2010 Boston Consulting Group Global report on consumer sentiment. a a new world order of consumption

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2010 Boston Consulting Group Global report on consumer sentiment. a a new world order of consumption

  1. 1. Report 2010 BCG Global Report on Consumer Sentiment A New World Order of Consumption Consumers in a Turbulent Recovery
  2. 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 69 offices in 40 countries. For more infor- mation, please visit www.bcg.com.
  3. 3. A New World Order of Consumption Consumers in a Turbulent Recovery Catherine Roche Patrick Ducasse Carol Liao Cliff Grevler June 2010 bcg.com
  4. 4. © The Boston Consulting Group, Inc. 2010. 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. 5. Contents Preface 4 Executive Summary 6 A Return to Cautious Optimism—but Not Everywhere 9 Anxiety Is Down from Crisis Peaks 9 A Holding Pattern in Spending Intentions 11 Businesses Are Clearing Out the Debris 12 Uncertainty Drives Trends in Recovery Spending 13 Consumers Are Redefining Values 13 Trading Up Is Tempered with Caution 13 Trading Down Is Still Prominent but Off from Peak Levels 14 Consumers Still Care About Green Products, but Price Matters 16 While More Open to Spending, Consumers Still Need Permission to Buy 17 Consumers Are More Willing to Switch 17 Cocooning Still Thrives 18 Consumers Are Reluctant to Seek Credit 18 A New World Order 19 Brighter Spots for Now: China, Brazil, and India 19 Recovering at Varying Speeds: The United States, Canada, the United Kingdom, and Russia 25 Handle with Care: Japan and the Euro Zone 28 What Recovery? In Search of a Rebound: Spain and Mexico 32 The Differences Among Categories and Demographic Segments 36 Categorical Imperatives 36 No Two Segments Are Alike 37 Winning Strategies for an Uneven Recovery 42 Accelerate Innovation for the Rebound 42 Upgrade Capabilities in Consumer Insight 43 Rethink the Business Model and Develop Alternate Scenarios 43 De-average the Go-to-Market Playbook 44 Think About Multiple Channels—and Improve Customer Conversion in the “Last Three Feet” 45 Replenish Your War Chest with a Sustained Focus on Cash and Costs 45 Appendix: Methodology and Product Categories Covered in the BCG Consumer Sentiment Survey 47 For Further Reading 49 Note to the Reader 51 A New World Order of Consumption 3
  6. 6. Preface F or several years now, BCG has been tracking The downturn has also sharpened the difference be- an important phenomenon in consumer sen- tween the growth rates in China, Brazil, and India on timent and spending behavior—a pattern one hand, and in the more mature markets on the other. that we call trading up and trading down. Consumers in the former group of countries experienced Our findings reveal how the recent economic a slowdown rather than a full-blown recession. crisis has affected consumers around the world, Their economies are poised to grow at much stronger and how the uneven recovery that is now tentatively un- rates in the near term, so their future outlook and folding in many markets will shape intentions and pat- consumers’ spending intentions are much more terns in consumer spending for the months and years optimistic. ahead. By contrast, many consumers in the United States, Eu- The first quarter of 2010 saw positive trends in many key rope, and Japan expect the recovery to take several years. economic indicators—and consumers suffering from “re- The “great deleveraging” of personal debt in the United cession fatigue” clearly embraced these indicators as a States, which is still under way, could prevent the ever- sign of better days to come. Optimism is up in our Spring important American consumers from spending their way 2010 survey, compared to the very, very low levels seen a to recovery as they have in the past. year ago, and intentions to cut spending are markedly down from peak levels. Consumers are even telling us Our researchers were in the field in March 2010, and the that their willingness to splurge on “nonessentials” is re- story about Greece’s looming insolvency was already covering, albeit modestly. starting to worry some consumers. Companies face a “new world order” of consumption as they head into a Yet despite a general uptick in outlook, consumers said multispeed consumer recovery. It will require them to re- that they will not be so quick to abandon shopping be- think their growth expectations and to develop a highly haviors that were forged or sharpened during the eco- de-averaged approach to the recovery. nomic crisis. Our research points to a profound evolution in motivations and attitudes when it comes to shopping, Our eighth annual consumer survey, taken in early 2010, especially in the more mature markets. Values and pri- uses original research to capture spending trends in 14 orities are shifting—home and stability have taken on countries: the emerging markets of Brazil, China, India, greater importance, while overt luxury and status have Mexico, and Russia, as well as the developed economies faded. The great hunt to find the best value at the lowest of Canada, Japan, the United States, and six countries in price remains firmly top of mind almost everywhere— Europe (France, Germany, Italy, Spain, Switzerland, and particularly in Europe and the United States, where con- the United Kingdom). In all, once the survey data were sumers “enjoy the feeling” of what they view as smarter adjusted by eliminating consumers in the bottom shopping. As they return to spending again, don’t expect quartile of income, we surveyed approximately 12,000 consumers in markets hit hard by the downturn to be- consumers on approximately 50 trading-up and trading- have the way they did before the crisis. down categories. 4 The Boston Consulting Group
  7. 7. By taking a comprehensive, semiannual pulse of world About the Authors markets over the past two years, we have been able to pro- Catherine Roche is a partner and managing director in vide a dynamic picture of where consumer sentiment has the Düsseldorf office of The Boston Consulting Group; been and where it is trending. We asked about attitudes she can be reached at roche.catherine@bcg.com. Patrick on spending, environmental issues, and life in general. We Ducasse is a senior partner and managing director in the also asked about trading up and trading down in the cur- firm’s Paris office and the global leader of the Consumer rent economy, and what kinds of emotional satisfaction practice; he can be reached at ducasse.patrick@bcg.com. consumers find in goods and services. These findings will Carol Liao is a partner and managing director in BCG’s help companies answer such critical questions as: Hong Kong office; she can be reached at liao.carol@bcg. com. Cliff Grevler is a partner and managing director in ◊ What (if any) lasting imprint has this economic crisis the firm’s Toronto office; he can be reached at grevler. left on consumer behavior around the world? How cliff@bcg.com. have our growth prospects changed, and how should we serve consumers across regions whose economies are recovering at different rates? ◊ How fast can we expect demand to rebound across our portfolio of markets, brands, and categories—and which groups of consumers will power our recovery? ◊ Has the face of luxury really changed? ◊ Will differentiated products in the middle market at- tract consumers still downshifting from trading up? ◊ Will consumers become more open to innovations in green products and services—even at premium prices? ◊ What will it take to win in the still-thriving trading- down markets? ◊ How can we encourage tentative consumers to open their purse strings in our categories? A New World Order of Consumption 5
