Accenture's energizing global-growth-final


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Accenture undertook extensive research to understand how companies can achieve high business growth in a slow-growth economy. The answer lies in recognizing how consumer behavior change is generating significant growth in a wide range of industries. Armed with that knowledge, business leaders can create the toolkit, mindset and organizational structure that companies need to succeed in meeting expectations—including their own—for rapid growth.

The report draws on research from four sources: a global consumer behavior survey (10,000 online consumers), a global executive survey (600 business executives), industry-growth leader analysis of the world's top 3,000 listed companies by market capitalization and macroeconomic analysis with Oxford Economics.

Accenture's energizing global-growth-final

  1. 1. Energizing Global GrowthUnderstanding the Changing Consumer
  2. 2. ContentsForeword 03Preface 04Executive summary 05About the research 08The age of complexity 09Great expectations 13Understanding the changing consumer 19New consumer realities 27Lessons from industry growth leaders 31Conclusion 35References 371
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  4. 4. ForewordAs the global economy continues impact of their purchases more oftenon its slow path to recovery, there than they did three years ago. Suchis a prevailing sense of hope—and consumer trends have the ability toexpectation—that businesses can grow affect not only business-to-consumerprofitably in the coming years. From companies, but also business-to-my experience with clients across the business ventures and the publicworld, I have learned that businesses sector. Every organization must watchand investors are tentative yet confident for signals of consumer change thatthat a corner has been turned. can influence business growth and the recovering global economy.Yet while growth is high on the agenda,it is especially hard to achieve in Businesses must stay one step aheada tough economic environment. In of the consumer to succeed in such aEurope, particularly, the outlook is world. Many companies will admit theychallenging. It is still possible to find are currently one step behind.pockets of growth, however—the Balticcountries, for example, are all expected While there is no foolproof strategyto grow at or above 2 percent in 2013. that will help restore growth in Mark SpelmanBut for the most part, businesses economies where it has been hard Managing Directorwill not be able to ride the wave of to come by, a couple of imperatives Accentureoverall market growth. Instead, they are clear. Businesses should discernwill have to redouble their efforts to emerging consumer trends, and thengrow in mature or slowing markets. invest selectively to stimulate growth in consumer spending. Governments haveIn regions or industries where the overall a role to play, too. They should activelysize of the market is static—or may create the infrastructure and the policyeven be shrinking—the ability to capture environment needed to foster businessmarket share becomes paramount. The activity in this new era.companies best able to do this are thosethat excel in their understanding of This is a time of great potentialconsumers, a differentiator that applies for businesses and the customersequally well in growing markets. they serve—a time when better understanding of the consumer couldThis truth is relevant as we embark energize global growth.on what appears to be a new era ofconsumption—one that is evermoreinfluenced by rapid advances intechnology, huge quantities ofinformation about individuals and theirpreferences, and increasing concernabout the impact of consumption. Whathas amazed me is the pace of change Mark Spelmanshown by consumers, particularlyin emerging economies. Nine in 10emerging-market consumers havewatched television on a phone, tabletor computer, and nearly two-thirdsare considering the environmental3
  5. 5. PrefaceConsumers are changing the world. Or more frequently co-operative: they seekrather, changes in consumer behavior community, and they expect companiesare changing the world. Those changes to operate on behalf of communities.are driving massive growth across They are also conscientious, and theyindustries. And they hold the promise—if expect businesses to actively protectbusinesses recognize and capitalize on the environment and to promotethe opportunities—of lifting the entire social economy in the process. Why does this matter so critically toWhat kind of changes in behavior all business leaders today? Becauseare we talking about? Let’s consider it points to the truth that companiesa few examples: it is the professor cannot be content to focus on thein Stockholm checking her e-mail “where” and the “who” of selling.before bed only to find an invitation They are unable just to say “emergingto attend a conference in London, and markets” and “people over the ageimmediately going online to buy airline of 55.” Instead, they must give newtickets from a travel site. It is the young attention to the “how” and the “why” oftech worker who gets his first job in consumption. The networked consumer Paul F. NunesSilicon Valley, sells his beat-up old car, is the new “how,” and the independent Managing Director of Researchand signs up for a car-sharing service and co-operative consumer is the “why.” Accenture Institute for High Performancefor those times when he needs personalwheels. And it is the mother in São If stock markets are correct, thenPaulo, who always looks for the label companies must grow rapidly to meetindicating that sustainable forestry analyst expectations. Just the non-methods were used to produce the financial companies in the S&P Globalpaper products she needs for her family. 1200 have to find an additional US$5 trillion in revenue each year. To meetThese examples all point to new types these expectations, business leadersof behavior that we identified through must recognize key elements ofextensive research over the past year. changing consumer behavior and thenWe found that the vast majority of undertake the necessary organizationalconsumers today are networked. They shifts to capture the growth that thoseare almost always “on”—never far changes are generating.from an Internet connection that willput them in contact with companies; Business leaders are confident in theirsometimes to buy, sometimes to offer ability to lead their companies toadvice, sometimes to praise or to profitable growth in the next few years.criticize. They are also quick to use the Policy makers and government leaderstools of social media to connect with should also be encouraged. We hopeeveryone—family, friends, colleagues and this report helps them “energize” globaleven companies from which they buy. growth through their understanding of the changing consumer.Furthermore, consumers are increasinglyindependent. They may want productsthat have been customized to meettheir specific desires. They often preferrenting to buying, or second-handluxury to first-hand average. And yetindependent in no way means selfish—on the contrary. Consumers today are Paul F. Nunes 4
