consumer-driven investments, such as pruning underper- purse strings to loosen. But for companies and forming businesses and developing supply chain partner- brands with the right approach, the crisis can have ships to optimize overall costs and service levels for the an upside. Strong players can gain an advantage end customer. over weaker competitors with thoughtful and agile re- sponses. We’ve looked across the consumer industry and Think Value, Value, Value identified eight best practices to help recession-stressed companies fight back against sluggish sales and lay the Enhance the benefits of your products to consumers and groundwork for a rapid advance once the economy turns ensure that their value can stand up to pressure from pri- around. vate labels and other discount alternatives. Get Your House in Order Understand how consumers are feeling today and how your brands can give them what they really want Inaction is the riskiest response to the uncertainties of an (and are willing to pay for). Consumers are becoming economic crisis. But before going aer the recession’s op- more discerning and increasingly intolerant of add-on portunities, you must minimize your vulnerabilities. That features that they don’t want and don’t want to pay for. means taking bold action on cash and costs. So what are consumers saying that conveys what they’re looking for these days? Cash. As credit sources began drying up at the end of 2008, companies received a harsh reminder that cash is ◊ “My home is my castle.” Cocooning consumers want king—and it needs to be more closely managed through products that make the home a more comfortable and the downturn. To increase liquidity, manage the top line entertaining place. As a result, everything from afford- by finding better ways to retain your most valuable cus- able appliances to take-home meals to board games is tomers, identify consumer and market segments that are increasingly popular. still spending, realign sales force initiatives to increase short-term revenues, improve working capital by acceler- ◊ “I am making a smart choice.” Consumers need a good ating receivables and inventory turns, and consider di- reason to part with their money. Companies can help vesting any noncore assets. by linking the need to be practical to a product’s func- tional benefits. French retailer E. Leclerc, for example, Costs. Most companies have already acted to reduce costs launched an advertising campaign that positions it as in recent months, but many have focused on the low- the champion of consumer purchasing power—a mes- hanging fruit, such as reducing spending on advertising sage that is resonating well. and cutting back on employees and corporate travel. Al- though necessary, such moves are insufficient to with- ◊ “I deserve a little treat.” Coax consumers back to the stand sustained pricing pressure in the months ahead. market by offering small indulgences and everyday W C T  D 
  • 40. luxuries, such as video-game products that make an at- tion to cut marketing support too deeply. Instead, they home workout a compelling alternative to a pricey should focus on marketing efforts that respond to con- gym membership. sumers’ current situation and feelings about the econo- my, as described above. (See the sidebar “Brands Still ◊ “I appreciate knowing that you understand my stress and Matter.”) can help me out a little. While mistrust of big business ” is high in the West, consumers can still react favorably One strategy is to refresh an iconic brand with an updat- to credible altruism marketing from companies offer- ed position. For example, retail giant Wal-Mart is re- ing to share some of the downturn risk—for example, launching its already successful Great Value private-label by promising to accept returns from customers who brand into the eye of the downturn. The company lose their job within a specified period aer buying a changed more than 750 product formulas aer extensive product. value testing, and more than 80 new products have been introduced to the line so far. Wal-Mart’s goal is to help its Fit consumers’ pockets. A good way to protect margins, customers save money and live better by offering high- deal with pricing pressures, and deliver savings to cus- quality products at prices below those of national brands. tomers is to eliminate features that they don’t value, such And the timing appears to be right. Our research indi- as excess packaging or product size. In Russia, the Rosin- cates that consumers are increasingly open to experi- ter restaurant chain introduced a menu that allows cus- menting