The global consumer opportunity: Are irish organisations ready?
 

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The global consumer opportunity: Are Irish organisations ready? is an Economist Intelligence Unit report, sponsored by Accenture Ireland. It examines whether Irish organisations are prepared to take advantage of trends shaping global consumer behaviour. Ronan Lyons was the report author; Jason Sumner was the editor. Trevor McFarlane also contributed to the findings in the report.
To support this study, the Economist Intelligence Unit conducted a survey of 151 executives during April and May 2012. All respondents were based in Ireland. They were split roughly equally between large firms (51% from companies with over US$500m in annual global revenue) and small firms (49% from companies with annual global revenue below US$500m). They held senior positions in their organizations (65% C-level and 35% heads of departments and business units). Most sectors were represented, with the highest shares from financial services (19%), manufacturing (13%), IT and technology (11%) and consumer goods (10%).

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The global consumer opportunity: Are irish organisations ready? Document Transcript

  • 1. The global consumer opportunityAre Irish organisations ready?An Economist Intelligence Unit report commissioned by Accenture Ireland
  • 2. The global consumer opportunity: Are Irish organisations ready? Contents About this report 2 Executive summary and key findings 3 Introduction: Fully prepared or overconfident? 6 Global opportunities: A summary of the five types of consumer 6 Consumer trends: The public-sector response 10 The emerging consumer: Building on B2B strengths 11 The frugal consumer: Here to stay 13 The connected consumer: Not fully engaged 15 The ageing and caring consumers: On the corporate radar 17 Conclusion: Closing the opportunity gap 18 Appendix: Full survey results 191 © The Economist Intelligence Unit Limited 2012
  • 3. The global consumer opportunity: Are Irish organisations ready? About this report The global consumer opportunity: Are Irish organisations To complement the survey findings, the Economist Intelligence ready? is an Economist Intelligence Unit report, sponsored by Unit also conducted wide-ranging desk research and interviews Accenture Ireland. It examines whether Irish organisations are with several executives and experts. Our thanks are due to the prepared to take advantage of trends shaping global consumer following for their time and insights: behaviour. Ronan Lyons was the report author; Jason Sumner l Andrew Algeo, commercial director, Paddy Power was the editor. Trevor McFarlane also contributed to the findings in the report. l Dermot Breen, director of corporate affairs, Tesco Ireland l Jonathan Byrne, director, consumer banking, Bank of Ireland To support this study, the Economist Intelligence Unit conducted a survey of 151 executives during April and May l Damien McLoughlin, professor of marketing, UCD, 2012. All respondents were based in Ireland. They were split Smurfit School roughly equally between large firms (51% from companies l Barry O’Leary, chief executive, IDA Ireland with over US$500m in annual global revenue) and small firms l Gerard O’Neill, chairman, Amárach Research (49% from companies with annual global revenue below US$500m). They held senior positions in their organisations l Robert Watt, head, Department of Public Expenditure and (65% C-level and 35% heads of departments and business Reform, Ireland units). Most sectors were represented, with the highest shares from financial services (19%), manufacturing (13%), IT and technology (11%) and consumer goods (10%).2 © The Economist Intelligence Unit Limited 2012
  • 4. The global consumer opportunity: Are Irish organisations ready? Executive summary and key findings The profile of the global consumer in both consumer trend, even extended frugality is a developed and developing markets will undergo chance to build loyalty and win customers from profound changes in the next decade and rivals through a renewed focus on value. beyond. The Economist Intelligence Unit has distilled these trends into five broad categories— This report assesses whether Irish organisations the emerging consumer, the frugal consumer, are prepared to take advantage of the the connected consumer, the ageing consumer opportunities that these trends represent. How and the caring consumer. All of these trends will do they rate the significance of the trends to offer adept, forward-thinking organisations their future prosperity? How are they planning around the world the chance for expansion to respond through investments, new business by establishing new channels and markets for models and strategies? In what areas are Irish existing products and services, and by developing organisations well placed to react, and where entirely new offerings. do they fall short? The report draws on a survey of 151 Ireland-based executives and in-depth All of the trends carry risks, but there are interviews with executives and experts on significant potential opportunities. By 2030 consumer trends. The key findings from the two-thirds of the world’s “consumer class” will research are as follows. be in the emerging markets of Asia, according to the OECD. Connected consumers also represent Global consumer trends offer significant huge untapped potential—nearly 60% of Internet opportunities for Irish organisations. On users in the EU27 bought goods online in 2010, the evidence of this survey, Irish firms have compared with 32% two years earlier. Such a the confidence that they can and will adapt to massive change in just two years shows that global consumer trends. In some areas, such consumers are flooding into online channels. as responding to the demands of the frugal Alongside this trend, the share of online time consumer, it appears that Irish firms are on spent using social media sites such as Facebook the right track after four years of post-crisis is growing. Half of all Irish adults use social experimentation. Many are now pursuing value- media currently, up from one-quarter just two focused innovation and unique partnerships, years ago, according to Amárach Research, an rather than simply cutting prices. There are Ireland-based market research firm. In addition Irish companies which are demonstrating the to the opportunities provided by the connected results that can be achieved with the right3 © The Economist Intelligence Unit Limited 2012