  6. 6. Executive summaryThe global economy hangs Investors today are, once again, Instead, companies must look elsewhere,in the balance. Economists expecting robust business growth. at consumers themselves and how We see this in our analysis of the changes in behavior are creatingcontinue to predict relatively S&P Global 1200, where enterprise important opportunities. In the past,low growth in the developed valuations indicate high expectations. companies could grow simply byworld over the next five years. In fact, companies in that index will focusing on the “where” and “who” ofMeanwhile, the largest emerging need to find an additional US$5 trillion consumption—places such as emergingmarkets have not been able to in revenue growth each year simply to markets and growing customer meet the analyst expectations behind segments such as the elderly. Today,maintain the astounding growth their current share prices.i two additional elements are critical:rates of the previous decade. the “how” of consumption, and the But while US$5 trillion may be a big “why.” Both areas have undergone rapidYet shareholders appear to number, business leaders show a change in recent years—so rapid thatsee things differently. High surprising degree of assuredness in executives, even when aware of theexpectations for business growth their ability to deliver growth. In an trends, have wondered how to respond. Accenture survey of 600 executives For instance, consider that more thanat large global companies in 10 countries, more than 80 percent four in five respondents (83 percent) inare already priced into the reported confidence in their business’s our survey recognized the opportunitymarket. The gauntlet, then, has ability to grow profitably over the next in responding to changing consumerbeen thrown down: to meet two to three years. behavior, but nearly equal numbers (80expectations, businesses must percent) said their companies were not Is such optimism warranted? The recent fully taking advantage of those changes.find ways to continue growing in record is not encouraging: only abouta world where average growth is one in 10 of the S&P Global 1200 sawlower than pre-downturn highs. revenue growth outstrip economic growth in each of the past three years.Accenture recently undertook And when the analysis was broadened toextensive research to understand include the world’s 3,000 largest listed non-financial companies, we learnedhow companies can achieve that only slightly more than half of thehigh business growth in a slow- companies had increased both revenuegrowth economy. The answer lies and net income over that recognizing how consumer If the business climate has beenbehavior change is generating challenging in recent years, the overallsignificant growth in a wide range economic climate has been worse—atof industries. Armed with that least, in developed economies whereknowledge, business leaders can economic growth is roughly half whatthen create the toolkit, mindset it was five years ago. And while those markets are expected to reboundand organizational structure that somewhat in the next five years,companies need to succeed in the outlook for emerging markets ismeeting expectations—including declining—with growth forecasts havingtheir own—for rapid growth. been revised downwards regularly. What is the likely result? Executives shouldIncreasingly, as companies learn not expect that a rising economic tidehow to take advantage of the will enable middling companies to become buoyant.changing behaviors of theircustomers, they can collectivelycontribute to overall economicgrowth wherever they operate; inshort, creating a virtuous circle.i  Financial service companies have been excluded from this analysis because their market multiples are not exactly comparable with other industries. For financialservice companies the market multiples are calculated at an equity level whereas for other industries they are calculated at an enterprise level.5
  7. 7. The “how” and the “why” of • Co-productive consumers are now a While seeking a growing independence, factor in the means of production. consumers are, at the same time,consumption For example, they told us they increasingly involving others in theirOf course, it is possible to simply look more frequently provide direct consumption habits. They are becomingaround to get a sense of the changes feedback to companies and help increasingly co-operative, placingin the way people consume and their design products. a strong emphasis on responsiblereasons for doing so. It is not news production and consumption: The remaining seven dimensionsthat consumers are increasingly using illuminate why people consume. • Communal consumers devotemobile devices to buy anything and Personal fulfillment is critical to many extensive time and money toeverything. Nor will it surprise readers people, and this can be seen in four causes with social impact—and theyto learn that many people are often dimensions that define an appreciate businesses that doless interested in acquiring “goods” and independent consumer: the same.more interested in gaining experiences,or that they see consumption as • Individual consumers spend to • Conscientious consumers morean act of social responsibility. express their particular personality frequently buy local, more often make and uniqueness: they want tailored what they need, and consider theBut having a general sense of the offerings that will bring out who they environmental impact when decidingchanging environment is not enough. really are. what to purchase. Also, they giveIn addition to our survey of 600 away what they no longer need.executives, we surveyed 10,000 • Experiential consumers want moreconsumers in 10 countries to gain than the digital world can offer. • Minimalist consumers purchasea data-led perspective on changing They seek the enjoyment of new and second-hand or reuse products.behaviors. Our analysis yielded valuable different experiences, from traveling They may, for example, preferinsights. Specifically, we were able to to new places to attending live events. car-sharing schemes to outrightidentify 10 dimensions of consumer possession, tending to value access • Resourceful consumers can seembehavior change that are affecting over ownership. like a familiar type: they workthe ways in which, and the reasons hard and spend thriftily to get Faced with a more complex landscapewhy, consumers buy. Three of these ahead. The difference today is of consumption, businesses must workdimensions point to the emergence of a that they turn to new online to enhance their understanding ofnetworked consumer: platforms to buy used products, consumers and learn how to turn that sell directly to other consumers, better understanding into growth.• Connected consumers are always on. or participate in online auctions. For example, a large majority of those we surveyed check e-mail before • Disconnected consumers like to going to bed at night. They are never distance themselves from the far from a purchasing channel at constant presence of the digital world any time. and are willing to spend to do so. One in five reported that they turn off• Social consumers interact with their phones for extended periods. But companies, institutions and each they still want products and services other through the Internet. For that help them leave the stresses example, more than half of of the world behind, ranging from consumers reported that they scented candles to cruise vacations. increasingly use social media to interact with family members. 6