  8. 8. Executive Summary For most consumers, the recovery has arrived, but the ◊ Interestingly, in many countries, anxiety about the fu- future remains overcast. ture far outweighs consumers’ sense of personal loss from the downturn (so far). Reactions to the crisis ◊ Job losses have begun to stabilize in many key markets were, for many, driven more by anticipation of person- thanks to strong government intervention. The Inter- al economic hardship than by the actual experience of national Monetary Fund now estimates world GDP any hardship. growth for 2010 at around 4.2 percent. Although such a growth rate is not stellar, it is much better than the ◊ Although far fewer consumers than last year said that 1.9 percent predicted back in early 2009. they intend to cut back on spending, not many said they plan to increase it. This “holding pattern” reflects ◊ But concerns are looming, including: the risk of insol- uncertainty about the recovery. vencies among member states in the euro zone, sus- tained economic instability in Spain and Mexico, and ◊ Retail sales are recovering in some markets: U.S. per- a U.S. unemployment rate that lingers around 10 per- sonal consumption grew an impressive 3.6 percent in cent—not to mention external shocks, such as the Ice- the first quarter of 2010, although it remains below landic volcano and the recent oil-spill disaster in the precrisis levels. The luxury sector, which had contract- Gulf of Mexico. ed sharply, is also rebounding from lows. ◊ Inflation has added to consumers’ declining purchas- The downturn has affected consumers in many mar- ing power in some markets, particularly in India and kets profoundly. We have been tracking eight trends Mexico. And some companies fear that growth in Chi- in consumer sentiment and behavior that are proving na’s “overheated” market may slow. quite persistent even as consumers in many markets embrace hope of recovery. ◊ In the United States, where household debt remained at 95 percent of GDP in 2009, consumers continue to ◊ Anxiety about the future and mistrust of big business struggle with deleveraging. have triggered a “back to basics” movement in which consumers continue to rank home, family, stability, Optimism is returning in most markets, but consum- and the environment high on their list of values. ers remain cautious and tentative. ◊ Still suffering from a backlash against overspending, ◊ Anxiety levels among consumers are down overall consumers in the United States, Europe, and Japan from peaks in early 2009, but they remain higher than continue to extol simplicity and denounce ostentatious before the crisis and are extremely high in Spain and luxury. Mexico. Confidence in the longer-term recovery has also eroded in the United States, Europe, and most no- ◊ Trading down is a powerful trend but has fallen from tably in Japan over the past six months. peak levels. 6 The Boston Consulting Group
  9. 9. ◊ Consumers continue to purchase green products for by the downturn. But anxiety among consumers in practical budget-saving benefits. Their willingness to Germany was up considerably compared with six pay a premium for such products is recovering but re- months ago, and the unfolding Greek insolvency prom- mains constrained. ises to bring the crisis closer to their doorstep. ◊ Intentions to significantly cut spending and defer ma- ◊ Japanese consumers have yet to embrace the recovery jor expenses are down in the United States and Europe, and are slow to recommit to spending. but consumers still need a good excuse to spend. ◊ For consumers in Spain and Mexico, recovery still feels ◊ Increasing numbers of consumers are trying private- distant, and anxiety remains extremely high. label and value brands—and are staying with them into the recovery. ◊ Some categories, such as home appliances and even luxury products, are seeing a resurgence from con- ◊ Even in the recovery, consumers continue to seek relief sumers who are eager to release some of their pent-up for stressed budgets and emotions in the comforts of demand. home—a trend known as “cocooning.” ◊ Women, as “purchasing agents,” continue to be a force ◊ Consumers fear big bills and will continue to avoid in the economy. Particularly in the United States, Can- heavy debts. ada, and Europe, they have been more likely than men to cut spending during the downturn. As the economy The downturn and uneven recovery are driving picks up, however, women are just as likely as men to a new world order of consumption. Familiar classifi- keep spending levels stable or to increase them. Young cations such as BRIC markets (Brazil, Russia, India, singles, dual-income couples without kids (DINKs), and and China) versus developed markets don’t apply income-secure empty nesters remain more buoyant in when assessing the downturn’s impact or the recov- their intentions to spend. ery’s trajectory. De-averaging is more essential than ever across markets, categories, and consumer seg- Bringing together the findings from our research and ments. our experience in working with consumer companies around the world, we have identified six best practic- ◊ China, Brazil, and India remain bright spots, with con- es for tapping into consumers’ evolving needs as the sumers in these markets having experienced a slow- fragile recovery progresses. down rather than a recession. Therefore, their relative importance as growth engines for the future has inten- ◊ Accelerate product innovations that feature quality sified as the developed world braces for slower recov- and craftsmanship in order to fuel the recovery, espe- eries. cially in the categories of health and wellness, home furnishings and appliances, and affordable luxuries. ◊ The United States, Canada, the United Kingdom, and Move consumers up the ladder of technical, functional, Russia are all seeing consumer sentiment rebound but and emotional benefits. at varying speeds. U.S. consumers continue to struggle with very high levels of personal debt and constrained ◊ Upgrade capabilities in capturing consumer insight to access to credit, making them cautious spenders. Ca- pinpoint opportunities for differentiation and growth nadians are embracing the recovery more forcefully in the uneven recovery. Pockets of opportunity still ex- than their American neighbors. Anxiety levels in Rus- ist. (See the sidebar “Hearing the Consumer’s Voice.”) sia remain more in line with the United States and Eu- rope than with China or India. ◊ Rethink the business model and develop scenarios to anticipate the capabilities that will be needed in an ◊ Recovery in the euro zone is still fragile. Except for uncertain future, such as supply-chain management, those in Spain, the consumers we surveyed in Europe pricing, talent cultivation, and political lobbying have yet to feel significantly affected in a personal way skills. A New World Order of Consumption 7
