Quickening the Pace (Futures Perspective)


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The eight days of near-doom in September 2008 struck like a lightning bolt, cleaving the market in two along an already-weakening fissure largely hidden from view until laid bare by a direct hit from
the financial crisis. Across the developed world,
most particularly the US, the UK and the Eurozone,
decades of stagnant real wages, accumulating debt
and flagging innovation had left the middle class acutely vulnerable to the financial storm that swept the globe. In the wake of the Great Recession, a sizable stratum of spent consumers has materialized where an aspirational middle used to be.

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Quickening the Pace (Futures Perspective)

  1. 1. Future Perspectives Quickening the Pace What a Slow-Growth West Demands of Brands 1 Quickening the Pace
  2. 2. Section 1: Facts ...What’s the situation? • Storm Damage • What Happened?! • How Bad Was It?© 2011 The Futures Company. All rights reserved. 2
  3. 3. Storm DamageThe eight days of near-doom Great Recession, a sizable UK-based Resolutionin September 2008 struck stratum of spent consumers Foundation Commission onlike a lightning bolt, cleaving has materialized where an Living Standards documentsthe market in two along an aspirational middle used to be. the failure of wages inalready-weakening fissure developed markets since thelargely hidden from view until Overlooked—or just ignored— mid-1970s to keep pace withlaid bare by a direct hit from during the boom preceding economic growth, as shown inthe financial crisis. the global recession was clear Figure 1. evidence that the position ofAcross the developed world, the middle class in developedmost particularly the US, markets was increasinglythe UK and the Eurozone, fragile. The New York Timesdecades of stagnant real reported in early 2008 thatwages, accumulating debt “[t]he European dream isand flagging innovation under assault, as the wave ofhad left the middle class inflation sweeping the globe acutely vulnerable to the mixes with this continent’sfinancial storm that swept long-stagnant wages.” Athe globe. In the wake of the recent report from theFigure 1: Wages as a Percentage of National Income for OECDCountries60%55%50% 1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 1900-04 1905-08Source: James Plunkett, Growth Without Gain? The Faltering Living Standards of Peopleon Low-to-Middle Incomes, Resolution Foundation Commission on Living Standards,May 2011. 3 Quickening the Pace
  4. 4. Figure 2: Inflation-Adjusted Median Wages for US Men, 1969-In the US, as Figure 2 reflects, 2009inflation-adjusted wages for men dropped by double digits Change in male earnings and employment 1969-2009from 1969 to 2009, even for Mean Earnings Meadian Earnings Employmentthose with a college degree. (percent change) (percent change) (percentage point change) Weekly Earnings, Weekly Earnings, Annual Earnings Annual Earnings Working Working Not Full-Time, Full-Time, of All Male of All Workers Full-Time Part-Time Working Full-YearWorkers Full-Year Workers PopulationIt’s not just an issue of wages, Ages 25-64 13 -1 -14 -28 -16.5 4.7 11.8though. More fundamentally, Ages 30-50 9 -5 -16 -27 -15.5 5.3 10.2 By Educationit’s an issue of jobs. An analysis Less than High School High School Only -29 -20 -38 -26 -47 -34 -66 -47 -31.8 -26.2 8.4 8.5 23.4 17.8by MIT economist David Autor, Some College College Degree -13 11 -17 -2 -24 -7 -33 -12 -19.2 -6.6 5.6 0.7 13.6 6.0summarized in the chart shown By Marital Status Married 22 -1 -2 -13 -11.6 3.4 8.3in Figure 3, shows that middle- Not Married 12 -2 -14 -32 -11.0 2.1 8.9income jobs in the US and the Note: Adjusted for inflation using the CPI-U. Unless otherwise specified, values refer to men 25-64. “Full-Time, Full-Year Workers” includes men who worksEU were in decline long before at least 35 hours per week for more than 50 weeks. “Working Full-Time” includes men who worked at least 35 hours per week for at least 40 weeks.“Not Working” is defined as having zero earnings in the previous year.the financial crisis broke. Source: Michael Greenstone and Adam Looney, “Trends: Men in Trouble,” The MilkenTo sustain their financial Institute Review, Third Quarter 2011.position through these decadesof stagnant wages and decliningjob opportunities, middle-class consumers in developed Figure 3: Job Share Trends by Wage Tercile, 1993-2006, for the US and 16 EU Countriesmarkets found a Midas touchin easy credit, asset bubblesin equities and housing, taxbreaks, government transfersand pensions, two-incomehouseholds and the so-called Wal-Mart effect. Butin the aftermath of the GreatRecession it has becomepainfully clear that all of thatwas little more than financial alchemy.Hard on the heels of decades David Autor, The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings, The Center for American Progress & The Hamiltonof decline, the financial crisis Project of the Brookings Institution, April 2010.widened income divides indeveloped markets, splitting theglobal economy along anotherfissure by increasing the divide © 2012 The Futures Company. Some rights reserved. 4