  8. 8. Targeting the new Instill an adaptive mindset. Leaders see The economics behind disruption as an opportunity rather thanconsumers—on their terms a threat. They inculcate a mindset of changing behaviorsWhat should companies do once they perpetual change that allows many of It is not only that businesses can growhave gained this knowledge about them to shape their industry’s long- as a result of changing consumerconsumers? Returning to the list of term direction. For example, publishing behavior: the global economy canthe 3,000 largest listed companies company Pearson Education Limited benefit substantially. By aggregatingworldwide, we identified those transformed its entire business model estimates of market size and growthcompanies whose median revenue when faced with a growing shift to for just a few industries and sectorsgrowth most exceeded their industry digital publishing. Tech-based education associated with these areas of behaviorpeers—we term these companies services replaced textbooks as its change, we estimate the growth“industry growth leaders.” By focusing primary breadwinner. Brazilian pulp opportunity from those sectors aloneon the set of highly successful and paper company Suzano Papel e to be roughly US$2.4 trillion over thecompanies that had succeeded in Celulose saw beyond the challenge four-year period from 2012 to built on significant changes of sustainability and recognized the These industries and sectors are growingin consumer behavior, we were able to potential for “triple bottom line” growth; three-and-a-half times faster thanidentify three common elements that it undertook sustainable forestry emerging economies and 10 timeskept them closer to changing consumers practices and was the first company in faster than developed economies.and enabled them to achieve dramatic any industry in Latin America to receivegrowth. Industry growth leaders: carbon-friendly accreditation. Additional research we conducted estimates that stimulating consumer• Develop a cutting-edge analytical Create an agile organization. Leaders expenditure could raise the level of toolkit that enables them to recognize the importance of winning global gross domestic product by 2.3 continuously assess and respond to quickly in today’s markets; having the percent in 2016. With these projected changes in consumer behavior. right capabilities to turn insight into returns, understanding and following action. These companies scale offerings consumer behavior becomes everyone’s• Instill an adaptive mindset that helps rapidly after identifying a successful business today, including those that them anticipate or respond quickly to response to an element of consumer seek to increase growth at national disruptive market forces. change and are able to change direction and world levels. The end result is likely• Create an agile organization to quickly. Whole Foods Market understood to be a boost to growth that benefits introduce the right capabilities to act consumers’ growing emphasis on both developed and emerging markets— on fast-developing opportunities. healthy living and carried out mergers and the consumers within them. and acquisitions to become the world’sHow can organizations market leader in natural foods. Baidu, a Chinese search engine and technologybetter profit from consumer company, is moving into Brazil as partchange? of its internationalization strategy— despite losing US$108 million in itsDevelop an analytical toolkit. Leaders overseas operations from 2008 to 2010.use advanced analytics to identify andbridge gaps between businesses andconsumers. For example, ActivisionBlizzard Inc., a computer gamesdeveloper, partnered with an analyticsfirm—which captures analytics data on250 million consumers daily—to test andimprove gameplay in real time. Netflix’sanalytics capabilities lead the film rentalindustry, enabling the company to caterto individual consumers’ preferences inrecommending titles for rent.7
  9. 9. About the researchOur research comprised four individual studies. Each study was designedto answer critical questions in a logical sequence that started with theindividual consumer and ended with implications for the global economy:• Is consumer behavior really changing—and if so, what patterns or trends can we discern to help businesses grow?• Are business leaders aware of these changes, and if so, how are they responding?• What are the best examples of companies that are capturing the benefits of changing consumer behavior, and what can other companies learn from them?• What do changes in consumer behavior mean for the global economy as a whole, and can higher growth be stimulated by greater understanding of these changes?For the global consumer behavior survey, Accenture surveyed 10,000online consumers from 10 countries—Brazil, China, Germany, India,Indonesia, Japan, South Africa, Turkey, the United Kingdom and theUnited States—to assess and quantify the extent of consumer behaviorchange. We conducted a factor analysis on the results of this survey toderive the 10 dimensions of consumer change discussed in this report.For the global executive survey, Accenture surveyed 600business executives from the same 10 countries, across manyindustries. Approximately half of these respondents were C-levelexecutives; the remainder were directors and other seniormanagers. Nearly 60 percent of the businesses surveyed hadannual worldwide revenues above US$1 billion; about one-thirdhad revenues between US$500 million and US$1 billion; the resthad revenues between US$250 million and US$500 million.In our industry growth leaders analysis, Accenture assessed the world’stop 3,000 listed companies by market capitalization and identified thosethat had achieved the greatest median revenue growth compared totheir industry average over three-, five- and 10-year periods. A subset ofthese companies was used to create several case studies for the report.Accenture conducted a macroeconomic analysis in conjunctionwith Oxford Economics to assess the impact of changingconsumer behavior, identifying the effect of an increase inconsumer expenditure on the economy as a whole.In addition to the four studies listed, Accenture conductedinterviews with client account teams and technology specialists. 8