  10. 10. ◊ De-average the go-to-market playbook to capitalize on ◊ Continue to aggressively pursue cash and costs in or- areas of more robust demand. Where price pressure der to free up resources needed for making essential remains strongest, apply strategic pricing to reduce consumer-driven investments and withstanding ongo- “perceived” price differences. For instance, increase list ing pressure on pricing. Keep reducing complexity by prices while also selectively offering steeper discounts, eliminating underperforming SKUs, divesting noncore or unbundle offerings. Also continue to closely moni- assets, and simplifying processes. tor the price spread between manufacturer brands and private labels. ◊ Consider multiple channels and improve conversion rates by focusing on the “last three feet” (the space where consumers make their final purchase decisions), improving in-store presentations, and enhancing sales force effectiveness. 8 The Boston Consulting Group
  11. 11. A Return to Cautious Optimism—but Not Everywhere A fter a sustained period of negative news on Consumers are still grappling with personal debt and the economy, key indicators in many affect- tighter access to credit, particularly in the United States, ed markets have recently been exhibiting where more than 6.6 million of them have lost their jobs more positive signs. As of April 2010, the since the collapse of Lehman Brothers. Housing values in International Monetary Fund (IMF) was ex- the United States—as well as in the United Kingdom and pecting world GDP growth for the year to slightly exceed Spain—remain down from precrisis levels. 4 percent, buoyed strongly by an expected 10 percent growth in GDP for China and 8.8 percent for India. Anxiety Is Down from Crisis Peaks Recession-weary consumers have embraced the news that a recovery may have finally begun. Our research in Spring Although most consumers in most markets—and about 2010 found significant increases in optimism across most three-quarters of consumers in Spain and Mexico—say markets relative to levels from a year earlier. In recent re- they are worried about the future, anxiety about the econ- cessions, it was consumers’ appetite for goods that ulti- omy is actually down sharply from the peak levels seen in mately pulled the economy out of the slump. It remains 2009. (See Exhibit 1.) Furthermore, lower levels of anxiety to be seen just how long that might take this time. about the future have held stable in most markets. Exhibit 1. Anxiety About the Future Is Moderating in Most Markets “I am anxious about the future.” China Brazil Italy United Canada Russia Germany France United India Japan Mexico Spain Kingdom States 77 70 7 65 58 14 2007 53 54 2 50 47 48 9 1 43 44 7 7 2007 1 23 35 10 10 26 2007 10 12 Respondents who agree or strongly agree (%) Increase from March 2009 through Decrease from March 2009 through Anxiety level before the March 2010 (percentage points) March 2010 (percentage points) downturn (Q3 2007) Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. A New World Order of Consumption 9
  12. 12. In Europe, most of the drop-off in anxiety actually but those numbers declined in our Spring 2010 survey to occurred between the first and third quarters of 2009. 23 percent and 21 percent, respectively. (See Exhibit 2.) Since that time, however, Germans have become more worried again, as concerns about Greece’s insolvency However, confidence in the longer-term recovery still have mounted. seems shaky. In fact, it has actually worsened in the Unit- ed States: in the first quarter of 2009, 34 percent of U.S. Overall, optimism is rebounding. Published consumer- respondents told us they did not expect the economy to confidence indices are trending more positive, climbing improve for several years; 37 percent said they felt that from the recent historic lows in the United States, Spain, way in our Spring 2010 survey. The emerging economies and Japan. A year ago, as many as 33 percent of em- present a diverse picture: consumers in China are the ployed respondents in the United States and 26 percent most optimistic about the next 12 months (only 9 percent in Europe told us that they felt insecure about their job, told us that things would not get better), whereas con- Exhibit 2. In Most Countries, Fewer Consumers Are Worried About Jobs and Finances How secure do you feel in your Which statement best characterizes your current job in the next 12 months? feelings about your personal financial situation? United 10 23 United 16 37 States States Europe 5 21 Europe 10 34 Canada 2 13 Canada 8 28 Japan 3 24 Japan 7 39 Mexico 7 30 Mexico 5 42 Russia 18 25 Russia 27 27 Brazil 3 16 Brazil 6 33 India 9 15 India 21 32 China 8 12 China 2 12 Germany 2 28 Germany 7 48 United 6 22 United 6 Kingdom Kingdom 29 Spain 3 22 Spain 11 30 Italy 3 17 Italy 12 29 France 10 16 France 11 25 Very insecure (%)1 Somewhat insecure (%)1 I am in financial trouble (%) I am not financially secure (%) Increase from March 2009 through Decrease from March 2009 through March 2010 (percentage points) March 2010 (percentage points) Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. 1 Percentage of employed respondents only. 10 The Boston Consulting Group