with private labels to save on grocery bills in the tomers to choose between two options: a less expensive downturn. The Great Value strategy is further proof that meal made with local ingredients and a more expensive Wal-Mart won’t settle for being just a passive beneficiary version made with imported ingredients. Another exam- of the economic crisis. ple is Nestlé’s “popularly positioned products,” smaller sizes of existing brands marketed first in developing coun- De-average to Find Pockets tries and now expanding into developed markets. of Opportunity Overdeliver on what matters most. In a recession, con- Consumers, categories, and markets vary greatly. There sumers are inclined to think in terms of less: “What can I are bright spots of demand that companies can profit- cut back on to save money?” But savvy marketers under- ably target even in today’s market. Trading up is still stand that downturns should also be a time to think more. very active in China and India, for instance, and demand By shiing the focus away from price to the quality of the for brands is high in both markets. Some consumer seg- product or service experience, companies can make sure ments, such as young singles, DINKs, and income-secure their customers will still be there when good times re- empty nesters are still spending. And consumers are still turn. That’s one reason why some retailers and restau- interested in—and, in some cases, willing to pay a little rant chains have started offering free Wi-Fi access to their more for—ecofriendly products that offer savings and most loyal customers, thereby enhancing their “total ex- health benefits. How can your company benefit from all perience.” of this? Communicate and redefine value. Make sure consum- De-average pricing to tap price-resilient segments. ers know your value story and why your brands are Some companies are retaining full prices on products worth a bit more. Many leading consumer-goods compa- with features that consumers are willing to keep paying nies have already turned up the dial on their value mes- for and lowering prices on other items to attract the bud- sages, so it is critical to ensure that your message has get conscious. both the credibility and the volume to be heard amidst all the noise. One leading grocer recently introduced a “discounter” lineup as part of its overall private-label offerings. That Leverage Brand Strength helped it fight back against discounters without having to compromise the price position of its traditional and Brands are assets, and they can be anchors in a chaotic highly successful private-label products. The new range world. In a recession, companies should resist the tempta- covers ten categories and 350 product lines.  T B C G
  • 41. Brands Still Matter Brands are clearly suffering in the downturn, as consum- stance, respondents in the United States and Europe ex- ers in many markets and categories turn to private labels pressed greater loyalty to brands of so drinks and frozen and other value options to stretch their budgets. Only 27 foods than respondents in Japan. But Japanese consum- percent of our U.S. respondents, 17 percent of Europeans, ers are much more brand loyal when it comes to fashion and 15 percent of Japanese consumers were willing to ad- accessories and fragrances. mit that they would trade up to a better brand name. In sharp contrast, 79 percent of survey respondents in India, Chinese consumers place a much higher value on well- 71 percent in China, and 52 percent in Brazil still cited known and trusted brands than Western and Japanese brand name as a reason for trading up. consumers do. Indeed, brands are one of the main rea- sons that Chinese consumers give for trading up. Howev- In discretionary categories, even powerful brands are fail- er, Chinese respondents to our survey claimed that brand ing to shield products from spending cuts, including prod- appeal has less to do with status than with the belief that ucts in those categories that usually command high brand these products are of higher quality (especially in terms loyalty, such as so drinks, cosmetics, fragrances, and of durability and reliability)—although emotion does cars. (See the exhibit below.) Value brands are faring play a role in the apparel and shoe, travel, and entertain- much better in many of these categories. ment categories. At the moment, many Chinese consum- ers tend to believe that local products offer better value Yet not all consumers are avoiding branded products. In and better meet their needs, so brands perceived as local our recent surveys, we