  • 5. The global consumer opportunity: Are Irish organisations ready? mix of strategy, investment and execution. to doing more business in emerging markets. In other areas, however, such as targeting Having enough personnel is a distant concern emerging markets or connected consumers, expressed by just 14%, despite experts saying more investment and a change in strategy may that having senior personnel on the ground is a be required. primary factor for long-term success. Irish organisations express confidence, Expected investments in online channels may but there is more work to be done to take be too low considering the size of the global maximum advantage of global consumer opportunity, and most Irish organisations are trends. Irish executives in the survey believe not fully engaging with consumers through their organisations are well placed to respond social media. Irish executives expect their effectively to the changing global consumer. organisations to receive an increasing percentage Over 40% believe their organisations are of revenue from digital channels over the next resilient – judging them to be highly effective five years. However, although investments at strategies including moving into new in digital channels are expected to rise, the geographies, acquisitions, partnerships and majority will make only small or moderate investing in new systems. Their confidence increases. In the sample as a whole, about extends to job creation, with respondents one-fifth of respondents say their organisations estimating they will generate a 10% increase in will boost investment in this area by up to 10%, employment owing to changing consumer trends with only about one-third planning to invest over the next five years. Other findings from more than 50% over current levels over the next the survey and interviews with experts suggest, five years. Three organisations interviewed for however, that their readiness is more nuanced. the report, Tesco, Paddy Power and Bank of For example, less than half of respondents say Ireland, demonstrate the potential returns from that decisions about strategically responding to substantial investments in digital channels. Each consumer trends are being taken at board level. also recognises that giving customers a choice of channels is key. Regarding social media, the Almost half of Irish executives say the survey shows that the bulk of organisations emerging consumer is the most important appear to be mainly using the medium to future trend for their organisations, and advertise or broadcast rather than engage. Irish firms need to build on strengths in B2B sectors rather than targeting emerging-market Irish organisations understand the new consumers directly. The survey shows a desire frugality and are taking steps to research the to exploit consumer opportunities in countries needs of cost-conscious consumers and focus such as China and India. Yet traditionally Ireland on value. Many organisations have cut prices is not well set up to sell directly to consumers in in response to more cost-conscious consumers, Asia, and Irish companies probably do not have but 75% of organisations in the survey aim to the resources or scale to attempt the shift. This compete on quality. More than three-quarters is not necessarily a drawback, because Irish firms are also developing new products and services are strong in business-to-business (B2B) sectors for cost-conscious consumers or are marketing such as food products, engineering and business existing products and services in new ways and services. They have the potential to feed the collecting data and information about customers supply chain that reaches hundreds of millions of to better understand their needs. Experts say end-consumers in emerging markets. They also that the response of Irish organisations has see operational challenges, with 43% of Irish evolved over the last five years, with many cutting organisations surveyed viewing local competition prices at the outset of the downturn. After and cultural barriers as their biggest obstacles finding that this reduced margins and the ability4 © The Economist Intelligence Unit Limited 2012
  • 6. The global consumer opportunity: Are Irish organisations ready? to invest in innovation or marketing, companies are now looking at alternative ways to deliver value to the customer. Most organisations are attempting to integrate ageing and caring consumer trends into their strategy or investment plans. Although these trends are seen as number one priorities by fewer executives, almost 60% of survey respondents say their overall corporate strategy will take the ageing consumer into account over the next five years. Regarding the caring consumer, although experts and executives interviewed for this report believe the effect of this trend has been somewhat muted by the rise of the frugal consumer, respondents appear to believe that investments are required even in austere times. According to over three-quarters of respondents, investment in corporate social responsibility will increase.5 © The Economist Intelligence Unit Limited 2012
  • 7. The global consumer opportunity: Are Irish organisations ready? Introduction Fully prepared or overconfident? consumers are also caring consumers, and their choices will continue to be influenced to some degree by their impact on the environment. In The new global consumer the developing world, where overall economic In Western economies the financial crisis has growth remains relatively strong, hundreds of had a dramatic dampening effect on consumer millions of new consumers are poised to enter the demand, and even when confidence begins to marketplace looking for previously unaffordable grow again, the psychological hangover is likely goods and services. They too will take part to last much longer. In the midst of this new in the digital revolution, often leapfrogging frugality, however, the consumer is becoming fixed lines in favour of mobile connections and more empowered through online purchasing, smartphones. In addition, in the next 20 to browsing and interacting with favourite brands. 30 years in most regions there will be a higher Increasingly this interaction will happen at any percentage of customers aged over 65, with time and anywhere through the proliferation important consequences for the way products of mobile, smart devices. Frugal, connected and services are developed and marketed. Global opportunities: A summary of the five types of consumer The Economist Intelligence Unit has distilled for about 23% of global consumer spending, global consumer trends into the following five and the OECD estimates that this could double broad categories: emerging, frugal, connected, by 2020. ageing and caring. When asked to prioritise their importance, respondents said that growing The frugal consumer disposable incomes in emerging markets such Much of the developed world is emerging as China and India are most significant for their from—or is indeed still in—a balance-sheet business, followed by the frugal consumer and the recession, with high levels of household and connected consumer. The ageing consumer is a government debt. Thus, growth in consumer top priority for only about one in ten respondents, expenditure among advanced economies will with only 3% prioritising the caring consumer be weak over coming years. In Ireland, private (see Chart 1). consumer expenditure is expected to fall for six years straight, from 2008 until 2014.2 The emerging consumer According to the Economist Intelligence Unit, In 2013 emerging-market economies will, for the real personal incomes are expected to drop a first time in the modern era, make up more than further 1% in 2013, before flattening out to 1 Figures based on GDP in half the world economy.1 According to the OECD, less than 1% growth until 2016. terms of purchasing power parity, IMF World Economic Asia accounts for 28% of the world’s “consumer Outlook, April 2012. class” today (defined as having a per-head income The connected consumer of US$10 to US$100 per day in purchasing power The world’s commerce continues to move 2 Based on CSO National parity terms), and by 2020 that share will double. online, and much of these transactions Income Accounts and By 2030 two-thirds of the world’s consumer class are increasingly taking place over mobile ESRI Quarterly Economic will be in Asia. This group in Asia today accounts devices. JP Morgan estimates that in 2012 Commentary, Q1 2012.6 © The Economist Intelligence Unit Limited 2012