  10. 10. The age of complexityThe global economic Consumer expenditure Market growth harderoutlook crucial for growth to attainThe residual impact of the great Stimulating consumer expenditure Many businesses are finding thatrecession is still being felt by the global is essential to steer economies onto traditionally “core” markets are showingeconomy. While the prospects in 2013 higher growth trajectories, not least little or no signs of growth. Consumerlook better than 2012 at a global level, due to the size of consumer spending confidence in the European Union isconcerns still persist over economic itself. Household expenditure is the approximately 12 percent lower thangrowth in developed countries, where main component in many developed the long-run average, as unemploymentthe outlook over the next five years is economies—private consumption rises and disposable household incomesbelow prior highs (see Figure 1). constituted 72 percent of gross fall.6 This decline in confidence has had domestic product in the United States a corresponding impact on retail sales,Lower growth in the developed in 2011.5 Many emerging economies which were 3.6 percent lower in theworld, and the consequent reduction are trying to stimulate consumer eurozone than the year prior.7in imports, has dampened growth expenditure to rebalance economiesprospects among the largest emerging that have become reliant on fixed At the same time, emerging marketsmarkets. These emerging markets investment and government expenditure are unlikely to provide immediateare also facing challenges closer to for growth. returns for new entrants. The Accenturehome. China’s growth is slowing as global executive survey suggests thathousehold consumption continues to In addition, history shows the important emerging-market exposure has beenlag investment,1 with the percentage role of consumer expenditure in critical for companies in developedof gross domestic product attributable recovery from prior recessions. markets to achieve high growth. Of theto consumer spending falling by 11 Accenture analysis of 14 recessions fast-growing companiesiii headquarteredpercentage points from 2000 to 2010.2 suffered across Germany, the United in developed markets, 23 percent gainedIndia’s 2012 growth rate is forecast to States and the United Kingdom found more than half of their revenues frombe the lowest in 10 years. It, too, has that consumer expenditure was a emerging markets, compared with justseen private consumption as a share of significant component of recovery after 5 percent of others. Yet the window ofgross domestic product fall—by more eight of these downturns.ii However, the opportunity in emerging markets maythan eight percentage points over the recent recession has been not only more be shrinking. In the Accenture Fastsame period.3 Brazil’s economy has prolonged but also more profound than Forward to Growth study in 2012, 73oscillated from 7.5 percent growth in those observed in the past. Personal percent of respondents said they feel2010 to 1 percent in 20124 and back consumption has taken 10 quarters to the need to accelerate their efforts andto a forecasted 3.9 percent in 2013. return to its pre-recession level in the that they may already be too late toIn such a complex macroeconomic United States, compared to an average build satisfactory market share in high-environment, sources of growth are of three in previous recessions (see growth markets,8 raising concerns that,hard to find and constantly changing. Figure 2). while new hotspots of economic growth may be appearing, it will take time for businesses to reap the rewards.ii  The analysis looked at different components’ contribution to changes in gross domestic product levels, and the extent to which the components’ influence differedfrom a historical average in the quarter immediately following recession. “Very significant” is defined as greater than one standard error over the mean.iii  Defined as those with an increase in total sales of 6 percent or higher over the last year.9
  11. 11. Figure 1. Slow recovery in developed marketsAverage annual gross domestic product growth, developed markets (in percentage)Eurozone United States Japan 3.2 3.0 2.7 2.5 2.2 1.8 1.4 1.0 0.6 0.1 -0.2 -0.1 1998-2002 2003-2007 2008-2012 2013-2017 1998-2002 2003-2007 2008-2012 2013-2017 1998-2002 2003-2007 2008-2012 2013-2017Source: Oxford EconomicsFigure 2. Slower recovery than prior recessionsPersonal consumption expenditure after United States recessions, index=100 for quarter prior to recession1301251201151101051009590 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quarters from recession start 1953 Q3 to 1954 Q2 1969 Q4 to 1970 Q2 1981 Q3 to 1982 Q2 2008 Q3 to 2009 Q2Sources: United States Bureau of Economic Analysis, Accenture analysis 10
  12. 12. With the economic outlook in emerging Here is how global growth could playmarkets facing downward pressure, out: in developed markets, the slowingit will be far more challenging for or ending of the drive for austerityinternational businesses to deliver rapid (happening organically or led by policy)growth. The Accenture global executive could encourage businesses to spendsurvey suggested a fading confidence and invest some of their cash emerging markets—just one in three Increased business activity will, in turn,business leaders surveyed are very improve labor-market conditions, liftingconfident that selling more in emerging real wages while boosting consumermarkets would enable profitable growth confidence. In emerging markets, thisin the next two to three years. impact is likely to be more prominent, thanks to ongoing rebalancing efforts, continued urbanization and strongThe case for change momentum in real income growth.Given the importance of privateconsumption to major economies, Although these changes are partlya substantial recovery in consumer a question of policy—enabling aspending would help economies reduction in the savings rate in bothachieve a higher growth trajectory than the emerging and developed world,currently forecast. However, consumers without precipitating a return to thethemselves are not going to spend overly high levels of personal debt thattheir way out of the current situation. helped bring about the 2008 downturn—Business investment is critical to an businesses also have a role to play ineconomic upsurge, with governments targeting investments to activitiesalso playing a role in providing that appeal to consumers, allowinginfrastructure and creating a favorable their spending levels to grow. To do sopolicy environment. requires a nuanced understanding of how consumers have changed, and whatOur analysis, carried out in conjunction they currently want.with Oxford Economics, suggeststhat if consumer expenditure can beencouraged, global growth forecasts willbe significantly higher. We believe thatconsumer expenditure globally couldrise by US$1 trillion over the baselineexpectations by 2016,iv resulting in anuplift to global gross domestic productof 2.3 percent (or US$1.4 trillion).iv  Oxford Economics baseline growth forecast as at November 2012.11