found that attitudes toward brands are still oen preferred to those perceived as foreign. But can differ significantly depending on the product category, this trend is starting to change among all but the oldest the market, and the consumer’s income and age. For in- consumers. In the United States, Brand Loyalty Is Not a Universal Shield Against Spending Cuts 1 Brand loyalty High Deferrable indulgences Brand loyalty is a shield are not as protected for “must-haves” So drinks Skin care and cosmetics Fragrances All-natural cosmetics and perfumes Cereals Pet food Wine and beer Home-cleaning products Food seasoning, ketchup, and sauces Hair-care and body products Bottled Coffee and tea Spirits and other alcoholic beverages water Baby and children’s food Juices Consumer electronics Cars Snack foods Environment-friendly home-cleaning products Chocolate Organic food Frozen foods Average Women’s and men’s clothing and candy Fish and seafood Shoes Dry and canned foods Restaurants Dairy products and fast food Bakery and pastry products Children’s clothing Vacation travel Home appliances Fashion accessories Home or apartment Meat Eggs Home furnishings Toys and games Energy-efficient Fresh fruits and vegetables Low and décor appliances High Average Low Spending cut2 Grocery Nongrocery Source: BCG Consumer Sentiment Barometer, March 2009. 1 Percentage of respondents in a range from high to low who claim brand loyalty as a reason not to cut spending in a given category. 2 Percentage of respondents in a range from high to low who have already cut spending in a given category. W C T  D 
  • 42. Brands Still Matter (continued) Despite the challenging environment in many markets, a ◊ “How can Uniqlo be so simple and yet so fashion- downturn can be a good time to strengthen brands. Some able?” of the most successful brand campaigns have begun dur- ing recessions. For example, BMW launched its “ultimate ◊ “We take care of ourselves, and so we use trusted brands driving machine” campaign in the middle of the recession like Colgate.” of the 1970s. With their spare interior and superior engi- neering, these sleek automobiles helped define cool for ◊ “Clinique products really moisturize, and they don’t young, urban professionals. In the downturn of the early make my skin dry.” 1980s, Brooke Shields’s famous confession on billboards around the world that nothing came between her and her So how do you create opportunities for your brand in a Calvins introduced the radical idea that blue jeans could downturn? The secret is to reinforce the reasons for con- be sexy. Since then, they have become the attire of choice sumers to bypass cheaper alternatives and spend a bit for the young and not-so-young everywhere. more by offering features that respond to their current needs and developing marketing messages that are sensi- In our interviews with consumers, we were impressed by tive to the challenges they face. how oen references to favorite brands came up. Here is a sample: Create a renaissance in the middle. The fact that con- Move consumers up a ladder of benefits to accelerate sumers are becoming more selective about where they out of the cycle. Although they may not always be con- trade up can be a plus for brands with middle-market po- scious of their value calculations, consumers everywhere sitions. When it comes to categories that they care about, determine how much they are willing to pay for a partic- consumers who regularly purchase upscale offerings rare- ular product or service according to a ladder of increasing ly descend all the way down to private-label or value benefits. (See Exhibit 19.) brands. They are more likely to consider a strongly posi- tioned brand in the middle that allows them to save on To move them up the ladder, companies must uncover price without compromising too much. Emphasizing pre- latent dissatisfactions and introduce technical, functional, mium benefits at an affordable price can be a way to cap- and emotional benefits that address them. For example, ture such consumers as they downshi . Apple has created many successful products (the iPhone, iPod, and MacBook, to name just a few) by thinking deep- Innovate for the Rebound ly about how consumers want to use their products, de- as Well as the Downturn signing them for style and function, and appealing to con- sumers’ affiliations, sense of fun, and on-the-go lifestyle. Consumers remain open to convincing claims about a product’s technical, functional, and emotional benefits, Fine-tune your product portfolio to include credible and such benefits can provide an incentive