  13. 13. sumers in Russia, Mexico, and India are the most pessi- Overall, though, very few consumers in mature markets mistic. say they plan to spend more. (See Exhibit 3.) Intentions to increase spending were highest in Brazil and China, where 19 percent and 23 percent of consumers, respec- A Holding Pattern in Spending tively, told us that they intend to increase their spending Intentions in the coming 12 months. Consumer spending is a function of real and perceived Most consumers say they are taking a wait-and-see atti- wealth as well as actual buying power. As consumers’ tude on their spending plans. In the first quarter of 2009, perception of being “better off” has picked up, so too has a staggering 73 percent of U.S. consumers said they spending in many markets. Retail spending indices in the planned to cut back on spending, but that number fell United States and the United Kingdom are trending posi- dramatically to 46 percent in our Spring 2010 survey. tive, although per-capita spending levels are not expected Likewise, 41 percent of Europeans now say they intend to to return to precrisis levels until 2014. In Japan, per-capi- cut spending, whereas 63 percent made that statement a ta retail spending is still under pressure. year ago. Intentions to spend on “nonessentials” are also on the rebound: 65 percent of Americans now say they Spending intentions in our survey have also shown clear plan to cut back versus 81 percent a year ago. Only 26 improvement. Far fewer consumers are now telling percent of Chinese consumers and 24 percent of Russian us that they intend to cut back further on spending. consumers told us they intend to further decrease their Exhibit 3. Fewer Consumers Plan Cuts, but Not Many Plan Increases Respondents’ discretionary-spending intentions over the next 12 months (%) United Canada Europe Japan Germany United Spain Italy France China Brazil India Mexico Russia States Kingdom 27 10 22 9 20 22 26 23 24 0 13 12 1 33 35 26 24 41 41 38 42 43 46 43 44 44 46 Decrease spending 56 51 66 51 55 39 Spend about 50 47 43 41 45 48 40 the same 49 38 23 19 Increase 14 14 spending 13 12 9 12 11 10 10 6 8 7 Increase from March 2009 through Decrease from March 2009 through March 2010 (percentage points) March 2010 (percentage points) Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Some percentages do not add up to 100 because of rounding. Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. A New World Order of Consumption 11
  14. 14. spending in 2010—the lowest levels seen among the na- The problems consumers have faced throughout this cri- tions we have surveyed. sis were—and, for many, continue to be—unusually se- vere, even if that severity has been more anticipation and This marked decline is clearly good news for consumer perception than reality. As nervous consumers gradually companies, assuming consumers follow through on their loosen their purse strings again, they will help fuel the re- intentions. covery. But companies should not look for consumers in hard-hit markets like the United States, Japan, Russia, and parts of Europe to spend as they did before. Consumers Businesses Are Clearing Out the Debris on the road to recovery won’t easily forget the experience of the past 18 months. They will be more careful with The steep discounts many retailers offered in recent their money and more deliberate with their purchases, months delivered great value for consumers but little and they will need to be convinced that they are getting margin for retailers. The drop in consumer spending in good value for their money. the United States caused many retailers and restaurant chains in the country to declare bankruptcy in 2008 and 2009, including such long-standing brands as Circuit City and Sharper Image. In the consumer sector, spending associated with vaca- tion travel and deferrable bigger-ticket items such as au- tomobiles has been, and continues to be, especially vul- nerable. However, the private-label market has made inroads, as have select discounters; many consumers have come to see them in a more positive light. 12 The Boston Consulting Group
  15. 15. Uncertainty Drives Trends in Recovery Spending I n the past, consumers spent their way out of a priority for many brands. Indeed, brands that have re- downturns, especially in the United States. There, tained that trust during the downturn can wield it as a consumer spending has played a significant role competitive weapon. in GDP, accounting for an estimated 70 percent of U.S. GDP in 2009 and 58 percent of global GDP. Consumers remain the center of the global economy— Trading Up Is Tempered with Caution but so far they are reluctant (and some are actually un- able) to boldly spend themselves back to better times. Luxury companies experienced a backlash against con- spicuous consumption in 2009, as U.S. and European con- Consumers in many markets have already returned to sumers blamed overspending for at least some of their spending at least a little more, but they are also exercis- suffering. Consumers are continuing to make amends by ing greater caution than before. Our research has been extolling simplicity and denouncing ostentatious luxury. tracking eight powerful shifts in consumer attitudes and Trading up remains an important theme, but consumers shopping patterns. Some were present even before the are becoming even more selective in the United States global economy weakened, but they’ve grown stronger and Japan. during the downturn—and are clearly lasting into the early recovery. By contrast, consumers’ intentions to trade up remain stronger in some developing economies: 37 percent of survey respondents in China and about 25 percent in In- Consumers Are Redefining Values dia and Russia plan to trade up, but only 13 percent of respondents in Europe and 18 percent in the United Recession anxiety has triggered a clear shift back to ba- States plan to do so. sics in what consumers say they value most. Home and family, stability and calm, saving, and the environment As cautious as consumers in the United States, Europe, have all increased in importance for consumers over the and Japan may be, they still told us quite forcefully that past two years. By contrast, luxury and status continue to they refuse to compromise in some categories, such as decline on their priority lists (See Exhibit 4.) fresh foods. In these markets, consumers say they par- ticularly value—and cite as reasons to trade up—func- Furthermore, a strong majority of consumers in the Unit- tional and technical benefits that promote health, secu- ed States and Europe (and more than 40 percent in Ja- rity, and comfort for the family. Consumers in developing pan) still claim that the crisis has boosted their distrust of markets also agree that health and wellness is a key driv- big business—especially financial institutions. In the er for trading up, but—more frequently than their coun- United States, 47 percent of our respondents felt that terparts in the developed world—they justify paying companies are profiting at the expense of consumers and price premiums with the rationale “I deserve it” or “It’s employees, up 11 percentage points from our Fall 2009 a better brand” (especially in China and India). (See Ex- survey. Winning back consumers’ trust will continue to be hibit 5.) A New World Order of Consumption 13