  • 8. The global consumer opportunity: Are Irish organisations ready? Chart 1 Which of the following consumer trends is likely to be most important for your organisation to address? (% respondents; results by whole sample and by sector) Emerging Frugal Connected Ageing Caring All 42% 25% 21% 9% 3% Consumer goods & retail 55% 23% 18% 5% Life sciences & manufacturing 51% 17% 11% 14% 6% Financial services 43% 29% 29% Other internationally traded services 38% 15% 35% 9% 3% Primary & construction 24% 39% 12% 15% 9% global e-commerce revenue, at US$963bn, will life expectancy means there will be a powerful be two-thirds higher than in 2010.3 In Ireland, new group of consumers with their own needs 63% of residents were Internet users in 2010, and preferences. In a consumer market that is according to Eurostat. Less than five years after budget-conscious overall, the importance of the launch of the first iPhone, smartphones now the so-called grey euro – free from mortgage make up over half the European mobile-phone repayments and dependent children – will be market and almost two-thirds of the North vast, with an impact across sectors. 3 http://www.catalog-biz. American market.4 In Ireland, 37% of mobile com/articles_details. phones were smartphones in 2011, according to Amárach Research. Social networks are also The caring consumer asp?DocId=3210 revolutionising the way in which consumers From Fairtrade labels and carbon miles to 4 Source: http:// interact with customers, and penetration in socially responsible investment, consumers thenextweb.com Ireland is particularly high. Forty-five percent of are ever more aware of the power behind their Irish consumers are on Facebook, 10% higher than expenditure. Given the tumultuous last five 5 Source: http://blog. the EU average,5 and globally Ireland is number years for the world economy, it would be easy comscore.com/2010/09/ two in terms of LinkedIn penetration.6 In total, to miss the changes that have been occurring linkedin_crossing_borders. 50% of Irish adults use social networks currently, in the attitude of the caring consumer. The html a figure that has doubled in the past two years, Fairtrade label grew by 40% a year in the first according to Amárach. decade of the 21st century, while socially 6 Source: http://www. responsible investing (SRI) now accounts for internetworldstats.com/ US$2.5trn in the US—or about one in every europa.htm The ageing consumer ten dollars—and for €1.6trn in Europe.8 A According to the World Health Organisation 2009 survey of Irish consumers by Ipsos and (WHO), in the half-century to 2050 the world’s Business in the Community Ireland, a non- 7 Source: http://www.who. over-60 population will more than triple from profit business network, showed that corporate int/features/qa/42/en/ 600m to 2bn, or nearly one in four people.7 In social responsibility qualities such as “respect index.html Ireland, the number of people aged 65 and over for human rights” and “environmental 8 Source: http://www-935. as a ratio of the labour force (those between 15 practices and impact” were more important ibm.com/services/us/gbs/ and 64) was 17% in 2010, and is expected to rise to consumers when forming judgments about bus/pdf/gbw03024-usen- to 40% by 2050, according to Eurostat. Greater companies than two years previously. 00-megatrends.pdf7 © The Economist Intelligence Unit Limited 2012
  • 9. The global consumer opportunity: Are Irish organisations ready? Expressing confidence investment and job creation. Almost all (97%) of The executives in the survey are confident that respondents believe that their organisations are their organisations are prepared to target the highly or somewhat effective at investing in new new types of consumer. Almost half of those systems, distribution channels, supply chains surveyed believe their organisation is “very and data management to deal with the changing prepared” to respond effectively to the rise of consumer. Almost half of those surveyed believe the emerging-market consumer over the next their organisations are “highly effective” five years (see Chart 2). Almost 40% say the at moving into new geographies, sectors or same about the frugal consumer. By comparison, targeting different age groups. Fewer, however, confidence drops slightly for the other three are confident when it comes to acquisitions, categories in the research, but overall a large unique partnerships and new lines of business, majority believes their organisations are either or conducting market research to anticipate somewhat or very prepared. When asked to consumer trends (see Chart 3). rate their readiness compared with rivals, respondents tell a similar story. Very few Almost all respondents expect employment to executives believe their organisations are less increase over the next five years as their business prepared than their competitors. expands to cater to new types of consumers (see Chart 4). The 151 organisations represented Signalling self-assurance: Response in the survey are responsible for an estimated extends to investment in systems range of 65,000 to 133,000 jobs in Ireland. Their and jobs expectations for job creation over the next five This self-assurance also extends to respondents’ years as a result of expansion in response to view of business strategies such as restructuring, consumer trends amount to an approximate 10% Chart 2 How prepared do you feel your organisation is to respond effectively to each of the following consumer trends over the next five years? (% respondents) Very prepared Somewhat prepared Neither prepared nor unprepared Somewhat unprepared Very unprepared 47% 38% 39% 47% 34% 52% 11% 13% 11% 3% 1% 2% 1% Emerging consumer Frugal consumer Connected consumer 25% 52% 56% 20% 22% 19% 2% 1% 1% 1% Caring consumer Ageing consumer8 © The Economist Intelligence Unit Limited 2012
  • 10. The global consumer opportunity: Are Irish organisations ready? Chart 3 In general, how effective is your company currently at managing the following aspects of dealing with changing consumer trends? (% respondents) Highly effective Somewhat effective Not at all effective 47% 48% 42% 54% 40% 57% 5% 2% 2% Moving into new markets Anticipating the impact of consumer Investing in new systems, distribution (geographic, sectoral or demographic) trends on the business channels, supply chains and data to target the new type of consumer management capabilities to target the new type of consumer 38% 57% 31% 64% 4% 3% Collecting information/R&D about Convergence - M&A activity, competitor new types of consumers intelligence/partnering with other businesses to better target and serve the new type of consumer Chart 4 increase over current figures, which would lead to the creation of between 6,500 and 13,000 Do you expect that your organisation new jobs. Companies such as the bookmaker is likely to create jobs through business expansion in order to meet Paddy Power reveal the potential for significant demand from new types of consumers numbers in Ireland, especially to support online during the next five years? offerings (see “The connected consumer” (% respondents) section). Although these figures are estimates Yes, more than based on an opinion survey and not a rigorous 500 jobs 5% economic forecast, they represent a significant Yes, 100 to vote of confidence in respondents’ own ability to 500 jobs 7% react successfully. Yes, 50 to 100 jobs 19% Yes, 10 to Beyond the self-assessment 50 jobs 28% In general, the survey respondents’ self- Yes, 1 to 10 jobs 36% assessment paints the picture of nimble, opportunistic organisations fully ready to address No jobs created/ not applicable 6% the benefits of the new consumer. How accurate is this analysis? There is no doubt that many9 © The Economist Intelligence Unit Limited 2012