to buy. Offer- value offerings. Consumers’ buying behavior is chang- ing price discounts alone is not enough to catch their at- ing fast. What might have seemed like a great value a tention during a downturn. Innovation, however, can be year ago may no longer be so compelling. Aligning your a powerful lever in protecting margins. portfolio with the mood of the market will ensure that you have sufficient offerings with clear value messages to Since many of today’s investments in product develop- carry your business through the downturn. ment will bear fruit only aer the recession is past, it is also critical to have a view of the postrecession landscape Customize the Go-to-Market Playbook and what consumers will be looking for then. Delaying investments until the recovery could compromise your As consumers change, so do their perceptions of price. Yet ability to capitalize on future opportunities. all recessions have a turning point. Companies must tailor  T B C G
  • 43. their marketing strategies to reflect the current environ- ◊ Reduce the perceived price point of your products by ment without losing sight of long-term sustainability. offering smaller package sizes or volume discounts Defend high-margin businesses against private labels. ◊ Adopt a discounting strategy by increasing both list Playing the discount game without fully aligning your cost prices and discounts in anticipation of more frequent structure is a recipe for disaster. Companies must actively promotion manage the price-value relationship against cheaper alter- natives and private labels. Make sure your products stack ◊ Avoid price wars by picking your battles and changing up favorably and keep a constant eye on market trends pricing mechanisms because the stakes are high and players are moving fast. ◊ Optimize trade spending to align with current market Apply intelligent pricing techniques to avoid the and brand positioning, and preserve performance in- discount spiral. Consumers are looking for deals, promo- centives tions, discounts, and bargains. Most companies will lower prices, which makes sense. But before you follow suit, ◊ Unbundle product and service offerings and price consider reducing the perceived price point of your prod- them separately to help communicate and extract the ucts to avoid cutting into margins. You should also limit value inherent in both the risk that your competitors will reduce their actual prices, thereby starting a price war. New pricing models, ◊ Monitor your relative price position more oen as the which oen emerge during moments of crisis, will help. landscape changes Consider taking one or more of the following steps: Reallocate marketing spending to the most sensitive ◊ Lower your cost to serve and share some of the savings brands and channels. Take a scalpel to investments in with customers advertising and promotions. Many companies are discov- Exhibit 19. The Consumer Value Calculus Is Subtle and Often Unconscious 100 5 Intangibles (brand benefit of doubt, 90 recognition awareness, and peer influence) 80 4 Value from integrated retail— 70 control of the point of sale 3 60 Merchandising at the moment of purchase— stimulation that drives excitement, 50 conviction, and energy 2 40 Implied brand value for guaranteeing reliability, 30 consistency, and aersale service 20 1 Estimate of value for better raw materials, design, manufacturing quality, convenience, 10 and easier-to-use packaging The price of the cheapest alternative Source: Michael J. Silverstein, Treasure Hunt: Inside the Mind of the New Consumer (New York: Portfolio Books, 2006). W C T  D 
  • 44. ering that they can cut marketing costs by as much as 30 Rethink the Business Model percent—without compromising their business goals— and Develop Alternative Scenarios through smarter targeting of messages and channels. Nontraditional media (such as Internet-based community Most industries and sectors will look different in five sites) are proving to be a more precise and cost-effective years. As a result of cyclical and structural changes, in- way of reaching specific segments of consumers. Closer cluding government interventions, companies in many scrutiny of marketing activities can help companies iden- industries need to find fundamentally new ways to com- tify which vehicles offer the greatest returns. But main- pete. Forces such as increasing globalization, protection- tain a balance. Don’t ignore the broadcast media, since ism, and environmental concerns simultaneously create they are vital for building and sustaining mass-market challenges for incumbents