  16. 16. Exhibit 4. Among Consumers, Luxury Declined—and Savings Rose—in Importance “Do you see each value as more or less important to you than it was two years ago?” United States Europe Japan China 3 62 6 43 2 5 40 More important Saving 58 Stability 2 54 3 39 1 50 7 28 Family 2 54 2 40 2 45 2 47 My home 4 44 2 37 3 33 4 47 Ethics 3 42 5 27 6 17 9 28 Friends 4 41 4 32 5 26 5 31 Education 5 40 5 34 8 31 9 35 Locally grown products 7 40 7 32 8 18 22 15 Calm 3 39 3 36 1 41 9 18 Environment 6 38 5 36 3 35 7 35 Spirituality 9 36 21 13 16 11 7 29 Crasmanship 7 30 10 18 10 17 29 7 Local communities 6 30 10 17 7 16 18 16 Religion 15 30 30 9 24 4 34 10 Authenticity 6 29 6 22 7 25 18 13 Professional success 16 29 13 24 12 25 9 33 Tradition 9 28 11 18 9 12 18 16 Wealth 16 26 14 21 1 60 9 33 Change 14 24 10 19 8 15 20 14 Less important Naturalness 10 21 5 23 3 25 12 26 Excitement 13 20 9 20 10 21 16 10 Altruism 14 15 13 15 10 10 5 26 Conviviality 11 14 6 22 18 17 6 32 Bright colors 21 12 14 11 2 22 20 13 Status 35 9 18 14 16 13 14 26 Luxury 50 8 44 6 46 5 45 7 Respondents who find a value more or less important (%) Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Percentages do not add up to 100 because exhibit excludes those responding “no change.” Europe is defined in this study as the Big 5 countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. Being selective when trading up doesn’t mean that con- 2008 and into the first quarter of 2009, we saw an explo- sumers in developed markets won’t find room in their sion in trading-down sentiment as it became more about budgets for affordable spirit-lifters. And some consumers necessity than fun. For those years, we saw the largest an- will even seek out luxury items (indeed, luxury sales are nual increases in consumers’ intention to trade down rebounding), but they are more likely to desire products (and corresponding declines in plans to trade up) since that offer quiet elegance rather than showy status. The we began tracking the data. overall luxury and “masstige” sectors have clearly been hurt by the downturn, but the degree of that impact var- Our 2010 survey results show that trading down is still go- ies by category segment. ing strong in most markets, but it has fallen from the overall peak levels we found in late 2008. However, trad- ing down continues to gain strength in the United States, Trading Down Is Still Prominent but Off where it is up 5 percentage points over 2008 levels—mak- from Peak Levels ing U.S. respondents among the most avid about trading down of all the consumers we surveyed in mature mar- Even before the downturn, many consumers were devot- kets. (See Exhibit 6.) ed treasure-hunters—more for the thrill of finding a great deal than for the constraints of a tight budget. The mar- Still, finding fun in “smart shopping” is very much alive ket responded with a proliferation of products that per- among both European and U.S. consumers, who said they formed well and were remarkably affordable. Then, in will continue to hunt for the best prices and actively look 14 The Boston Consulting Group
  17. 17. Exhibit 5. Brand Is More Frequently Cited as a Reason for Trading Up in India, China, and Brazil United States Europe Japan Brazil Russia India China Reasons for trading up Products give better results 72 60 56 59 66 64 48 Meaningful technical 67 56 65 49 60 53 differences 60 Because it’s healthier 56 41 36 65 71 69 56 Categories are more 42 important to me 56 60 58 64 66 47 I enjoy the feeling of 44 40 31 55 62 67 44 using these products I can afford to 33 32 29 47 43 64 42 I deserve it 32 30 31 64 61 65 39 Better brand name 29 21 25 42 20 65 55 I enjoy the feeling of buying these products 29 32 25 50 52 65 41 Respondents who agree or strongly agree (%) Top two reasons Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. Exhibit 6. Trading Up Is Becoming Increasingly Selective as Trading Down Remains Strong Change in Change in United States (2002–2010)1 percentage Europe (2005–2010)1 percentage points points (2002–2010)1 (2005–2010)1 18 19 13 13 9 26 20 22 20 31 27 28 26 37 37 31 36 29 32 33 33 30 32 33 32 32 30 29 20 6 53 56 51 48 45 47 38 43 40 41 42 33 34 2002 2003 2004 2005 2006 2007 20081 20101 2005 2006 2007 20081 20101 Percentage of category buyers Trade up Neither Trade down Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, 2002–2010. Note: Some percentages do not add up to 100 because of rounding. Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. 1 Data for 2008 were collected in the third quarter of 2008; 2010 data were collected in the first quarter of 2010 and cover selected categories only; no additional data were collected in 2009. A New World Order of Consumption 15
  18. 18. for sales and promotions. (See Exhibit 7.) That attitude provided superior freshness, taste, or safety. They were contrasts sharply with other responses from consumers, less willing to pay premium prices for green products mostly in developing markets where consumers feel they once the downturn hit, however. must trade down to balance their budget or to save mon- ey they want to spend elsewhere. Our Spring 2010 survey shows some clear recovery on this dimension. (See Exhibit 8.) Consumers’ willingness to The “middle ground” between trading up and trading purchase bigger-ticket green products such as energy-ef- down, which had been under pressure recently in many ficient home appliances is also on the rebound. In fact, in categories in the United States and Europe, may benefit all countries, energy-efficient appliances ranked as the in this environment. Companies may try to attract con- top category when we asked consumers which types of sumers who want to step down from trading-up brands— products they planned to exempt from the spending cut- but not as far down as private-label and value brands. backs they followed during the downturn. Yet companies need to be cautious on this front: high Consumers Still Care About Green prices and low levels of trust remain key reasons why Products, but Price Matters consumers in many markets don’t buy green. Consumers are still quite confused about what green really means, Green products were hitting the mainstream as the down- and they are skeptical of green-product claims. turn was heating up and continued to do well in many categories despite the gloomy economic times. Not sur- Companies looking to attract consumers with green offer- prisingly, our respondents remained especially attracted ings will need to continue proving the economic (as well to green products that directly reduced their expenses or as altruistic) value of those goods and services. Exhibit 7. Shoppers Focus on Promotions, Patience, and Research Spending tactic United States Europe Japan Canada Cut spending on nonessential 65 57 83 55 items Defer major expenses that 75 65 61 65 can wait Buy more products on promotion 78 75 67 73 Spend more time in stores to find 74 66 59 66 best prices Shop in discount stores more oen 65 51 67 52 Respondents who agree or strongly agree that they are using this tactic (%) Top spending tactic Spending tactic that has gained popularity over the last six months Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Percentages exceed 100 because respondents could select multiple choices. Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. 16 The Boston Consulting Group