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  14. 14. Great expectationsMarket expectations of The expectations are high; in total, non-financial companies in the S&P markets. These difficulties have arisen for a number of reasons—weaker-than-company growth are Global 1200 need to achieve US$5 trillion of revenue growth every year forecast demand, regulatory pressures or a misunderstanding of consumers.back to meet analysts’ growth expectations. One US-based retailer, for example, In today’s environment, achieving this recently announced the closure of aDespite unfavorable economic revenue growth will be no small feat. store format in China poorly suited toconditions, market expectations of local growth have returned to pre-crisis levels. Analysis of the S&P Global Unfounded optimism? At the same time, it is significantly1200 (excluding financial companiesv) harder to realize inorganic growth. Faced with these high expectations,shows that enterprise value multiplesvi— The combination of the uncertain businesses are remarkably they multiples of revenue or profit— macroeconomic environment, increasing Eighty-two percent of respondentsare back to where they were in 2007 protectionism and growing antitrust we questioned in our global executive(see Figure 3). regulation globally has dampened the survey are confident in their business’s ability to grow profitably over the next market for mergers and acquisitions.We also found that analysts’ two to three years (see Figure 4). This Global merger and acquisition dealexpectations of revenue growth growth is not restricted to companies values were 50 percent lower in 2011among leading firms are significantly based in emerging markets; in every than 2007, and the forecast for 2012 isoutpacing forecasts of economic country we surveyed, at least 60 lower still.10growth. Using the S&P Global 1200(excluding financial companies) as percent of respondents said they areour dataset, we calculated that the confident in the ability of their companymedian consensus revenue growth to grow.for 2012 to 2014 is 4.6 percent per Such confidence may be misplaced: weannum. In comparable terms, economic looked at the revenue and net incomegrowth in developed economies is growth of the world’s 3,000 largestforecast to average 3.3 percent per listed (non-financial) companies andannum over the same period.vii found that, over the last three years,The implication is clear—leading nearly half (44 percent) of them failedcompanies need to grow faster than to grow both revenue and net income.their economic environment. Yet on Weak overall growth in developedaverage over the last three years, nearly markets, coupled with challenges infour in 10 companies have failed to have achieving success in emerging markets,revenue growth exceed gross domestic has drastically reduced opportunitiesproduct growth in developed economies, for organic growth. Many large globaland less than a quarter (24 percent) companies, from sports clothinghave had revenue growth that exceeded retailers to consumer goods companies,growth in developed economies in each have recently issued profit warnings orone of the last three years.9 lowered earnings forecasts in the face of increasing difficulties in emergingv  Financial service companies have been excluded from this analysis because their financials are not exactly comparable with other industries. For financial servicecompanies the market multiples are calculated at an equity level whereas for other industries they are calculated at an enterprise  Enterprise value is a measure of the market value of an entire business, covering both debt and equity (less cash holdings). Enterprise value multiples reflect themarket’s perception of company growth prospects—higher multiples indicate the high premium that the market attributes towards their future prospects.vii  Consensus earnings estimates are in nominal terms in local currency, and we took the median of individual companies’ growth rates. Developed economies’ grossdomestic product was calculated in current prices and constant (2005) exchange rates—this is the closest parallel possible. We use gross domestic product growth indeveloped economies as a comparison since companies from developed economies make up the vast majority of the S&P Global 1200.13
  15. 15. Figure 3. Market expectations are back to pre-downturn levels Enterprise value multiples, S&P Global 1200, 1997 to 2012 14 13 12 11 Enterprise Value/Earnings Before Interest and Taxes 10 9 8 Enterprise 7 Value/Earnings Before 6 Interest, Taxes, Depreciation andEnterprise value multiple 6 Amortization 5 4 3 2 1 Enterprise Value/Revenue 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 Sources: Capital IQ, Accenture analysis Figure 4. Businesses are confident in their ability to grow How confident are you in your businesss ability to grow profitably in the next two to three years? 1% All 4% 13% 48% 34% Developed 7% 20% 48% 25% 1% Emerging 2% 9% 48% 40% 2% Germany 3% 13% 52% 30% Japan 5% 25% 41% 30% United Kingdom 15% 25% 47% 13% United States 3% 17% 52% 28% Brazil 67% 33% China 7% 43% 50% India 10% 35% 55% Indonesia 7% 48% 46% 2% South Africa 13% 61% 24% Turkey 5% 13% 15% 33% 33% 1 = not at all confident 2 3 4 5 = very confident Source: Accenture global executive survey 14
  16. 16. Growth from consumer Fast-growth companies arebehavior change already taking advantage ofSo, how can companies find and behavior changedeliver the growth they need? Growth There is a significant differenceopportunity comes from change—and between companies we surveyedchanges in consumer behavior have whose revenues grew by 6 percent orthe capacity to create huge market more last year (“fast growers”) andupheaval. In the churn that accompanies those whose revenues did not (“slowchange, there is opportunity for growers”) in their attitudes towardcompanies to gain ground relative consumer behavior change (see Figureto their competitors. Moreover, this 5). Fast growers are more likely toopportunity is not reliant on high levels see business opportunity in consumerof economic expansion—change will behavior change than slow growers (88continue to create opportunity in high- percent versus 74 percent). But theygrowth markets, but gaining market are also more likely to be investingshare represents the most likely source to capture it—79 percent of fastof business growth in slowing markets. growers have increased investment in consumer-facing activities in theThe results of our global executive last three years, compared withsurvey suggest that, despite recognizing just 54 percent of slow growers.the upheaval, business leaders areunderexploiting changes in consumer This opportunity from consumerbehavior as a source of growth. behavior change is not new—but theMore than four in five respondents pace of change means that, similar toin our global executive survey said the emerging-market boom, those leftthat consumer behavior change behind now will struggle to catch up.presents opportunity for businessgrowth (83 percent selected “4” or Executives recognize that economic“5” on a 5-point scale). And yet 74 and demographic change—the agentspercent of executives said that their of “market growth”—are not the onlyunderstanding of consumer behavior trends that enable business less than complete. Fully 80 Our global executive survey found thatpercent of executives we asked said business leaders believe that technologythat they are not taking advantage developments are the most importantof this opportunity for growth. shift for enabling business growth (34 percent), with a further 13 percent saying that changes to consumer preferences are most important (see Figure 6).15