and opportunities for those consumer brands. companies that can seize them. Companies need to con- sider how (and how fast) their business models and strat- Streamline product portfolios by cutting off the tail. egies need to change if they are to win in the long term. Downturns can be an opportunity to clean house by elim- Is evolution or transformation required? inating unprofitable product lines, SKUs, and even cus- tomers from a company’s portfolio. These “tails” gener- Smart companies looking to prepare for a highly uncer- ally contribute only a small portion of revenues, but they tain future should start thinking now about the various are oen a drag on total profits because they fail to pay scenarios that could play out in their sectors and antici- back the resources they consume. Refocusing those re- pate the skills and assets that will be required to win in sources on the more profitable parts of the portfolio can different circumstances. We recommend developing at help improve long-term growth and profit performance. least three scenarios for the postdownturn marketplace, according to the recession’s likely severity and how long Think multichannel. Consumers are visiting more chan- it will take the economy to recover. Consider including at nels in the downturn, including low-cost channels such as least one scenario that seems improbably pessimistic in online discounters. Marketers need to reassess their own order to stimulate out-of-the-box thinking on how to re- channel mix in light of these shis. Although channel spond. Quantify the impact on your business and your conflicts remain a concern, the degree of shakeup in the balance sheet. Then decide how you will position your marketplace creates a unique opportunity to put new op- products for possible long-term shis in consumers’ val- tions on the table. ues, attitudes, and purchasing behaviors, and allocate your budgets for the long term. Be a Predator Instead of the Prey Seize opportunities to capitalize on market turmoil and I win share while competitors are stumbling. t has been a long, hard winter, and consumers are ea- ger to see the first green shoots of recovery—even if Acquire talent and other assets previously not in play. they may not appear as early as this spring. The Downturns tend to put a lot of attractive talent back on smartest players will adapt to the current situation while the market as companies downsize or employees lose continuing to invest in innovation for the future, when confidence in their employers. Now could be a good time consumers’ appetite for spending will certainly revive. to upgrade your management teams. Competition for top Companies that seize the opportunity to offer consumers people will be less fierce and the cost lower. Other kinds better value—in design and ingredients, functional im- of assets may also look attractive during the downturn. provements, and especially emotional benefits—will ac- For example, some leading retailers are taking advantage celerate out of this deep downturn far ahead of the rest. of more affordable real estate to expand. Explore transformative mergers and acquisitions. His- tory shows that many of the best deals have occurred in downturns, generating about 15 percent more value as measured by total shareholder return.  T B C G
  • 45. Appendix Methodology and Product Categories Covered in the BCG Consumer Sentiment Survey The BCG Consumer Sentiment Survey that underpins 4,028; India = 1,822; Japan = 820, Mexico = 888; Russia = this report took place from October 2008 through Febru- 1,309; United States = 2,175. ary 2009. The countries surveyed were Brazil, China, In- dia, Japan, Mexico, Russia, the United States, and five In March 2009, in a survey we call the BCG Consumer countries in Western Europe—France, Germany, Italy, Sentiment Barometer, we surveyed consumers in Canada, Spain, and the United Kingdom. Consumers in Denmark, Japan, the United States, and the five countries in West- Finland, Norway, and Sweden were also surveyed, but for ern Europe. The income-adjusted sample sizes were as the purposes of this report, survey results for the Euro- follows: Canada = 1,114; Europe = 5,014; Japan = 1,071; pean Big Five, weighted by population, served as a sum- United States = 818, for a total of 8,017 respondents. mary for Europe. For global comparison, all data were in- come adjusted on the basis of country-specific real-income Consumers were asked about a total of 19 product groups distribution—consumers in the bottom quartile of in- covering 150 to 170 product categories. (Some categories come in