  • 11. The global consumer opportunity: Are Irish organisations ready? Ireland-based organisations are taking the right whole are perhaps less prepared than they steps to respond to the trends outlined in this could be. An example is the level at which report. Tesco has been expanding significantly consumer issues in general are being considered. into non-food areas, both in‑store and online, According to less than half of respondents, their and is moving into non-traditional sectors such boards of directors or executive management as insurance and banking. Paddy Power has made teams are primarily responsible for reacting use of strategic partnerships and, in one case, to changing consumer trends. Instead, most acquisition (acquiring Bulgarian games developer activity is taking place in sales, marketing and Cayetano in 2011) in order to expand its digital customer services areas. offering. Still, the survey and interviews reveal specific areas where Irish organisations as a Consumer trends: The public-sector response For the public sector, although most citizens are in citizen-facing initiatives and back-office keen to be “frugal taxpayers”—receiving ever improvements, is key to helping the public greater value for the money they contribute to the sector deliver services more efficiently. For state—there is no such thing as a frugal consumer, the public sector, the ageing population says Robert Watt, head of Ireland’s Department will also have big implications, according to of Public Expenditure and Reform. And if Mr Watt, and the public sector will need to anything, the needs of public-sector consumers continue exploring more effective models for have grown in recent years. This is where the delivering age-related services. connected consumer comes in. Technology, both10 © The Economist Intelligence Unit Limited 2012
  • 12. The global consumer opportunity: Are Irish organisations ready? 1 The emerging consumer: Building on B2B strengths Destination India and China targeting consumers in China directly, according Among the trends explored in this report, to Damien McLoughlin, professor of marketing at UCD’s Smurfit School. “It would be insane It would be respondents see the emerging consumer as their biggest priority. India and China, each home to for Irish firms not to think about participating insane for Irish more than 1bn consumers, are far and away the in the Chinese economy, but they need to go firms not to most important markets (see Chart 5). However, about it in a different way,” he says. He points think about if Ireland’s exporters were to target the emerging out that the largest consumer firms in the world consumer directly, this would require a dramatic have gone to China and not achieved the market participating shift in the country’s export patterns. “Ireland leadership they anticipated because they did not in the Chinese currently acts as a gateway to the Europe, Middle differentiate their products in the local market. economy, but East and Africa (EMEA) region rather than the The companies that have been successful have spent considerable resources ensuring that they need to east,” says Barry O’Leary, chief executive of IDA Ireland, the inward investment agency. Although their offerings are sufficiently localised. “KFC is go about it in a Ireland’s exports to emerging markets have the most successful consumer brand in China, different way. grown substantially over the last 15 years, they but a Westerner wouldn’t recognise the menu,” have been driven by business-to-business (B2B) Professor McLoughlin says. Irish firms generally exports, such as chemicals, pharmaceuticals do not have the scale or resources to compete Damien McLoughlin, or medical devices, not goods for consumers. directly in consumer markets and should think in professor of Currently, only 12% of Ireland’s total exports terms of supplying to other Chinese or Western marketing, UCD to its top six emerging markets are consumer brands; a model that would lend itself to a range Smurfit School goods. For example, Irish exports to China have of sectors in Ireland, including food, software, been a growth story, rising from US$1.1bn in consulting, engineering or medical devices. 2005 to US$2.2bn in 2010, but the vast bulk is intermediate goods, a similar pattern to that Committing the right personnel seen in other emerging economies. Although respondents see potential in emerging markets, they see challenges as well, including Road to success: Focus on B2B competition from local business and cultural opportunities barriers. Having enough personnel is regarded Irish companies would be wise to build on B2B as much less of an issue, with only 14% of strengths rather than attempting to switch to respondents listing it as the most important11 © The Economist Intelligence Unit Limited 2012
  • 13. The global consumer opportunity: Are Irish organisations ready? Chart 5 challenge. This is despite Professor McLoughlin’s opinion that having the right people in place on the ground is the most important success Where will your most important factor: “You have to have serious representation in the country, either a emerging market consumers be in local executive appointed to a position of responsibility or a high-level five years? (Points awarded)* executive from outside the country. For example, Chinese nationality is not an issue, but seniority is—they must be seen to have authority. Learn the India 99 language, buy an apartment, bring the family, read the local newspaper. Be genuine.” Once there, the senior executive must hire local people who are China 94 not seen as functionaries, but are recognised as playing an important role in Russia 46 the company. South Africa 29 Brazil 28 Mexico 28 Poland 25 Chile 16 Argentina 13 Hungary 13 UAE 13 Malaysia 10 Czech Rep 9 Egypt 9 Slovakia 8 Colombia 7 Romania 6 Morocco 4 Kuwait 3 Latvia 3 Lithuania 3 Qatar 3 Bahrain 2 Estonia 2 Philippines 2 Indonesia 1 Sri Lanka 1 Thailand 1 *Note: The survey asked respondents to identify three emerging markets where they expect to be doing business in the next five years. First choices were awarded 3 points; second choices 2 points and third choices 1 point.12 © The Economist Intelligence Unit Limited 2012