  17. 17. Figure 5. Fast-growing companies at the forefront of consumer behavior changeOpportunity from consumer behavior change 2%Fast growth 9% 53% 36% 1%Slow growth 5% 20% 54% 20% 1 = we do not see it as an opportunity at all 2 3 4 5 = we see it as an enormous opportunityUnderstanding of consumer behavior 2%Fast growth 11% 55% 32% 1%Slow growth 3% 21% 60% 15% 1 = has very little understanding 2 3 4 5 = completely understandsInvestment in consumer-facing activities, last three years 1%Fast growth 4% 17% 48% 31%Slow growth 7% 38% 41% 13% 1 = significantly decreased 2 3 = stayed the same 4 5 = significantly increasedSource: Accenture global executive surveyFigure 6. Technology seen as the main driver of business growthWhich of these broad shifts do you see as most important for enabling your business to grow profitably in the next two tothree years? 2%All 29% 22% 34% 13%Developed 7% 8% 26% 20% 30% 15% 2%Emerging 29% 21% 36% 12%Germany 3% 30% 25% 31% 11%Japan 3% 31% 30% 26% 10%United Kingdom 13% 7% 28% 17% 25% 17%United States 12% 67% 17% 10% 38% 23%Brazil 23% 40% 18% 18% 2%China 23% 10% 65%India 3% 42% 23% 20% 12%Indonesia 33% 18% 41% 8%South Africa 29% 19% 42% 10%Turkey 7% 15% 25% 18% 28% 22% Other/none Changes to global Changes to global Technology Changes to consumer income patterns demographic patterns developments preferencesSource: Accenture global executive survey 16
  18. 18. Why consumerbehavior isimportant for allbusinessesVery few businesses do not have a consumer at the end of the valuechain. While a traditional business-to-business company may think it isnot affected by consumer change, it is not well insulated.Take tablet computers, for example—as traditional “consumer” goods,they have been introduced in “non-consumer” industries, such ashealthcare and education, to disruptive effect. Also, indirect effectsof consumer behavior change have had a butterfly effect on somebusiness-to-business industries. The growth in demand for rare-earthminerals in new consumer technologies (such as tablet computers)contributed to price rises and export controls—creating real risk inindustries that use rare earths for different purposes, such as petroleumrefining. In an interconnected world, all businesses, everywhere, need tohave an understanding of changing consumer behavior.17
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  20. 20. Understanding the changingconsumerBeyond “who” is However, awareness of consumption shifts does not guarantee growth, and 10 dimensions of consumerconsuming and “where” fast-growth companies differentiate change themselves by recognizing that they To take advantage of opportunitiesFast-growth companies understand need to respond to change in consumer that arise from changes in consumerthat knowledge of “who” is consuming behavior—as well as demography behavior, organizations of all kinds needand “where” they are consuming is and income patterns—to capture to understand it better. As part of thenecessary yet insufficient for achieving the opportunity in increasing global Accenture global consumer behaviorsustained consumer-led growth. The consumption. As a result, they possess survey, we identified 10 dimensions ofdemographic and economic shifts that a fundamental understanding of the consumer behavior change happeningare affecting consumption patterns are changing consumer which recognizes now that characterize the changingwell-documented. More than 15 percent “how” and “why” we consume. consumer. We analyzed surveyof the world’s population today is responses to determine which behaviorunder 15 and living in Asia. Yet by 2050there will also be 2 billion people in “How” and “why” we shifts were cross-correlated—that is, those that moved in step with eachthe world over 60.11 In all 10 countries consume other. This analysis resulted in eightwe surveyed, the median age of the Both digital enablement and attitudinal groups of behaviors, or “dimensions”population is expected to increase changes have altered “how” and of behavior change. We then splitbetween 2010 and 2050.12 “why” we consume, resulting in a new the largest (“networked”) dimensionGeographically, the locus for “where” consumer paradigm (see Figure 7). further, into three observable trendsconsumption is taking place is shifting Today’s consumer is better-informed in online consumption. We groupedeast and south, as greater disposable than in the past, with unprecedented the remaining seven factors intoincome brings millions in emerging access to products and services through those that are primarily concernedeconomies into the consuming class. new methods of consumption. At the with the individual—what we term theAccording to Accenture analysis, China same time, consumers today differ from “independent consumer”—and thoseand India are projected to experience their predecessors in their motivations that primarily involve interaction witha total increase of household income for consumption. They make choices others—the “co-operative consumer.”of US$4.6 trillion between them from not only to improve their material The dimensions of consumer behavior2010 to 2020. By 2020, Turkey is welfare but their physical and mental change are defined in Figure 8.anticipated to have an extra 4.7 million well-being as well, and they are morehouseholds with annual incomes more interconnected with the lives of others.than US$30,000—and Mexico another These developments are less predictable3.3 million.13 than economic and demographic change, yet also less reliant on high levels of economic growth. This degree of changing behavior is borne out by the Accenture global executive survey. Nearly three quarters of respondents (73 percent) said that consumer behavior is markedly different than it was just three years ago.19
  21. 21. Figure 7. Moving beyond the “who” and “where” of consumptionFour major shifts… Economic e.g. the growing global middle class Changes who is consuming and where Demographic e.g. aging populations Technology Digital enablement Changes how we consume and why Changing consumer Ideology Attitude changeFigure 8. The 10 dimensions of behavior change Connected • Ensures they are always “on,” continuously in a channel Networked Social • Uses digital technologies to interact with friends, family, strangers, institutions Co-productive • Plays a role in production through design, or providing data to companies Individual • Values uniqueness and luxury, seeks to express their personality Experiential • Desires new experiences, attends live events, shares experiences with friends Independent Resourceful • Works hard to get ahead, shrewd with money Disconnected • Tries to switch off, break from tradition Communal • Participates in society, with a strong group ethic Co-operative Conscientious • Buys local, makes rather than buys, considers the environment before purchase Minimalist • Places access above ownership, happy to purchase second-hand or reuse 20