  5. 5. between beleaguered developedeconomies and boomingemerging economies.Looking to the future, thechallenge for companies andbrands is as simple as it isprofound: What are the sourcesof growth in a global economyweighed down by a squeezedmiddle class in the developedWest?This Future Perspective willtackle this question with abaker’s dozen of observationsand foresights: six importantthings to know about the falloutfrom this downturn followed byseven key imperatives for follow-through by smart marketersand business strategists lookingfor growth opportunities. 5 Quickening the Pace
  6. 6. What Happened?! The Great Recession usual recessionary culprit. too much. So central was what economist Inflation-driven downturns banks respond by lowering Richard Koo has famously are precipitated by central interest rates in the hope of characterized as a “balance banks raising interest rates stimulating demand. But sheet recession,” only this to dampen demand, thereby this often fails because one was a balance sheet lowering inflation. the need to pay off debt recession on steroids that overrides the appeal of has left the US, the UK and In balance sheet recessions, cheap money. This is the eurozone mired in its demand drops because known as a liquidity trap, wreckage. of the overhang of debt, and in such a situation, not because of higher government becomes the Balance sheet recessions interest rates. Such last resort of demand. are financial crises caused recessions often follow by plummeting values of financial bubbles in which Even if government has assets like homes, stocks or speculation fueled by the political and economic currencies (or even tulips) borrowing, or leverage, willingness to spend in that leave financial services has pushed asset values order to jump-start an firms, households and to unreasonably and economy mired in debt, businesses with upside- unsustainably high levels. it must have the funds down balance sheets, owing When these bubbles burst, to do so, which is largely far more than they’re worth. financial firms, consumers subject to its capacity to and businesses find that borrow. In such a moment, Balance sheet recessions their underlying assets bondholders, whether are not uncommon, as no longer cover their sovereign or private, rule the documented by economists debt. Paying down debt day, and they won’t lend or Carmen Reinhart and assumes priority, so they renegotiate terms without Kenneth Rogoff in their quit spending, investing, collateral guarantees and/ serendipitously well- borrowing, lending and or returns equal to the timed 2009 book that hiring, spiraling the risk. If the interest rates or catalogued and dissected economy downward. austerity demands required every financial crisis by these lenders are too of the past 800 years. The problem to be cured in severe, then government However, balance sheet balance sheet recessions spending must be rationed, recessions are not typical is too little demand, not, as further contributing to weak, either. Inflation is the in inflationary recessions, patchy demand.© 2012 The Futures Company. Some rights reserved. 6
  7. 7. Ultimately, neitherconfidence nor spending will rebound until aslow, painful process ofdeleveraging, or debtreduction, has repairedbalance sheets. It isexactly this sort of balancesheet conundrum thatis puzzling economistsand policymakers in thedeveloped West right now.Business leaders, too, areequally confounded as theylook for dynamic sourcesof demand and growthin an otherwise sluggisheconomic landscape. 7 Quickening the Pace
  8. 8. How Bad Was It?The consensus of leading International Monetary Fund thus keeping labor unrest ateconomists is that the (IMF) figures show that real bay. The other BRIC countriesdownturn that gripped the GDP in the US dropped 3.6 were significantly affected, world in 2009 was the worst percent in 2009. The euro too. Brazil’s GDP declined 0.6since the 1930s. Credit area dropped 2.8 percent, the percent in 2009, compared tomarkets froze, financial UK 4.3 percent. China grew 6.1 percent growth in 2007;volatility went off the charts, 9.2 percent in 2009, which Russia’s dropped 7.8 percent,unemployment skyrocketed was good but well below its a huge reversal from its 8.5and global trade dropped so 14.2 percent growth in 2007 percent growth in 2007; andlow that idled container ships before the Great Recession while India’s grew 6.8 percenthad trouble finding spots to and just over the threshold of in 2009, like China, that growthdrop anchor and