  • 14. The global consumer opportunity: Are Irish organisations ready? 2 The frugal consumer: Here to stay The decade between 2007 and 2017 is likely to O’Neill, chairman of Amárach Research. “The be remembered as a period of global economic initial response was to perennially reduce prices and financial insecurity, and to survive, and make better offers like ‘buy one, get one New habits like organisations across sectors know they must free’,” Mr O’Neill says. “The problem is that they frugality are respond. The survey shows that organisations dug themselves into a hole by reducing their here to stay. are adapting their offerings to appeal to more own margins to boost volumes. Then without There is a clear frugal consumers. The executives and experts margin, there were no profits to invest in interviewed for this report also believe that after marketing and innovation.” shopping trend four years of experience with this trend, Irish towards value organisations as a whole are on the right track. This is changing now, according to Mr O’Neill, because companies realise that they neglected products. the pipeline of next-generation products that Understanding the cost-conscious will drive future revenue. In austere times, consumer however, they are looking for more cost- Dermot Breen, director Clearly, price is critical to reach the more effective ways to innovate; collaborating of corporate affairs, Tesco Ireland cost-conscious, and the survey shows that with competitors, for example, or partnering most organisations have already cut prices or with university researchers. The wide range are thinking about doing so in the near future. of companies that Amárach works with have However, three-quarters of organisations aim addressed the more cost-conscious consumer to compete on quality, a higher proportion in three ways: attempting to invent innovative than those who say they will compete on price. products for which consumers will still pay a Three-quarters are developing new products, premium (the iPad model); targeting segments services and channels for cost-conscious less affected by the recession, such as the over- consumers and marketing existing products 50s, who have been relatively insulated from the and services in new ways (see Chart 6). In downturn, as well as under-25s, who, because addition, three-quarters of survey respondents they are more likely to be still living at home, are already collecting data and information have more discretionary income; and using about the needs of cost-conscious consumers to concepts such as differentiated offerings to, for better understand their priorities. The survey example, introduce a range of food products at results square with how the response of Irish different prices in order to allow consumers to companies has evolved, according to Gerard trade up and trade down as they wish.13 © The Economist Intelligence Unit Limited 2012
  • 15. The global consumer opportunity: Are Irish organisations ready? Prioritising value at Tesco and The new frugality became abundantly clear Paddy Power to Paddy Power, when its customers’ average Tesco Ireland responded to the frugal consumer bet size dropped by 35% in three years, trend by launching a new budget product from €23.58 in 2008 to €15.26 in 2011. The range across the UK and Ireland under the company recognised that “value was becoming banner “Everyday Value”. The company has disproportionately important to customers”, also recognised consumer preferences for more according to Andrew Algeo, Paddy Power’s cooking and baking at home, and particularly commercial director. In response Paddy Power eating in, and has launched popular “meal has expanded a number of its value promotions, deals” to appeal to this growing market. including money-back specials, in which the The underlying message of these initiatives company pays out for select bets, even when prioritises value, with as much emphasis on the customer has bet the other way. Likewise, quality as on low prices, says Dermot Breen, “justice payments” for bad refereeing calls Tesco Ireland’s director of corporate affairs. have been successful tools to expand the “New habits like frugality are here to stay,” customer base to make up for the reduction in says Mr Breen. “There is a clear shopping trend average spend. towards value products.” Chart 6 Is your organisation currently taking any of the following actions to respond effectively to more cost-conscious consumers, or planning to during the next five years? (% respondents) Currently doing this Not currently doing this but planning Not currently doing this and no to in the next five years plans to in the next five years 77% 77% 15% 17% 5% 5% Collecting data and information about Developing new products, services and needs of cost-conscious consumers to channels for cost-conscious consumers better understand their priorities 72% 43% 44% 23% 11% 5% Marketing existing products and services Cutting prices of existing products in new ways for cost-conscious consumers and services (eg emphasising value-for-money, instituting loyalty programmes)14 © The Economist Intelligence Unit Limited 2012
  • 16. The global consumer opportunity: Are Irish organisations ready? 3 The connected consumer: Not fully engaged More investment needed? Offering multiple channels at Tesco and The survey suggests that digital channels will Bank of Ireland What will become more important for Irish organisations For Tesco Ireland, although online food shopping over the next five years, and most will boost currently accounts for about 1.5% of its total differentiate investment to some degree. In terms of food sales in Ireland, the figure is growing banks is importance, almost 20% of executives in the rapidly, at 25% per year, according to Mr Breen, the ability survey expect their organisations to receive director of corporate affairs. The amount of up to half of their revenue through online non-food items sold online is also expanding. to use all of channels in five years, double the percentage “We are continuously refining the offer,” he the various of organisations that do so now (see Chart 7). says, by adding delivery slots and expanding the channels These respondents are planning to invest more number of stores that operate online deliveries. to allow in digital offerings over the next five years The online service currently covers 84% of Irish than the total sample. However, given the customers, and the company is planning to customers to explosive growth of online buying, browsing and continuously expand this figure over the next interact with interacting through the web, mobile phones, few years. them in a way email and social networking channels such as Facebook and Twitter—in Ireland and throughout Digital channels are crucial to the Bank of that is adding the world—the survey raises a question-mark Ireland as well. Jonathan Byrne, its director value for the over whether Irish organisations, as a whole, of consumer banking, sees choice of channel customer. are committing enough resources to meet the and the development of new channels as a demand. In the sample as a whole, regarding key differentiator. “Being online is a basic levels of investment in digital channels to reach requirement for banking,” he says. “What will customers, about one-fifth of respondents say differentiate banks is the ability to use all of the Jonathan Byrne, director of consumer their organisations will make only small increases various channels to allow customers to interact banking, Bank of (up to 10%). A further 38% say they will make with them in a way that is adding value for the Ireland customer.” Earlier this year Bank of Ireland investments of between 10% and 50%, with only about one-third planning to invest more than launched a mobile application for use on iPhones 50% over current levels. and Android, while the bank also operates15 © The Economist Intelligence Unit Limited 2012