  22. 22. The networked to design products and providing direct feedback to improve offerings—what The co-operativeconsumer we term co-productive consumption. Thirty percent of consumers are buying consumerTechnology has now permeated all things they helped design or make Consumer expectations for productsspheres of life. The uptake of new online more often than three years ago. and services are going beyond personaldevices is now faster than at any Co-production can mean anything from utility. Now, consumer choices arepoint in history—the time taken for designing personalized greeting cards guided by the need to do good—forsmartphones to move from 10 percent to providing funding for a start-up. others and for oneself. Co-operativeto 40 percent penetration in the Networked consumers are empowered consumers place a strong emphasisUnited States was equaled only by to tailor products to their desires on responsible production andthe television. Tablet computers have and aspirations instead of vice versa, consumption. They are communal inbecome the fastest technology to reach transforming the act of consumption. their outlook, participating in society10 percent penetration, achieving this and improving their health (47 percentmilestone in a mere 18 months.14 There of consumers participate more inwere nearly 6 billion mobile phone The independent physical activity to improve their healthsubscriptions in 2011, and 2.2 billion than they did three years ago). They areInternet users—roughly one-third of consumer conscientious in their consumption—51the world’s population.15 Facebook We are seeing unprecedented levels percent of consumers consider thepassed 1 billion users in 2012,16 while of wealth globally, with many people environmental impact of the product orit takes only a week for Twitter users in many countries enjoying disposable maker more often before purchasing ato send 1 billion tweets.17 Society has income for the first time. But money product. Instead of purchasing a newmoved online, creating a connected does not necessarily make you happy. As product, co-operative consumers rentconsumer class with continuous access societies develop, consumers seek more or buy used; what we term minimalistto goods and services. Our global from their lives than a conveyor belt consumption. Twenty-five percent ofconsumer survey found that 73 percent of washing machines and automobiles. consumers are more frequently buyingof consumers are using the Internet Consumers around the world are now or using things previously owned byto research or purchase products or adopting lifestyles that can provide an someone else (see Figure 9).services more than they were three outlet for self-expression in their pursuityears ago. of happiness.18Increasingly, networked consumption Independent consumers expecthas also become a social experience—we individual offerings to match theirfound that 53 percent of consumers personalities and preferences—40are increasingly using social media percent of consumers are buying thingsto interact with friends and family, more often that they think help expresswhile customers are also using the their individual personality. Moreover,recommendations of family, friends they are experiential, seeking uniqueand others whose opinions they trust experiences, from the adventure of anto inform their purchasing decisions urban scavenger hunt to the enjoymentmore often. But social networks on of attending a music festival—38the Internet spread beyond friends percent of consumers increasingly areand family—there has been an seeking out new or unique experiences.explosion in online forums and chat Resourceful consumers are shrewd withrooms that discuss various goods money, and they are working hard to getand services, and consumption blogs ahead—35 percent of global consumers(food or otherwise) have become are working outside normal businessa mainstay of online society. hours more often than three years ago.Also, networked consumers have a And some choose to become noticeablyradically different relationship with disconnected—switching off from theproducers than their offline forebears. “noise” of modern life. Nearly one in fiveNot content to merely purchase goods consumers say they turn their phonesand services and share their opinions off for extended periods of time morewith contemporaries, they want to often than they did three years ago.actively participate in the productionprocess as well, working with businesses21
  23. 23. 22
  24. 24. Figure 9. Consumer Change IndexKey: Bars show net increase in activity. This is calculated by subtracting the percentage of respondents that have done theactivity less in the last three years from the percentage that have done the activity more in the last three years. Global Germany Japan United United Kingdom StatesConnected ConnectedUse Internet to research products 68 58 61 69 56 Use Internet toUse laptop or tablet in personal life 63 41 46 52 47 Use laptop or taCheck e-mails before bed 50 27 31 34 38 Check e-mails bWatch TV on a device 25 8 5 25 12 Watch TV on a dShop while in bed 4 -1 3 5 -3 Shop while in bSocial SocialUse social media with friends/family 42 11 7 35 26 Use social mediInteract with companies online 37 9 4 23 20 Interact with coSpend time texting or e-mailing 29 3 7 38 26 Spend time textTake part in online communities 22 8 1 16 3 Take part in onlCo-productive Co-productiveContribute reviews online 33 18 12 22 21 Contribute revieProvide feedback to companies 31 14 6 34 28 Provide feedbacHelp design or make online 15 -1 -1 -5 -3 Help design or mIndividual IndividualBuy to express personality 26 9 8 6 0 Buy to express pBuy because something is unique 21 9 0 -1 -1 Buy because somBuy custom-made or tailored 10 -6 -3 -13 -17 Buy custom-maBuy to impress friends 2 -3 -10 -18 -16 Buy to impress fTreat oneself to luxury 2 0 -4 -16 -13 Treat oneself toBuy shares or stake in company -5 -8 0 -16 -9 Buy shares or stExperiential ExperientialShare experiences with friends 22 6 -6 5 3 Share experiencDo something new 17 8 -3 0 -1 Do something nTravel to new places 12 6 -1 0 -3 Travel to new plAttend live events 1 -8 -11 -20 -13 Attend live evenResourceful ResourcefulRepair rather than buy new 18 12 9 27 17 Repair rather thWork outside normal hours 15 10 1 7 2 Work outside noResell or exchange goods 10 15 -1 26 13 Resell or exchanDisconnected DisconnectedBuy things parents disapprove of 1 5 -7 6 -4 Buy things pareSchedule time to do nothing -1 10 -5 -3 1 Schedule time tTurn off phone -13 1 -7 -6 -3 Turn off phoneCommunal CommunalMake changes to reduce impact 33 15 8 22 21 Make changes tParticipate in physical activity 30 25 12 11 25 Participate in phVolunteer to help good cause 15 2 -3 -3 9 Volunteer to heParticipate in group activities 8 -1 -7 -15 -12 Participate in grHelp local organizations 6 1 -5 -2 4 Help local organAttend religious group meetings -3 -15 -14 -14 -7 Attend religiousConscientious ConscientiousConsider environmental impact 42 27 15 18 28 Consider environGive away things 39 25 14 42 49 Give away thingBuy locally sourced or made 30 27 23 24 35 Buy locally sourMake rather than buy 18 11 -4 14 15 Make rather thaUse community services 10 -7 -1 1 10 Use communityMinimalist MinimalistBuy pre-owned -7 -1 3 19 4 Buy pre-ownedRent rather than own -12 -14 -4 -17 -18 Rent rather thanSource: Accenture global consumer behavior survey23