  19. 19. Exhibit 8. Interest in Green Endured Through the Downturn Overall, consumers are still interested in green ... ... and are more willing to pay a premium Q1 2010 12 60 19 8 Q1 2010 17 Q3 2009 5 69 16 10 Q3 2009 10 United Q1 2009 7 66 19 8 Q1 2009 13 States Q3 2008 11 64 17 8 Q3 2008 17 Q1 2010 8 66 17 9 Q1 2010 23 Q3 2009 7 66 18 9 Q3 2009 17 Q1 2009 8 66 17 9 Q1 2009 16 Europe Q3 2008 11 68 15 7 Q3 2008 21 Q1 2010 4 67 16 12 Q1 2010 9 Q3 2009 6 84 82 Q3 2009 16 Q1 2009 5 82 10 3 Q1 2009 23 Japan Q3 2008 5 88 7 1 Q3 2008 22 Respondents who engage in purchasing behavior Respondents who are ready to pay more for 1 for environmentally friendly items (%) environmentally friendly products (%) Systematically buy Sometimes buy Have bought but currently don’t buy Never bought Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Some percentages do not add up to 100 because of rounding. Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. 1 Prior to 2010, respondents could choose from five rather than four answers; responses were recalibrated so that systematically buy corresponds to the prior years’ response systematically look for/mainly purchase; sometimes buy corresponds to the prior years’ responses of systematically look for/often purchase and sometimes look for/purchase; have bought but currently don’t buy corresponds to the prior years’ response rarely look for/purchase; never bought corresponds to the prior years’ response never look for/purchase. While More Open to Spending, higher levels of stress and feeling underappreciated than Consumers Still Need Permission to Buy men did during the downturn, and they were more likely to stick to seeking out bargains. They’ll cut back on prod- Reluctance to indulge oneself, natural in a downturn, hit ucts for themselves first (especially apparel and accesso- a peak in our Spring 2009 survey, when consumers told ries), before sacrificing on products for their family mem- us they would significantly cut spending on nonessen- bers—often defined to include cherished pets. (See the tials. But there has been some easing up on this front section later in this report “No Two Segments Are Alike.”) over the past year. Our Spring 2010 survey shows those Companies could help consumers better manage the bal- numbers significantly down for the United States (from ancing act between recession fatigue and indulgence guilt 81 percent to 65 percent) and Europe (from 72 percent to by offering products that contribute to a comfortable 57 percent), and slightly down in Japan (from 87 percent home and a sense of security. to 83 percent). Intentions to defer major expenses have also fallen from last year’s peaks in all three of these mar- kets. But for many consumers, spending still just doesn’t Consumers Are More Willing to Switch feel right now. The downturn led more consumers to discover discount In most households, women are responsible for most of channels and value brands, and they have been pleased the daily spending. And when times get tight, it is women with what they have found. In past recoveries, many con- (typically mothers) who are tasked with making the budg- sumers remained loyal to these products, and that “stick- et stretch as far as possible. It’s a role many assume will- iness” is likely to prevail again—especially since retailers ingly, but it is a stressful one—especially during hard are upgrading their retail brands and value offerings. times. In Western markets in particular, women reported Higher-priced brands will be challenged to justify their A New World Order of Consumption 17
  20. 20. premiums. Sixty-one percent of U.S. respondents, nearly top of the list of categories on which Europeans and half of Japanese and European respondents, and more U.S. consumers said they would not continue to cut than half of respondents in Spain and the United King- back. Companies have responded to this trend with in- dom claimed to have purchased more private labels dur- novative “enjoy-at-home” offerings in consumer electron- ing this downturn than before. (See Exhibit 9.) Around 40 ics, home décor, household appliances, and ready-made percent of these consumers (57 percent in Spain) intend meals. to stick to private labels into the recovery. Consumers Are Reluctant to Seek Credit Cocooning Still Thrives Excessive consumer debt in some markets was one of the Over the past two years, many consumers have sought major causes of the economic crisis. Now, the tighter ac- relief for stressed budgets and emotions in the comforts cess to credit (especially in the United States) and greater of home—a trend known as “cocooning.” Our research consumer focus on savings are expected to eliminate bil- indicates that the emotions powering this trend are con- lions of dollars of spending power for the recovery. tinuing into the recovery. “Insourcing,” the rediscovery of home and self-sufficiency, also remains a popular These trends in consumer attitudes clearly won’t endure theme—both for the money it saves and the emotional forever. But they are shaping behavior during this recov- rewards and quality time with families that it bestows. ery. They also present companies with new opportunities These trends spell continued opportunity for do-it- to bring consumers back to spending in still-uncertain yourself and home-related products. Indeed, energy-effi- times by offering products and services that are posi- cient home appliances and housewares were again at the tioned as sensible alternatives to luxury. Exhibit 9. Even During the Recovery, Interest Has Remained High in Private-Label Products Did you increase or decrease your private-label Will you continue to buy purchasing in the last 12 months? more private labels into the recovery? United 42 States 61 27 6 94 Europe 45 42 7 94 42 Japan 49 28 10 87 41 Germany 39 51 8 98 38 United 53 35 45 Kingdom 5 93 Spain 56 36 4 96 57 Italy 41 40 8 89 31 France 46 41 8 95 42 0 20 40 60 80 100 0 20 40 100 Percentage of respondents Respondents who agree or strongly agree (%) Increased Did not change Decreased = Total percentage Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Percentages do not add up to 100 because respondents represent only those who actually purchased private-label products. Europe is defined in this study as the Big 5 countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom. 18 The Boston Consulting Group