wait it out 8 percent growth needed for was well below its 2007 level ofin seaports jam-packed with Chinese job growth to keep 10 percent.them. Only timely intervention pace with population growth,by governments aroundthe world, including those Figure 4: Declines in Discretionary Consumer Spending in USin emerging economies like Post-WW2 Recessions since 1960China and Brazil, kept theGreat Recession from tippingover into another GreatDepression.One measure of thedevastation wrought canbe seen in Figure 4, achart compiled by DavidLeonhardt of The New YorkTimes showing a 6.9 percentdrop in US discretionaryconsumer spending fromits pre-recession peak to itsrecessionary trough. Thisdrop is more than double thenext-largest decline, whichoccurred during the seconddip of the early 1980s double-dip recession. David Leonhardt, “We’re Spent,” The New York Times, July 16, 2011, http://www. nytimes.com/2011/07/17/sunday-review/17economic.html?_r=1© 2012 The Futures Company. Some rights reserved. 8
  9. 9. The impact was seenin unemployment. TheInternational LabourOrganization (ILO) tracked ajump in the unemploymentrate of developed economiesfrom 5.8 percent in 2007to 8.3 percent in 2009.Unemployment grew againin 2010 to 8.8 percent beforedropping slightly to 8.5percent in 2011, the same asthe ILO’s preliminary estimatefor 2012. The number ofunemployed people in theseareas rose from 29.1 million in2007 to 42.5 million in 2009.The challenge for businesses,marketers especially, is two-fold. The first is to find the enduring sources of growththat can reinvigorate businessprospects. The second isfor businesses to build theirown momentum, not wait ongovernment or consumers togather speed first. Today’s economy is tough, but toughtimes are no excuse forretrenchment or defeatism.Opportunities still abound, asthis Future Perspective makesclear. 9 Quickening the Pace
  10. 10. Section 2: Fallout ...What are the ramifications? • A Long and Winding Road • The Incredible Shrinking Economy • The Gini is Out of the Bottle • Spooked • To the Streets • The World Over • Summing Up© 2012 The Futures Company. Some rights reserved. 10
  11. 11. A Long and Winding RoadDon’t expect a full recovery Figure 5: US Job-Growth Scenarios to 2020anytime soon. The hole is toodeep and its sides too steep for The high-job-growth scenario is the only one that returns the United States to 5 percent unemployment by 2020that. When economists take Employment demand scenariosa detailed look at what needs 2020, millions of jobsto happen for the developed 22.5West to get back on track, they Need 21 million 17.4 new jobs toforesee a long time horizon. return to 5% unemployment by 20201Perhaps most emblematic of 9.3the time it will take to recoverfully is a McKinsey analysispublished last year estimating Average net new Low Middle High2020 employment levels in jobs per month 77 145 187the US under three scenarios Thousands of jobsof economic performance. 1 Based on our labor force force supply projections discussed in Chapter 3 of this report.As shown by the chart inFigure 5, only the high-job-growth scenario based on James Manyika, Susan Lund, Byron Auguste, Lenny Mendonca, Tim Welsh, and Sreenivas Ramaswamy, An Economy That Works: Job Creation and America’s Future,highly optimistic economic McKinsey Global Institute, June 2011, http://mckinseyonsociety.com/an-economy-assumptions reaches full that-works-job-creation-and-americas-future/employment (defined as 5 percent unemployment) by until 2020 at the earliest, and political turmoil in Europe,2020. What’s most sobering even then, incomes would still eurozone countries are facingabout this analysis is that this be lower in real terms. Just “some of the deepest publicscenario requires a wholesale to achieve this level would sector cuts for a generation.”reversal of long-term, not just require income growth equalrecent, US economic trends. to that of 1997-2003. Even this Not all indicators are negative, would require very favorable but the positive signs don’tThe Resolution Foundation economic conditions. alter the basic picture ofcame to a similar conclusion difficult times ahead. For about average incomes in The austerity measures being example, the December 2011the UK in its 2011 Squeezed taken across the eurozone will Markit Economics HouseholdMiddle report. It projects that keep a full recovery there at bay Finance Index™ found UKlow- to middle-income UK for years to come. As noted consumers more upbeathouseholds will not get back by the BBC in a 2011 year-end about their finances year over to 2007 nominal income levels rundown of the financial and year, largely because of lower 11 Quickening the Pace