each country were eliminated and the sample in the list below overlap.) Not all categories were covered reweighted to represent real-income distribution in each in all countries. For an itemized list of categories included country. Aer income adjustments, approximately 13,800 in the surveys of specific countries, please contact one of consumers were surveyed for this report. Sample sizes the authors. were as follows: Brazil = 825; China = 1,931; Europe = Product Categories Covered in the BCG Consumer Sentiment Survey Apparel and Footwear Automotive Vehicles ◊ Sports drinks ◊ Athletic shoes ◊ Cars ◊ Vodka, gin, rum, and whiskey ◊ Branded luxury accessories (such as ◊ Motorcycles ◊ Wine handbags, wallets, and sunglasses) ◊ Tires ◊ Branded luxury apparel (such as dress- Communication Services es and suits) Beverages and Television ◊ Branded luxury jewelry ◊ Baijiu (a Chinese liquor) ◊ Broadband Internet ◊ Branded luxury shoes ◊ Beer ◊ Fixed-phone contracts and services ◊ Branded luxury watches ◊ Bitters ◊ GEZ (German central radio and televi- ◊ Children’s clothing ◊ Bottled water son toll) ◊ Dress watches ◊ Coffee and tea ◊ Internet service providers ◊ Fashion accessories (such as handbags, ◊ Energy drinks ◊ Mobile-phone contracts and services wallets, and sunglasses) ◊ Grappa ◊ Pay TV ◊ Jewelry ◊ Japanese tea ◊ Lingerie ◊ Juices Consumer Electronics ◊ Shoes, not including athletic shoes ◊ Liqueur ◊ Digital entertainment devices (such as ◊ Women’s and men’s clothing ◊ Ready-to-drink tea MP3 players, digital cameras, and game ◊ So drinks W C T  D 
  • 46. Product Categories Covered in the BCG Consumer Sentiment Survey (continued) consoles) ◊ Lighting ◊ Fragrances and perfumes ◊ DVD players ◊ Microwave ovens ◊ Hair-care products ◊ Home entertainment products ◊ Mixers and grinders ◊ Men’s hygiene products (such as shav- ◊ Mobile phones ◊ Refrigerators ing products) ◊ Personal computers ◊ Washers and dryers ◊ Oral care products ◊ Personal-information appliances ◊ Skin-care products and cosmetics ◊ Stereo equipment Home-Related Products ◊ Women’s hygiene products ◊ Televisions ◊ Bath linens ◊ Bathroom décor and remodeling Processed and Frozen Food Financial Services ◊ Bedding ◊ Bakery and pastry products ◊ Car insurance ◊ Cupboards and wardrobes ◊ Biscuits ◊ Credit cards ◊ Floor coverings ◊ Butter and margarine ◊ Financial-planning and investment- ◊ Furniture ◊ Cake mixes management services ◊ Home furnishings and décor ◊ Canned fruits and vegetables ◊ Housing, car, and personal loans ◊ Home or apartment ◊ Canned foods ◊ Life insurance ◊ Kitchen décor and remodeling ◊ Cereal ◊ Mutual funds ◊ Other home-remodeling projects ◊ Chilled products ◊ Painting and wallpaper ◊ Chocolate and candy Fresh and Organic Foods ◊ Condiments and dressings ◊ Bread Household Products ◊ Cooking oil ◊ Cheese ◊ Environment-friendly home-cleaning ◊ Desserts ◊ Dairy products (excluding cheese products ◊ Ethnic foods and eggs) ◊ Home-cleaning products ◊ Frozen bread ◊ Eggs ◊ Household cleaners ◊ Frozen foods ◊ Fish and seafood ◊ Laundry detergent ◊ Frozen meat ◊ Fresh fruits and vegetables ◊ Paper products (such as facial tissues ◊ Ham ◊ Gourmet foods and toilet paper) ◊ Hamburger ◊ Meat ◊ Hot dog sausage ◊ Organic foods Other Products ◊ Ice cream ◊ Salads ◊ Heating fuel ◊ Jam and other spreads ◊ Other dry goods ◊ Meat spreads Health and Beauty Services ◊ Pet-care products ◊ Mortadella ◊ Cosmetic surgery and procedures ◊ Pet food ◊ Prepared meals ◊ Glasses and contact lenses ◊ Sporting equipment ◊ Processed meat ◊ Hair-care services ◊ Ready-to-eat main courses ◊ Health clubs and personal trainers ◊ Ready-to-eat starters Other Services ◊ Manicures and pedicures ◊ Salami ◊ Car rental ◊ Optional medical care and services ◊ Sauces ◊ Domestic help ◊ Oral-care services ◊ Sausage ◊ Funerary services ◊ Spas and spa services ◊ Snack foods ◊ Home-cleaning services ◊ Soup (including dry) ◊ Personal education ◊ Spices and masalas Health Care and Nutritional Products ◊ Postal and shipping services ◊ Staples (such as rice and noodles) ◊ Over-the-counter drugs ◊ Takeout food ◊ Over-the-counter health remedies Out-of-Home Entertainment ◊ Yogurt ◊ Prescription drugs ◊ Entertainment ◊ Vitamins and supplements ◊ Fast-food restaurants Toys and Games ◊ Lotteries and gambling ◊ Toys and games Home Appliances ◊ Sit-down restaurants ◊ Air conditioners, filtration, and Vacation Travel humidifiers Personal Care and Skin Care ◊ Domestic vacation travel ◊ Cookware and Cosmetics ◊ Lodging (such as hotels) ◊ Electric fans ◊ All-natural cosmetics and body-care ◊ Low-cost air carriers ◊ Energy-efficient appliances products ◊ Overseas vacation travel ◊ Exercise equipment and home gyms ◊ Baby care ◊ Food processors ◊ Baby and children’s food ◊ Geysers ◊ Baby education (such as play groups) ◊ Inverters/generators ◊ Bath and body products ◊ Kitchen appliances ◊ Diapers and wipes  T B C G