  21. 21. A New World Order W hether consumers are trading up, Respondents in China reported the strongest desire to trading down, or looking to find a trade up among all consumers in the countries we sur- compromise in the middle, the recov- veyed. And that desire is rising—an average of 37 percent ery will follow very different paths of Chinese consumers intend to trade up across survey and speeds depending on the start- categories versus only 34 percent a year ago. ing point of consumers in different countries. Therefore, such traditional classifications as “mature versus emerg- Despite feeling even better than last year, Chinese con- ing markets” or “West versus East” are too imprecise to sumers still profess to be cautious in how they will spend. diagnose what’s happened to consumers, or to determine In 2007, a peak growth year for China’s economy, more the path to recovery. than 60 percent of Chinese consumers said they planned to increase their spending. In Spring 2010, about half of Our research offers a very different way of looking at con- our Chinese respondents expected their discretionary sumers’ starting points across markets; and it paints a pic- spending to remain the same, while the other half split ture of a multispeed consumer recovery. (See Exhibit 10.) almost evenly between expecting to spend more and ex- Our findings underscore the importance of de-averaging pecting to spend less. the recovery toolkit for maximum impact. The perceived need to save more money—primarily for retirement, housing, and children’s education—is one of Brighter Spots for Now: China, Brazil, the key reasons Chinese consumers cited when they said and India they intended to stabilize their spending in the future. This comes not from fear of job loss, but rather from lack Some emerging markets have not felt the full brunt of the of a local social safety net, as well as sharp increases in global downturn, and consumers there are much more some costs of living. For instance, residential property open to spending and trading up. The importance of prices have skyrocketed in major Chinese cities—in Bei- these emerging markets as frontiers for growth and ex- jing, they have more than doubled since 2007. Although pansion in many categories has intensified through the average incomes have also been growing at double-digit downturn. rates, the rising property costs continue to be watched closely. China: Full Steam Ahead. Optimism in China remained comparatively high during 2008 and 2009, a period that However, in China, as elsewhere, it is critical to de-aver- Chinese consumers experienced as more of a slowdown age the picture to see the full story. Although the Chinese than a recession. It has continued even stronger in 2010, remain generally much more optimistic than everyone with Chinese consumers on average reporting a more else about the economy, some parts of the country are positive outlook on the economy, lower levels of stress more optimistic than others. A de-averaged analysis of and anxiety, and an even higher sense of job and person- consumers, by income and city tier, shows three distinct al financial security than they did a year ago. segments emerging. (See Exhibit 11.) A New World Order of Consumption 19
  22. 22. Exhibit 10. Markets Are Getting Ready for the Consumer Rebound at Different Rates Annual GDP growth forecast (CAGR 2010–2013, %) 10 China 8 India Brighter spots 6 Brazil Mexico 4 United Recovering at Kingdom varying speeds What Canada Russia recovery? United States 2 France Spain Handle Germany with care Japan Italy 0 30 40 50 60 70 80 Downturn-related anxiety among consumers (%) Low level of anxiety High level of anxiety Sources: International Monetary Fund, April 2010; BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. Note: Downturn-related anxiety was calculated by using the average of the responses to “I am affected by the downturn” and “I am anxious about the future.” Exhibit 11. Three Distinct Segments of Chinese Consumers Exhibit Very Different Spending Patterns High “Positive as always” middle-class and affluent customers 1 living in smaller cities “Recovering but cautious” ◊ Most willing among all Percentage Chinese consumers to intending middle-class and affluent customers living in bigger cities 1 spend and trade up to increase spending ◊ Improving consumer sentiment, but still cautious about spending intentions— especially in the middle-income group “Pressured” lower- income urban consumers ◊ Constrained, with little intention to spend and trade up Low Low High Percentage intending to trade up Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. 1 We categorized bigger cities as tier 1 and tier 2 cities; all other cities were categorized as smaller cities. 20 The Boston Consulting Group
  23. 23. Middle-class and affluent consumers (MACs) with month- be more careful shoppers; for example, 38 percent of ly household incomes greater than RMB 5,000 in lower- these consumers said that they would continue buying tier cities are the brightest spot of optimism among cheaper brands after the slowdown passed. By contrast, Chinese consumers. They feel the most financially only 28 percent of MACs in smaller cities said they would secure and show the strongest willingness to spend and do the same. trade up. The attitude of these smaller-city MACs seems to be “positive as always.” A third group is emerging in big cities: we call them “pres- sured” urban lower-income consumers. Their spending By contrast, their income peers in the bigger cities—a power is more constrained given the rising costs of living group we call “recovering but cautious”—are more sen- in these major cities, and their current sentiment is cor- sitive to the global downturn and have become more respondingly less buoyant that the other two segments cautious spenders. While their sentiment has improved outlined above. (See the vignette “China’s Emerging Mid- since last year, MACs living in bigger cities still claim to dle and Affluent Classes.”) China’s Emerging Middle and Affluent Classes: Lin Isn’t Affected Much by the Downturn and Is Optimistic About the Future Lin’s story 34 years old ◊ “I’ve been living in Shanghai for 16 years—since I came Has a family, with a here to study when I was 18.” four-year-old daughter ◊ “I ran my first company for five years and started my sec- ond business, an Internet company, in 2004. This company Lives in Shanghai and is a professional social-networking company.” owns an apartment ◊ “I bought an apartment at the end of 2004 and I own a car. downtown So I don’t have much financial pressure now.” ◊ “Family is very important to me. I cherish the time I spend Entrepreneur; runs an with my child and my family. As I’m very busy with work Internet company during weekdays, I try my best to spend more time with my family and to play with my child on weekends.” His dreams His fears and concerns Entrepreneurship Talent shortage ◊ “My dream is to have an influential Inter- ◊ “My concern is shortage of talent. It’s not easy to find net company that can bring more value to skilled people now. The talent war is getting more and people and make their lives better.” more fierce.” Bring commercial value to Internet users ◊ “Creative people are more attracted by profitable, powerful ◊ “I hope to be able to create a new Internet companies with good brands.” model that users will not use to kill time. Difficult to find pioneers This model will create more commercial ◊ “It is extremely difficult for start-up companies to find cre- value for people.” ative talent with a pioneering spirit.” ◊ “If this goes on, our situation could become worse.” Views on the downturn How he copes Reasons to trade up and down ◊ Thinks the Internet business is more ◊ Maintains the same consumption be- ◊ Trades up for consumer electronics immune to the downturn haviors as before, since the family has like the iPad because his profession is ◊ Feels that export-oriented and tradi- always been very rational spenders IT-related tional businesses have been harder and cares about brand and quality ◊ Trades down for household supplies hit by the downturn like detergent powder because there’s ◊ Sees the downturn as a good opportu- little quality difference among brands nity for social-networking companies, ◊ Would trade up for “green” products since visits to Web sites usually in- because he is concerned about the crease during a crisis environment A New World Order of Consumption 21