  12. 12. inflation perceptions. Yet Early in the Great Recession, it reported income declined at was hoped that the booming the fastest rate ever measured Chinese economy would bail in the three years the survey out the global economy. It’s has been conducted, a period clear now, though, that China covering the worst months of can’t fill a hole this big. BCG the Great Recession. partners David Rhodes and Daniel Stelter worked through News is better in the US, the numbers in their recent where the January jobs report book, Accelerating Out of the from the Bureau of Labor Great Recession, concluding Statistics showed a drop in the that “China is not a strong unemployment rate for the fifth enough economic engine to month in a row. At 8.3 percent, pull the whole world back into a it is now at its lowest level in period of high growth … There three years. Initial estimates of are just too many developed fourth-quarter GDP from the countries … suffering … for Bureau of Economic Analysis China to pull off a kind of show growth rates improving indirect global bailout.” as well. While China’s economy is big But as Cal-Berkeley economist in aggregate, it remains small Laura Tyson has noted, per capita. As Rhodes and discouragingly, “[I]t’s too Stelter note, a 32 percent jump early to celebrate … Despite in private spending by Chinese recent signs of strength, most consumers is needed to replace forecasts for 2012 predict a mere 5 percent reduction that [US] growth will fall short by US consumers, which, … [T]here are considerable they wrote, “is not going to downside risks … The output happen.” As a recent McKinsey gaps are even larger in many consumer survey found, while European economies, some Chinese consumers are avidly of which … have fallen into embracing consumerism, their another recession that is now spending remains “stubbornly spreading throughout Europe low.” Western developed … For all of these reasons, 2012 economies are going to have is likely to be another difficult to dig themselves out, and that and disappointing year for the means a slow journey down a United States economy.” long and winding road.© 2012 The Futures Company. Some rights reserved. 12
  13. 13. The Incredible Shrinking EconomyEconomies in the developed The charts from the IMF Economic analyses acrossWest have shrunk. Some shown in Figure 6 plot the the eurozone have shown thatof these economies have percentage deviation of actual both in numbers and spendingbeen growing, but all are on GDP from potential GDP. Both power, the middle class istrend lines well below their the US and the euro area are under suffocating pressure.pre-recession trajectories. in negative territory, and both A 2008 analysis by theThis gap between trend are expected to stay there for German Institute for Economiclines is known as a negative a while. Research documented steadyoutput gap and it represents declines since 2000 in thethe shrinkage in the size Another measure of economic percentage of German middle-of an economy due to the contraction, and one of greater class consumers. Analyses indownturn. More specifically, concern for businesses, is Spain, France and Greece pointit is a measure of the unused the diminution in the size and to continuing declines in realcapacity or unrealized spending power of the middle wages and job opportunitiespotential of the economy— class. A spirited debate about for middle-class consumers.under-investment, idle plants this erupted in the US followingand equipment, unemployed a January speech by Alan For companies, the basicworkers and so forth. The Krueger, head of the Council of issue is that middle-classconsequence is a critical Economic Advisors, in which consumers feel these financial deficiency of demand. he warned of a US middle class pressures acutely. An early that was shrinking in size. 2010 ABC World News survey in the US found thatFigure 6: GDP Output Gaps 60 percent of those in the middle-income group were “concerned about maintaining [their] living standard[s].” Perhaps most telling was that 55 percent of those in the higher-income group felt the same way. It’s no surprise that so many US consumers are worried. An analysis of the 2009 TNS Global Economic Crisis Survey found that 46.5 percent ofInternational Monetary Fund, World Economic Outlook, “Slowing Growth, Rising Risks,” Americans, including, in theSeptember 2011, http://www.imf.org/external/pubs/ft/weo/2011/02/pdf/text.pdf 13 Quickening the Pace