  25. 25. e thed Brazil China India Indonesia South Turkeys Africa Connected 56 Use Internet to research products 80 79 55 72 71 76 47 Use laptop or tablet in personal life 69 80 58 80 75 7638 Check e-mails before bed 76 44 60 61 64 66 Watch TV on a device 25 75 34 12 16 33 Shop while in bed 5 37 3 -10 3 -3 Social6 Use social media with friends/family 61 67 51 58 61 410 Interact with companies online 51 58 42 43 51 656 Spend time texting or e-mailing 36 52 37 10 58 23 Take part in online communities 39 40 30 41 30 16 Co-productive1 Contribute reviews online 53 53 35 33 39 458 Provide feedback to companies 29 49 39 19 45 46 Help design or make online 33 52 30 8 -1 37 Individual Buy to express personality 28 53 49 44 24 36 Buy because something is unique 25 46 50 35 28 20 Buy custom-made or tailored 19 41 40 29 -8 16 Buy to impress friends 4 43 27 3 -14 4 Treat oneself to luxury 17 22 15 -5 3 0 Buy shares or stake in company -10 21 12 -10 -15 -11 Experiential Share experiences with friends 44 48 47 31 24 22 Do something new 26 36 44 28 16 18 Travel to new places 16 29 31 24 -7 25 Attend live events 15 19 25 -8 -2 12 Resourceful Repair rather than buy new 15 19 22 13 25 23 Work outside normal hours 13 31 18 19 31 17 Resell or exchange goods -2 27 10 -9 17 3 Disconnected Buy things parents disapprove of 17 18 2 -27 4 -4 Schedule time to do nothing 2 8 6 -18 -8 -1 Turn off phone -22 -11 -12 -35 -19 -20 Communal1 Make changes to reduce impact 42 60 48 46 40 285 Participate in physical activity 32 53 46 35 31 36 Volunteer to help good cause 19 35 35 24 11 26 Participate in group activities 21 39 26 16 -3 12 Help local organizations 5 23 27 9 4 -2 Attend religious group meetings 7 -4 21 20 2 -22 Conscientious8 Consider environmental impact 54 62 53 56 48 57 49 Give away things 44 39 36 39 56 5135 Buy locally sourced or made 25 43 24 12 43 41 Make rather than buy 19 26 33 13 25 25 Use community services 7 33 26 -2 24 9 Minimalist Buy pre-owned -25 -5 -16 -19 -14 -15 Rent rather than own -11 27 -8 -35 -34 -9 24
  26. 26. The size of the prize It should be noted that our model provides only a partial picture ofThe marketplace for the changing the true potential of the marketconsumer is vast and growing size associated with the changingrapidly. To understand this market’s consumer. The industries includedsize and economic prospects better, are indicative of each dimension ofAccenture identified a list of emerging consumer change,viii with accountindustries and sectors that are driven being taken of any potential overlapby the 10 dimensions of behavior between industries to avoid double-change. We then researched each counting and overestimation.industry’s size and projected growthrate from 2012 to 2016. Finally, In low-growth environments, companieswe combined these industries and must focus on gaining market share insectors to create a composite growth an environment where potential gainstrajectory on a global scale. are constrained. There is immense capacity for businesses to achieveThe results are striking. The market growth through these sectors—but suchsize for industries and sectors we have growth may come at the expense ofassociated with behavior change are incumbent offerings and businesses.projected to more than double by 2016from US$2 trillion in 2012 to US$4.5trillion, with a compound annual growthrate exceeding 20 percent (see Figure10). By contrast, the global economy isexpected to grow at an average rate of3.3 percent over the same period.19 Putanother way, these consumer behavior-driven markets are expected to growat three-and-a-half times the rate ofemerging economies, and 10 times therate of developed economies, betweennow and 2016.Figure 10. The growth opportunity from changing consumer behaviorsBehavior change global market sizing, US$billion 4,462 87 Disconnected 178 Conscientious 121 Communal 33 Minimalist +22% CAGR 364 Individual 3,600 81 Experiential 300 163 113 210 Resourceful 28 90 Social 2,938 339 29 Co-productive 75 149 259 106 2,426 25 168 317 66 70 18 137 2,023 100 224 65 21 136 126 296 49 94 11 18 194 276 111 36 7 3,050 Connected 168 91 27 2,364 5 1,847 1,454 1,153 2012 2013 2014 2015 2016Note: Individual figures may not sum to the total due to rounding errors.Source: Accenture analysisviii  The industries included are: organic foods and health clubs (both communal); mobile transactions and e-commerce (connected); crowdfunding and 3D printing(co-productive); cruises and sleeping aids (disconnected); low-cost airlines and mobile coupons (resourceful); fair trade goods and green packaging (conscientious);live music and adventure travel (experiential); video-on-demand and luxury goods (individual); digital music and e-waste/reuse (minimalist); social media and virtualgoods (social).25
  27. 27. Hotspots of growth Hotspots of pure economic and consumer spending growth can still be found in unlikely consumer markets. Horizon 2 markets, such as Indonesia, Mexico and Turkey, form the next wave behind the BRICix economies, expected to grow at a compound rate of between 3.7 percent and 5.8 percent over the period from 2010 to 2020. Beyond this, Horizon 3 markets, such as Pakistan, Ukraine, Angola and Egypt, combine rapid growth with strong absolute increases in consumption (see Figure 11). Compared to 2010, Kazakhstan will have nearly 500,000 extra households with income over US$50,000 a year in 2020. However, under current forecasts, consumer expenditure growth in developed markets will be limited, and companies will have to look to behavior shifts for growth opportunity. Apart from the United States (which is likely to experience the second-largest growth in consumption to 2020, behind China) growth in consumer spending in many developed countries is going to be low. Yet while expected growth may be low, we observe significant consumer behavior changes in developed and emerging markets alike. These changes present incumbents with continuous challenges and create opportunity for new entrants. In mature markets it is critical to focus now on behavior change as a source of growth—and it will become increasingly important in emerging markets over time. Figure 11. Next waves of market growth Private consumption growth–Compound Annual Growth Rate versus absolute, 2010 to 2020 11 10 Angola 9 Horizon 3? China Qatar 8 Kazakhstan India 7 Zambia Cambodia Nigeria Horizon 2CAGR, Percentage 6 BRICs Ukraine Indonesia 6 Turkey 5 Russia Brazil 4 Mexico Senegal South Korea 3 Canada Australia United States 2 United Kingdom Western Europe Germany 1 Japan Other developed Ireland Spain France Italy 0 1,000 10,000 100,000 1,000,000 10,000,000 Absolute growth, US$million (log scale) Source: Oxford Economics, Accenture analysis ix  Brazil, Russia, India and China 26