  24. 24. Brazil: Leaving Doubts Behind. Since 2000, Brazil has our survey. On average, 29 percent of Brazilians said they enjoyed moderate growth in GDP—at a rate of about were willing to trade up across the categories in our sur- 3 percent a year. Private consumption rates among an vey, the second-highest level (behind China) in our study. emerging middle class have been rising steadily, driven Quality foods and products that offer personal gratifica- primarily by falling interest rates and easier access to tion topped the list of categories in which Brazilians are consumer credit. Inflation was stabilized in the mid- willing to trade up. 1990s, and since then, the government has been success- ful in keeping inflation in check. Still, 41 percent of Brazilians in our survey claim that the downturn has personally affected them—more than in Although there were some concerns back in early 2009 China or India—and many say they intend to decrease about higher unemployment and reduced wages, Brazil- their spending, especially on discretionary categories, ians actually weathered the storm rather well. Current although the amount varies depending on the demo- IMF forecasts put GDP growth for Brazil at 5.5 percent for graphic segment. (See Exhibit 12.) Despite a rising econ- 2010. Private consumption began rebounding in the first omy, Brazilians continue to be cautious. quarter of 2009, in response to government stimulus and an increase in the minimum wage, and consumer confi- Brazilians also continue to be price sensitive, but their in- dence has risen to near precrisis levels. tentions to trade down have eased off dramatically com- pared with levels of one year ago. An average of 34 per- Only 16 percent of consumers in Brazil now claim to feel cent of respondents across categories now say they will insecure in their jobs—although 35 percent said that they trade down—to balance the budget, save money, and find are anxious about the future. That number is low com- a good deal. That is nearly in line with Chinese and Rus- pared to the sentiment expressed in the other markets in sian consumers, who had the lowest trading-down inten- Exhibit 12. Across Markets, the Personal Impact of the Downturn Is Perceived Differently Respondents who say they feel “personally affected” by the economic downturn (%) 80 80 71 60 60 49 50 48 45 41 40 35 31 32 29 25 20 0 China Germany Canada India France Brazil Italy Japan United United Spain Russia Mexico States Kingdom Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010. 22 The Boston Consulting Group
  25. 25. tions among our survey nations. (See the vignette “Bra- 11-year high in December 2009, with the consumer price zil’s Next-Billion Consumers.”) index showing retail prices increasing at almost twice the rate of inflation for wholesale prices. Overall, 58 percent India: Growing Strongly but Facing Worries. India’s of Indian consumers feel anxious about the future in gen- economy is relatively healthy—the IMF forecasts GDP eral, 30 percent expect the economy to get even worse in growth for 2010 at around 8.8 percent. Its levels of house- 2010, and 42 percent think the economy will not improve hold and corporate debt are low, as is the country’s reli- over the next few years. Although Indians in general may ance on international trade, which accounts for approxi- have suffered less in this downturn than consumers in mately 18.6 percent of GDP. Just 15 percent of survey other markets, nearly one-third claim to feel personally respondents said they feel insecure in their jobs. affected. Moreover, nearly one-third of the respondents in our survey worried about their personal finances; these Yet, high inflation and budget deficits continue to affect data most likely reflect a fear of inflation. In this concern, consumer sentiment. Price inflation for food reached an they are more in line with consumers in Europe and the Brazil’s Next-Billion Consumers: José and Raquel Dream of Owning a House and Giving a Better Life to Their Children José and Raquel’s story Married for 16 years with four children ◊ Raquel: “My mother had ten children. It was difficult to raise us; we suffered a lot.” She is a cleaning lady, and ◊ José: “I am one of six siblings. My mother died just he is a janitor at the school after I was born. I was six or seven years old when my where they live father died.” Family is a central part of ◊ Both: “For the past ten years, we have lived here as their life janitors. We initially came to stay for six months.” ◊ Raquel: “I work all day. On the weekends, I like to stay with my children—playing, going to parks, visiting my mother. I pass all the time with them.” Their dreams Their fears and concerns Their own house Financial worries ◊ “For our happiness to be complete, we lack ◊ “We split all the bills. In the middle of the month, the only a house. We have wonderful children. money starts to fall short.” Thank God, they are healthy.” Lack of appreciation at work A better life for their children ◊ “We think people don’t value cleaning people. We feel we ◊ “[We dream] that our kids will finish their are less than the others.” education and be someone in life.” ◊ “We’ve been working here for 11 years and have never ◊ “We would give everything to our kids. We moved up in our jobs.” would say, ‘Today you can ask for anything because we can afford it. ’ ” Views on the downturn How they cope Reasons to trade up and down ◊ Experienced some employer-driven ◊ Cut expenses by: ◊ Trade down for meat and for house- delays in receiving their pay • buying half as much hold supplies—such as paper and ◊ Enjoy using credit cards, but they • staying home to avoid expenses cleaning products stopped using the cards after they fell ◊ Purchase only what is necessary ◊ Trade up for hair products because behind on payments ◊ Manage debts to avoid bankruptcy Raquel says she simply cannot live ◊ Find it difficult to save, as there are al- without them ways unexpected expenses, such as ◊ Willing to spend more on the baby—for illness milk, clean clothes—because of his greater need A New World Order of Consumption 23

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