  14. 14. Figure 7: Household Debt Metricsauthors words, “a sizablefraction of seemingly ‘middleclass’ Americans,” fit the definition of “financially fragile,” meaning that, short ofextreme measures, they couldnot come up with $2,000 in 30days to cover an emergency.Similarly, a 2011 survey foundthat one-third of Americanscould not pay their mortgagebeyond one month if they losttheir job; three-fifths could not pay their mortgage past five International Monetary Fund, World Economic Outlook, “Slowing Growth, Rising Risks,”months. September 2011, http://www.imf.org/external/pubs/ft/weo/2011/02/pdf/text.pdfThe middle class faces similarpressures in the UK. The fewer people can afford to number of values, one of whichrecession led to a 10 percent sustain their middle class was whether success in life isjump in homelessness there lifestyles. A statement signed determined by “forces outsideduring 2009/2010, the first by the leaders of the IMF, our control.” Agreement inrise since 2003/2004. In the the World Bank, the World the US was by far the lowestfirst quarter of 2011, requests Trade Organization (WTO) at 36 percent. By contrast, itfor council housing jumped and eight other international was 72 percent in Germany,23 percent over the previous economic groups ahead of 57 percent in France and 50year. With the added pressure the 2012 World Economic percent in Spain. (The UK wasof cuts in government welfare Forum warned that the close to the US, at 41 percent.)benefits, the housing charity austerity programs now To the extent that governmentCrisis foresees many more being undertaken worldwide cutbacks exacerbate a sensemiddle-class UK families losing threaten the global economy of incapacity among eurozonetheir homes. and are likely to prolong the consumers, recovery will be weakness of the recovery. that much harder.The austerity programs nowbeing implemented across Public sector cuts could Debt is the other pressurethe eurozone have hit the potentially affect eurozone facing consumers in themiddle class especially hard. consumers in more ways than developed West. HouseholdPublic cuts have cost jobs, just their pocketbooks. A 2011 debt metrics like the IMFreduced pensions and slashed Pew study surveyed people charts in Figure 7 show thatbenefits, all of which make in Germany, France, Spain, while debt-to-income ratiostheir economies smaller as the UK and the US about a have fallen in the developed© 2012 The Futures Company. Some rights reserved. 14
  15. 15. West, debt levels still remain spending. When home values discounted stuffed rigatoniwell above those of 2000, are rising, consumers spend than it anticipated.” As Nobel-which at the time were thought five to seven percent of prize winning economist andto be too high. the increase. But now that New York Times columnist home values have cratered, Paul Krugman noted aboutSome economists now believe consumers no longer have this particular bit of news, thisthat debt levels in the US that money to spend, and transcends ideological battleshave come down enough for assuming that the housing because it is nothing but “basicconsumers to start spending market has experienced economics.” When demandmore robustly. But this a long-lasting correction, is weak, prices always fall,view is not shared by most consumers will never have that and that means companieseconomists, or by consumers money again. The math works will have to think outside thethemselves. One survey out to at least $400 billion less box to grow their brands inlast year found that only 27 in consumer spending, which shrinking economies.percent of US consumers is the biggest chunk of the USsay the Great Recession had output gap.no impact on their attitudestoward debt. Debt concerns In short, even if all goes rightwere highest among middle- along the way, the economiesclass respondents. One-third of the US and other Westernof those interviewed said that developed nations are goingtheir views had been affected to be smaller for a long timeto the point that they plan to to come, presenting businesspay down debt this year, and strategists and marketers withhalf of this third don’t even continuing difficulties sourcing think their debt is too high; demand, as illustrated by athey just want it down. recent Bloomberg story. It reported that “[P&G] rolledEven with less debt, though, back prices after an 8 percentdoubts remain that Western price increase [on Cascadedeveloped economies will dishwashing detergent] afterever get back to pre-recession the firm lost 7 percentage trend lines because those points of market share.trajectories were artificially Kimberly-Clark Corp. startedinflated to begin with. New offering coupons on HuggiesYorker economics columnist after resistance to the diapers’James Surowiecki has pointed cost. Darden Restaurantsout that there is a strong Inc. raised prices at less thancorrelation in the US between the inflation rate as patrons home values and consumer order more of Olive Gardens’ 15 Quickening the Pace