  • 47. For Further Reading The Boston Consulting Group Collateral Damage, Part 6: Under- Upend the Downturn with publishes other reports and articles estimating the Crisis Strategic Pricing A White Paper by The Boston Consulting Opportunities for Action in Consumer on the economy and consumer Group, April 2009 Markets and Marketing and Sales, sentiment that may be of interest to December 2008 senior executives. Recent examples Collateral Damage, Part 5: include: Confronting the New Realities of a Coping with the Commodities World in Crisis Crisis A White Paper by The Boston Consulting Opportunities for Action in Consumer Group, March 2009 Markets, November 2008 Collateral Damage, Part 4: The Multichannel Imperative Preparing for a Tough Year Opportunities for Action in Consumer Ahead: The Outlook, the Crisis in Markets, September 2008 Perspective, and Lessons from the Early Movers Trading Up and Down Around A White Paper by The Boston Consulting the World Group, December 2008 A report by The Boston Consulting Group, September 2008 Collateral Damage, Part 3: Asia, Advantage, and Action Consumer Segmentation: A White Paper by The Boston Consulting A Call to Action Group, November 2008 A Focus by The Boston Consulting Group, July 2008 Collateral Damage, Part 2: Taking Robust Action in the Face of the Foreign or Local Brands in China? Growing Crisis Rationalism Trumps Nationalism A White Paper by The Boston Consulting A Focus by The Boston Consulting Group, Group, October 2008 June 2008 Collateral Damage, Part 1: What Trading Up, Updated the Crisis in the Credit Markets Opportunities for Action in Consumer Means for Everyone Else Markets, March 2008 A White Paper by The Boston Consulting Group, October 2008 Decoding the Next Billion Consumers Collateral Damage: Function Opportunities for Action in Consumer Focus—Responses for Marketing Markets, November 2007 and Sales in the Global Downturn A White Paper by The Boston Consulting Winning the Hearts and Minds Group, February 2009 of China’s Consumers A Focus by The Boston Consulting Group, Winning in a Downturn: Rapid September 2007 Cash Generation Opportunities for Action in Operations, Looking for Patterns April 2009 Opportunities for Action in Consumer Markets, November 2006 Capturing the Green Advantage for Consumer Companies What Women Want (in Financial A report by The Boston Consulting Services) Group, January 2009 Opportunities for Action in Financial Services, November 2006 W C T  D 
  • 48. Cheap Is Good (Geiz Ist Geil) Books by Michael J. Silverstein Opportunities for Action in Consumer Markets, May 2006 Women Want More: How You Can Better Serve the Needs Treasure Hunt and Desires of the World’s Most BCG Perspectives, May 2006 Demanding Customers Kate Sayre, coauthor Three Faces of Eve: Women (New York: HarperCollins Publishers, Seeking Harmony, Value, and available September 2009) Connection Opportunities for Action in Consumer Treasure Hunt: Inside the Mind of Markets, April 2006 the New Consumer (New York: Portfolio, 2006) Trading Down: Living Large on $150 a Day Trading Up: Why Consumers Want Opportunities for Action in Consumer New Luxury Goods—and How Markets, May 2005 Companies Create Them Neil Fiske, coauthor New Luxury Creators and the (New York: Portfolio, 2003, 2005; Forces That Support Them paperback, 2008) Opportunities for Action in Consumer Markets, April 2004 Trading Up: An Open Space in Financial Services Opportunities for Action in Financial Services, December 2003 Trading Up to New Luxury Opportunities for Action in Consumer Markets, October 2003 The New Luxury: Trading Up and Trading Down Opportunities for Action in Consumer Markets, December 2002 Trading Up: The New Luxury and Why We Need It Opportunities for Action in Consumer Markets, April 2002  T B C G