  • 17. The global consumer opportunity: Are Irish organisations ready? Chart 7 What portion of your organisation’s revenue comes through digital channels Digital (web, mobile, social media)? channels are (% respondents) absolutely Now In five years vital for Paddy Power. All 0% 2% Approximately up to or exceeding one half 7% 18% Andrew Algeo, commercial director, Paddy Power Approximately up to one quarter 66% 62% None 27% 19% 270 branches, a phone banking service as well activities (customer service, digital marketing, as a “mobile mortgage manager” initiative, customer security, payments and the technical in which advisers travel to a location of the team) has doubled to 650 people from 2009 to customer’s preference. 2011. Of the 60 people either reporting directly to the CEO or reporting to those just below the CEO, Power of digital at Paddy Power three-quarters are either new to Paddy Power or Paddy Power provides some perspective on the new to their current role. “They bring new ideas investments required and the returns that can and new ways to think about the e-commerce be expected when the strategy falls into place. business and the bandwidth to execute the idea,” “Digital channels are absolutely vital for Paddy according to Mr Algeo. These jobs, while based Power,” says its commercial director, Mr Algeo. in Dublin, are allowing the organisation to fulfil In 2011 some 1.1m customers transacted with consumer demand in overseas markets. Paddy Power through digital channels (online or mobile), up 35% over 2010. The growth in Social media: More than a one-way earnings from digital has been just as dramatic. channel In 2004, 28% of the company’s EBIT (earnings There is little evidence from the survey that before interest and tax) came from digital most Irish organisations are as yet taking full channels instead of its betting shops; by 2008 advantage of both the wealth of channels of this figure had risen to 57%, and by 2011 Paddy communication and the opportunity to connect Power received 79% of group EBIT from digital and engage through social media. Over half channels. And “digital” is rapidly switching from of respondents use social media to promote just “online” to “mobile” – with revenue from products, but most organisations also seem to smart devices quadrupling from 2010 to 2011. view social media as primarily a one-way channel of communication and a source of competitive Paddy Power’s primary investment has been to intelligence, rather than a way of engaging the bring digital expertise in-house, Mr Algeo says. consumer to deepen brand strength. The number of people engaged in e-commerce16 © The Economist Intelligence Unit Limited 2012
  • 18. The global consumer opportunity: Are Irish organisations ready? 5 The ageing and caring consumers: On the corporate radar Although the ageing and caring consumer somewhat muted by the frugal consumer trend. trends are seen as number one priorities by At the same time, respondents also appear fewer executives in the survey than for the to recognise that even in an austere period, other three categories, most organisations are consumers wish to see organisations sourcing attempting to integrate them into their strategy products and services in a sustainable way or investment plans. and doing good in the community. Over three- quarters of respondents expect investment Ageing consumer: At the strategic level in corporate social responsibility to increase. Almost 60% of those surveyed say that their overall According to Mr Breen of Tesco Ireland, ethical corporate strategy will take this issue into account considerations tend to be more important for over the next five years. This makes some sense in customers with older children who have left that the ageing consumer is for most organisations home, as well as younger consumers who still live a longer-term trend than the other four categories at home with their parents. As a result, Tesco has in the research (although immediately relevant an active corporate responsibility programme, to healthcare and pharmaceuticals). Sectors involving donations to community charities as diverse as leisure and tourism, food and and supporting environmental programmes. beverages, technology and fast-moving consumer Bank of Ireland also has a charitable investment goods will eventually be affected, however, and programme; however, Mr Byrne, its director of Irish firms should be prepared. Globally, firms such consumer banking, believes that the number one as Intel, General Electric, Danone and Philips have priority for the banking sector is to demonstrate already set up dedicated research efforts to better that banks “do banking well”. “By proving you do understand older consumers, from nutritional that through actions rather than words will give needs to retirement plans. you a mandate to go beyond that,” he says. Caring Consumer: Investing in austere times Experts interviewed for this report believe that the effect of the caring consumer has been17 © The Economist Intelligence Unit Limited 2012
  • 19. The global consumer opportunity: Are Irish organisations ready? Conclusion Closing the opportunity gap self-belief and facts on the ground. The growth of emerging markets, from India to China, is a The changing consumer offers huge top priority for Irish organisations. However, opportunities for Irish organisations. On the respondents themselves see challenges in this evidence of this survey, one attribute Irish firms area, and Irish firms should focus on B2B sectors do not lack is confidence that they can and will rather than targeting consumers directly in these adapt. In some areas their confidence appears fast-growth regions. The survey also appears indeed justified—the survey and interviews to show a possible lack of necessary investment suggest that Irish organisations are responding in digital channels or attention to the social to frugal consumers by researching their needs media strategy. and introducing new value-focused products and services to appeal to them. Most organisations It is clear that Irish organisations have work in the survey say they will incorporate the rise to do if they are to take full advantage of the of the ageing consumer into their corporate opportunities presented by a changing consumer strategy, and even in the midst of austerity landscape. But the good news is that there are many plan to boost investments in corporate a number of companies that have demonstrated social responsibility. the results that can be achieved with the right combination of strategy, investment, execution It is important, however, that confidence and innovation. translates into action. In some areas there appears to be a gap between respondents’18 © The Economist Intelligence Unit Limited 2012