  16. 16. The Gini is Out of the BottleWhat middle-income The Organization ofconsumers have lost over Economic Co-operationthe past few decades, higher- and Development (OECD)income consumers have tracks gini indices for its 34gained. The result has been member countries, most ofan intensification of income which are Western developedpolarization and wealth economies. The OECD chartinequality. in Figure 8 shows that income inequality has been growing inA common measure of Western developed countriesinequality is a statistic called the for decades.gini coefficient, a measure ofincome dispersion developed by Some readers may object,Italian economist Corrado Gini correctly, that the chart inin 1912 that ranges from zero, Figure 8 does not reflect the no inequality, to one, maximal redistributive impact of taxinequality. The gini index is policies or transfer payments.a simple translation of these In fact, in its report, the OECDvalues to a 100-point scale. praised such programsFigure 8: Income Inequality Trends Across OECD CountriesOECD, Growing Income Inequality in OECD Countries: What Drives It and How Can PolicyTackle It? May 2, 1011, http://www.oecd.org/dataoecd/32/20/47723414.pdf© 2012 The Futures Company. Some rights reserved. 16
  17. 17. Figure 9: Income Distribution Trends Across OECD Countries for greater concentration of incomeTop vs. Bottom Deciles and wealth. This concentration of spending power is likely to grow over time. In the speech mentioned above, Alan Krueger presented The Great Gatsby Curve (based on work by University of Ottawa economist Miles Corak) showing that for countries around the world, the greater the inequality as measured by the gini coefficient, the lower the level of economic mobility from one generation to the next. To put it simply, for countries with high inequality, parents’ income predicts that of their children. Lack of mobility makes inequality hard to reverseOECD, Growing Income Inequality in OECD Countries: What Drives It and How Can Policy and thus the marketplace inTackle It? May 2, 1011, http://www.oecd.org/dataoecd/32/20/47723414.pdf, http://www.oecd.org/dataoecd/32/20/47723414.pdf Western developed economies is likely to see a concentrationfor lowering the measured The relevance of this for of discretionary income ininequality shown in the chart by business strategists and the hands of fewer and fewerabout one-fifth on average. It marketers is apparent in Figure consumers.recommended stronger tax and 9. These OECD figures show benefit programs as “the most the contrast in income growth A 2010 report from Moody’sdirect and powerful instrument for the top decile versus the Analytics found that 37to increase redistributive bottom decile of earners. People percent of consumer spendingeffects.” Yet these are the very at the top are enjoying much in the US is now accountedprograms being slashed in the stronger rates of growth, thus for by just 5 percent ofcurrent wave of austerity in accumulating an ever-greater consumers. The shift overthe eurozone and the UK, thus share of income and wealth. the last two decades hassetting the stage for greater Brands follow the money, and been sharp. In 1990, theinequality in the years ahead. that path leads to a smaller top 5 percent accounted for number of consumers with a 25 percent of US consumer 17 Quickening the Pace
  18. 18. spending. While it makes grew faster and median wagessense that rich consumers surged. We created a virtuoushave more economic clout, cycle in which an ever-growingthe US marketplace is now middle class had the abilitydisproportionately dependent to consume more goodson the spending habits of top and services, which createdearners. more and better jobs, thereby stoking demand.”Robert Reich, Secretary ofLabor under President Clinton, These patterns of inequalityhas pointedly bemoaned in the US and their impactUS inequality trends, noting on consumer spendingthat, “[d]uring periods when have direct parallels in otherthe very rich took home a Western developed markets.much smaller proportion of Irrespective of ideology, thetotal income—as in the Great marketing ramifications of Prosperity between 1947 and inequality go to the heart of1977—the nation as a whole targeting and brand-building.© 2012 The Futures Company. Some rights reserved. 18
  19. 19. SpookedConsumers have lost their found 43 percent saying thecheer. Confidence and UK economy would get worseeconomic sentiment have over the next 12 months, uprebounded from the record from 32 percent saying so indepths seen during the Great September 2010. Just overRecession, but consumers two-thirds lack confidence that remain anxious. As is clear “the current government canfrom the two charts shown in bring about an improvement inFigure 10, consumer attitudes the economy.” Consumers seehave settled into a baseline a crisis of trust as much as alower than that before the crisis of the economy, and thisGreat Recession, fluctuating mistrust extends to financial from month to month but services companies, retailersnever breaking through to and business in general.a higher level of economic One result is a retreat fromoptimism. community, with nearly half of UK consumers disagreeingThere is more to it than just that they are now moreeconomic anxiety, and here engaged with neighbors andThe Futures Company’s community than before theresearch adds helpful texture. economic downturn.The sixth and latest waveof the Feeling The Pinch Similarly, results from thesurvey conducted among UK 2011 US MONITOR show aconsumers in January 2012 loss of faith in the AmericanFigure 10: Consumer Economic Attitudes for Euro Area and the UShttp://ec.europa.eu/economy_finance/db_indicators/surveys/documents/2012/bcs_2012_01_en.pdf 19 Quickening the Pace