  • 49. Note to the Reader This report is a product of The Bos- cow office and a member of the Con- Mumbai office and a core member ton Consulting Group’s Consumer sumer practice and the Financial In- of the Consumer practice practice and its Center for Consumer stitutions practice Insight (CCI), which provides world- Abheek Singhi, a partner and man- class consumer-insight capabilities to Patrick Ducasse, a senior partner aging director in BCG’s Mumbai the firm’s clients. Established by the and managing director in the firm’s office and a core member of the Consumer practice and the Market- Paris office and the global leader of Consumer practice ing and Sales practice, the CCI leads the Consumer practice BCG’s proprietary research for publi- Miki Tsusaka, a senior partner and cations on consumer trends and pur- Cliff Grevler, a partner and manag- managing director in the firm’s chasing patterns. As an advisor to ing director in BCG’s Toronto office Tokyo office and the global leader companies in many industries, BCG of the Marketing and Sales practice has long recognized the fundamental Hubert Hsu, a senior partner and value of identifying and leveraging managing director in the firm’s Hong Bernd Waltermann, a senior part- insights into consumer behavior, Kong office and the Asia-Pacific node ner and managing director in BCG’s both for strategy development and for the Consumer practice Singapore office and a core member as a key source of sustainable com- of the Marketing and Sales practice Emmanuel Huet, a senior manager petitive advantage. in BCG’s Paris office and the leader Karin Zimmermann, the global Acknowledgments of the CCI manager for the Consumer practice The authors would like to acknowl- in the firm’s Paris office Kim Wee Koh, the global manager edge the contributions of their col- for the Global Advantage Initiative in The authors would also like to thank leagues: the firm’s Singapore office Samantha Albuquerque, Alexander Jean-Marc Bellaiche, a partner and Bashmakov, Patrick Bauer, Tim Carol Liao, a partner and managing Bercio, Olga Bezrukova, Isabelle managing director in the firm’s Paris director in BCG’s Hong Kong office Börgel, Yogesh Budhiraja, Gregor office and the leader of the Consum- and a core member of the Consumer Dillenius, Sergio Fonseca, Maya er practice’s luxury sector practice Gavrilova, Mark Harris, Bettina Olavo Cunha, a partner and manag- Hoenen, Rieko Izumina, Nimisha Kentaro Mori, a partner and manag- Jain, Kiyofumi Kaneshiro, Boris ing director in BCG’s São Paulo office ing director in the firm’s Nagoya of- Khvostichenko, Michelle Kluz, and a core member of the Consumer fice and a core member of the Con- Jennifer Lam, Vincent Lui, Olga practice and the Technology, Media sumer practice Narvskaia, Federica Padilla, Sergei & Telecommunications practice Plykine, Maria Prüß, Max Pulido, Joel Muñiz, a principal in BCG’s Siddhartha Rajagopalan, Sergio Jésus de Juan, a senior partner and Mexico City office and a core mem- Rentéria, Ulla Rinkes, Christoph managing director in the firm’s Mon- ber of the Consumer practice and Rothballer, Gulnara Sagatova, terrey office the Marketing and Sales practice Toshifumi Sashihara, Lena Sprenger, Stephan Dertnig, a senior partner Ayano Uehara, Jeff Walters, Vero- Anand Raghuraman, a partner and and managing director in BCG’s Mos- nique Yang, Yin Yin, and Danny Yip. managing director in the firm’s W C T  D 
  • 50. Finally, the authors would like to ac- Greater China Spain knowledge Sally Seymour for helping Carol Liao Carlos Costa to write this report and Barry Adler, BCG Hong Kong BCG Barcelona Katherine Andrews, Gary Callahan, +852 2506 2111 +34 93 363 4700 Kim Friedman, Gina Goldstein, liao.carol@bcg.com costa.carlos@bcg.com Sharon Slodki, Sara Strassenreiter, and Janice Willett for contributions India United Kingdom to its editing, design, and production. Anand Raghuraman Marcus Bokkerink BCG Mumbai BCG London For Further Contact +91 22 6749 7000 +44 207 753 5353 For more information, please contact raghuraman.anand@bcg.com bokkerink.marcus@bcg.com one of the following leaders of the practice: Abheek Singhi United States BCG Mumbai Christine Barton Brazil +91 22 6749 7000 BCG Dallas Olavo Cunha singhi.abheek@bcg.com +1 214 849 1500 BCG São Paulo barton.christine@bcg.com +55 11 3046 3533 Italy cunha.olavo@bcg.com Marco Airoldi Mary Egan BCG Milan BCG New York Canada +39 02 65 59 91 +1 212 446 2800 Cliff Grevler airoldi.marco@bcg.com egan.mary@bcg.com BCG Toronto +1 416 955 4200 Japan Michael J. Silverstein grevler.cliff@bcg.bom Miki Tsusaka BCG Chicago BCG Tokyo +1 312 993 3300 France +81 3 5211 0300 silverstein.michael@bcg.com Patrick Ducasse tsusaka.miki@bcg.com BCG Paris +33 1 40 17 10 10 Mexico ducasse.patrick@bcg.com Jésus de Juan BCG Monterrey Germany +52 55 5258 9999 Ivan Bascle dejuan.jesus@bcg.com BCG Munich +49 89 23 17 40 Russia bascle.ivan@bcg.com Stephan Dertnig BCG Moscow Catherine Roche +7 495 258 34 34 BCG Düsseldorf dertnig.stephan@bcg.com +49 2 11 30 11 30 roche.catherine@bcg.com  T B C G
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