  • 20. The global consumer opportunity: Are Irish organisations ready? Appendix Are you personally based in Ireland? (% respondents) Yes 100 Thinking about the next five years, which of the following consumer trends is likely to be most important for your organisation to address? Please choose one answer only. (% respondents) Emerging consumer (growing middle classes in emerging markets such as China, India, others) 42 Frugal consumer (extended period of restrained consumer spending overall; focus on value-for-money) 25 Connected consumer (increase in online/mobile/social networking for buying decisions, browsing and interaction with organisations) 21 Ageing consumer (consumer demographic becoming increasingly older) 9 Caring consumer (growing concern about ethical purchasing and how consumption choices affect the environment and society) 3 How prepared do you feel your organisation is to respond effectively to each of the following consumer trends over the next five years? Please choose one answer in each row. (% respondents) Very prepared Somewhat prepared Neither prepared nor unprepared Somewhat unprepared Very unprepared Don’t know Frugal consumer (extended period of restrained consumer spending overall; focus on value-for-money) 39 47 13 1 Ageing consumer (consumer demographic becoming increasingly older) 22 56 19 1 1 2 Connected consumer (increase in online/mobile/social networking for buying decisions, browsing and interaction with organisations) 34 52 11 2 1 Caring consumer (growing concern about ethical purchasing and how consumption choices affect the environment and society) 25 52 20 2 1 1 Emerging consumer (growing middle classes in emerging markets such as China, India, others) 47 38 11 3119 © The Economist Intelligence Unit Limited 2012
  • 21. The global consumer opportunity: Are Irish organisations ready? In general, do you feel your organisation is more prepared or less prepared than its competitors to respond effectively to the following consumer trends over the next five years? Please choose one answer in each row. (% respondents) More prepared than our competitors Equally prepared as our competitors Less prepared than our competitors Don’t know Frugal consumer (extended period of restrained consumer spending overall; focus on value-for-money) 45 49 51 Ageing consumer (consumer demographic becoming increasingly older) 26 62 9 3 Connected consumer (increase in online/mobile/social networking for buying decisions, browsing and interaction with organisations) 37 56 51 Caring consumer (growing concern about ethical purchasing and how consumption choices affect the environment and society) 26 65 5 3 Emerging consumer (growing middle classes in emerging markets such as China, India, others) 48 46 3 3 Where do the primary activities take place currently in your organisation to respond effectively to changing consumer trends in general? Select up to three. (% respondents) Sales & marketing 62 Customer service 52 Corporate strategy (management team/board of directors) 48 Product development/R&D 46 Information technology 26 Competitor intelligence 25 Other, please specify 0 Is your organisation currently taking any of the following actions to respond effectively to more cost-conscious consumers, or planning to during the next five years? Please choose one answer in each row. (% respondents) Currently doing this Not currently doing this but planning to in the next five years Not currently doing this and no plans to in the next five years Don’t know Collecting data and information about needs of cost-conscious consumers to better understand their priorities 77 15 5 2 Developing new products, services and channels for cost-conscious consumers 77 17 51 Marketing existing products and services in new ways for cost-conscious consumers (ie emphasising value-for-money, instituting loyalty programmes) 72 23 51 Cutting prices of existing products and services 43 44 11 2 What is the best way for your organisation to compete for the more frugal consumer over the next five years? Select all that apply. (% respondents) On quality (value for money) 75 On price 70 Customer service 64 Innovative "must have" products 52 Price differentiation and scalability (scaling up or scaling down through bespoke add-ons) 40 Value-add services around the core product or service 40 New channels eg, digital 3220 © The Economist Intelligence Unit Limited 2012
  • 22. The global consumer opportunity: Are Irish organisations ready? In what ways is your organisation likely to take ageing consumers into account over the next five years? Select all that apply. (% respondents) Overall corporate strategy 59 Training sales forces in understanding the needs of older customers 56 Creating entirely new products or services with older customers in mind 44 Conducting research into the potential needs of older customers 42 Creating marketing campaigns targeted at older customers 39 Adapting existing products to suit older customers 34 Focusing on distribution channels tailored to older customers 32 Other, please specify 0 My organisation is not likely to take this trend into account over the next five years 8 To your knowledge, which of the following best describes your organisations plans for the channels it uses to interact with customers (selling or marketing)? Please select one in each row. (% respondents) Increase use of this channel over the next five years Decrease or stop use of this channel over the next five years Don’t know In person (stores/outlets) 81 15 3 Telephone/call centre 73 25 3 Online (email/website) 91 7 2 Social media (Facebook, Twitter, etc) 57 39 4 Digital advertising 68 27 5 Mail 42 54 4 TV, press, radio and outdoor advertising 49 44 7 Instant messaging services 60 34 5 Internet/mobile apps 60 37 3 What are the biggest risks for your business associated with ageing consumers? Select up to three. (% respondents) Cost of developing new products and services for older consumers 48 Falling demand due to reduced consumption levels among older consumers 46 Lack of relevance of our products and services to older consumers (over 65) 30 Lack of understanding in our business about the needs of older consumers 15 Other, please specify 1 None, we see no such risks 1321 © The Economist Intelligence Unit Limited 2012
  • 23. The global consumer opportunity: Are Irish organisations ready? To your knowledge, approximately what percentage of your organisations revenue comes through digital channels (web, mobile, social media) currently? (% respondents) None 27 Approximately up to one quarter 66 Approximately up to or exceeding one half 7 All 0 To your knowledge, approximately what is your best estimate for the percentage of your organisations revenue that will come through digital channels (web, mobile, social media) five years from now? (% respondents) None 19 Approximately up to one quarter 62 Approximately up to or exceeding one half 18 All 2 To the best of your knowledge, which of the following activities does your organisation engage in on social media sites? Select all that apply. (% respondents) Promote products and services to strengthen the brand 56 Provide customer service (eg, monitor and address customer enquiries or problems) 51 Collect competitive information 50 Collect customer data 50 Sell our products and/or services 41 Purchase advertising for products and services 31 Offer coupons/loyalty programmes or other purchase incentives 25 Monitor customer comment/engage in dialogue with customers 23 Other, please specify 0 We have no active participation 1522 © The Economist Intelligence Unit Limited 2012
  • 24. The global consumer opportunity: Are Irish organisations ready? To the best of your knowledge, which of the following digital channels does your organisation use to communicate with customers? Select all that apply. (% respondents) Email/SMS 78 Interactive features on company website 71 Social networking sites (Facebook, Linked In, Twitter, Google +, etc) 38 Replying to customer comments and reviews on external websites 31 In-app messaging 28 YouTube 18 Blogs 13 Other, please specify 0 We do not use digital channels to communicate with our customers 7 Applying your best estimate, which of the following describes your organisations likely plans over the next five years for investment in digital channels to reach customers? Please select one answer only. (% respondents) Increase significantly (more than 100%) 13 Increase moderately (50% to 100%) 23 Increase somewhat (10% to 50%) 38 No change or very small increase (0-10%) 21 Decrease 1 Dont know 3 To the best of your knowledge, which aspects of corporate responsibility programmes do you think will be most important for your customers during the next five years? Please choose one answer only. (% respondents) Products and services sourced sustainably (ie, no child labour, good factory conditions, etc) 36 The organisation being seen to do good in the community (ie, philanthropy, sponsorship) 25 The organisation is seen as an employer of choice (ie, offers additional benefits and opportunities to employees) 21 Consuming environmentally sustainable materials (recyclable, biodegradable, energy-efficient, etc) 17 Dont know 223 © The Economist Intelligence Unit Limited 2012
  • 25. The global consumer opportunity: Are Irish organisations ready? Applying your best estimate, what do you expect will be your organisations likely investment plans for corporate social responsibility programmes? Please select one answer only. (% respondents) Increase significantly (more than 100%) 9 Increase moderately (50% to 100%) 22 Increase somewhat (10% to 50%) 42 No change or very small increase (0-10%) 22 Decrease 1 Dont know 2 My organisation does not have a corporate social responsibility programme 2 Please indicate where your most important markets are currently. (% respondents) Western Europe 77 Asia-Pacific 40 Eastern Europe 23 North America 19 Middle East and Africa 19 Latin America 17 Please indicate where your most important markets will be in the next five years. (% respondents) Western Europe 75 Asia-Pacific 44 Eastern Europe 26 Middle East and Africa 22 North America 19 Latin America 1924 © The Economist Intelligence Unit Limited 2012
  • 26. The global consumer opportunity: Are Irish organisations ready? Emerging market we expect to be doing the most business with over the next 5 years (% respondents) China 17 India 13 Russia 7 South Africa 5 Brazil 4 Mexico 3 Argentina 2 Hungary 2 Malaysia 2 Poland 1 Slovakia 1 United Arab Emirates 1 Chile 1 Colombia 1 Czech Republic 1 Egypt 1 Kuwait 1 Morocco 1 Qatar 1 Romania 1 Other emerging market 32 Not applicable 425 © The Economist Intelligence Unit Limited 2012
  • 27. The global consumer opportunity: Are Irish organisations ready? Emerging market we expect to be doing the second most business with over the next 5 years (% respondents) India 15 China 6 Poland 5 Brazil 5 Chile 3 Mexico 3 Russia 3 Argentina 2 South Africa 2 United Arab Emirates 2 Czech Republic 1 Egypt 1 Bahrain 1 Colombia 1 Hungary 1 Romania 1 Slovakia 1 Other emerging market 15 Not applicable 3226 © The Economist Intelligence Unit Limited 2012
  • 28. The global consumer opportunity: Are Irish organisations ready? Emerging market we expect to be doing the third most business with over the next 5 years (% respondents) Mexico 5 Russia 4 China 3 India 3 Brazil 2 Chile 2 Poland 2 South Africa 2 Colombia 1 Czech Republic 1 Egypt 1 Estonia 1 Hungary 1 Philippines 1 United Arab Emirates 1 Indonesia 1 Malaysia 1 Morocco 1 Romania 1 Sri Lanka 1 Thailand 1 Other emerging market 5 Not applicable 5927 © The Economist Intelligence Unit Limited 2012
  • 29. The global consumer opportunity: Are Irish organisations ready? How effective is your organisation at targeting customers in emerging markets? Please choose one answer only. (% respondents) Highly effective 28 Somewhat effective 62 Not at all effective 7 Dont know 3 In general, in your view, what do you think are the biggest challenges within your own organisation in deciding to target customers in emerging markets? Please choose the top three only. (% respondents) Competition from established local businesses/not knowing competitive landscape 43 Language and cultural barriers 40 Lack of risk appetite 32 Unwillingness to invest the required amount 31 Price of our products/services 20 Lack of finance 19 Not enough resources to properly assess risks 17 Not enough personnel to manage the new venture 14 Coping with travel requirements 8 Other, please specify 1 In general, how effective is your company currently at managing the following aspects of dealing with changing consumer trends? Please select one in each row. (% respondents) Highly effective Somewhat effective Not at all effective Don’t know Investing in new systems, distribution channels, supply chains and data management capabilities to target the new type of consumer 40 57 2 1 Convergence - M&A activity, competitor intelligence/partnering with other businesses to better target and serve the new type of consumer 31 64 3 2 Moving into new markets (geographic, sectoral or demographic) to target the new type of consumer 47 48 5 Anticipating the impact of consumer trends on the business 42 54 2 1 Collecting information/R&D about new types of consumers 38 57 4128 © The Economist Intelligence Unit Limited 2012
  • 30. The global consumer opportunity: Are Irish organisations ready? Do you expect that your organisation is likely to create jobs through business expansion in order to meet demand from new types of consumers during the next five years? (% respondents) No jobs created/Not applicable 6 Yes, 1 to 10 jobs 36 Yes, 10 to 50 jobs 28 Yes, 50 to 100 jobs 19 Yes, 100 to 500 jobs 7 Yes, more than 500 jobs 5 What is your title? (% respondents) Board member 0 CEO/President/Managing director 1 CFO/Treasurer/Comptroller 5 CRO/Chief risk officer 0 Chief compliance officer 0 Chief marketing officer 12 Chief technology officer 2 Other C-level executive 30 Global head of unit/department 0 SVP/VP/Director 16 Head of business unit 5 Head of department 30 Manager 0 Other, please specify 029 © The Economist Intelligence Unit Limited 2012
  • 31. The global consumer opportunity: Are Irish organisations ready? What is your organisation’s global annual revenue in euros? (% respondents) Under €25m 0 €25m to €50m 0 €50m to €100m 25 €100m to €250m 15 €250m to €500m 9 €500m to €1bn 12 €1bn to €5bn 11 €5bn to €10bn 5 €10bn or more 23 How many employees does your organisation have in Ireland? (% respondents) 1-100 27 100-500 35 500-1,000 18 1,000-2,500 13 More than 2,500 730 © The Economist Intelligence Unit Limited 2012
  • 32. The global consumer opportunity: Are Irish organisations ready? What are your main functional roles? Select up to three. (% respondents) Marketing and sales 38 General management 32 Operations and production 22 Finance 12 Strategy and business development 11 IT 6 Supply-chain management 3 Customer service 3 Procurement 3 Human resources 2 Risk 1 R&D 1 Information and research 0 Legal 0 Other 031 © The Economist Intelligence Unit Limited 2012
  • 33. The global consumer opportunity: Are Irish organisations ready? What is your primary industry? (% respondents) Agriculture and agribusiness 3 Automotive 1 Chemicals 2 Construction and real estate 6 Consumer goods 10 Education 0 Energy and natural resources 5 Entertainment, media and publishing 3 Financial services 19 Government/Public sector 0 Healthcare, pharmaceuticals and biotechnology 7 IT and technology 11 Logistics and distribution 4 Manufacturing 13 Professional services 5 Retailing 5 Telecoms 4 Transportation, travel and tourism 332 © The Economist Intelligence Unit Limited 2012
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