  20. 20. In short, the hidden story of this downturn is its impact on trust. People can weather volatile situations when they trust the institutions and leaders responsible for the common good. What has people spooked is the fear that more has been lost than just their money.http://advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.phpdream. Seventy-one percent The 2011 Global MONITORagree that the American results show similar concernsdream is “more of a dream across the developed world.than a real possibility for For example, the percentagemost people” and two-thirds agreeing that “things areagree that the recession and going well financially” in their stagnant recovery have had country is just 24 percent ina “negative impact” on their the US, 18 percent in the UK“optimism for the future.” But and France, and 9 percent inconsumers have not given Spain. Germany is higher atup their aspirations to the 44 percent, but pales next togood life. Rather, they feel China, India and Brazil at 92betrayed by the process of percent, 80 percent and 70getting there. People see that percent, respectively. This isthe downturn upended the matched by the mistrust peoplefinances even of those playing express regarding financial by the rules. Revelations since institutions—52 percent inthe downturn suggest to many the US, 60 percent in the UK,that the system is unfair and 62 percent in France and 56cannot be trusted. percent in Spain, compared to 35 percent in China, 33 percent in India and 42 percent in Brazil.© 2012 The Futures Company. Some rights reserved. 20
  21. 21. To the StreetsThe double whammy of the 2010 elections. Its appeal contributed to their spreadweak finances and lost faith has eroded, though, since and fierceness.has stirred up a prickly brew Tea Party House members,of discontent across the bucking a routine effort In late 2011, the politicalideological spectrum, with to raise the debt ceiling, left vented its anger andpeople throughout developed brought the US to the brink frustrations in the Occupymarkets in the West taking to of defaulting on its bonds in movement that foundthe streets. mid-2011. inspiration in the Arab Spring uprisings of early 2011. TheConservative backlash in the Around the time of the debt- idea of a peaceful occupationUS was the first to bubble ceiling debate in the US, of Wall Street caught fire with up with the rise of the Tea austerity measures in Europe activist groups, culminatingParty following a February 19, were sparking the first round of in the September 17, 20112009 televised rant by CNBC violent street demonstrations occupation of Zuccotti ParkBusiness News editor Rick that have continued on and in New York, soon followedSantelli on the floor of the off ever since. In May 2010, by hundreds of sympatheticChicago Mercantile Exchange a nationwide strike and Occupy encampments in citiesabout a pending proposal to deadly riots in Greece were across the US and around theprovide government help for followed by similar actions world. By early 2012, policewhat Santelli called “losers’ in Belgium, Ireland, Italy and had closed down occupationsmortgages.” The video went Spain in September, in France in most locations, but like theviral and Santelli’s call for in October and by students Tea Party, Occupy remainsa modern-day tea party to in the UK in November and influential as a symbol of dump derivatives securities December, to mention just a grievances shared by manyin the Chicago River in few. Demonstrations continued people.protest over government to rage across Europebailouts “promoting bad throughout 2011, often on abehavior” struck a chord with much larger scale, especiallyconservatives, some of whom in Greece, France, Italy, Spainhad been using the tea party and the UK. The riots thatmoniker already for other surged across England inanti-government protests. August 2011 were especiallyThe Tea Party movement has unnerving. Their immediatebecome an important part of cause was unrelated tothe Republican Party, helping austerity but frustrations overto restore its majority in the unemployment, spendingHouse of Representatives in cuts and financial hardship 21 Quickening the Pace
  22. 22. Occupy has eschewed specific elemental angst gnawingtalking points or proposals, yet at people that perhapsits tagline, “We are the 99%,” everything they have takenput the spotlight on income for granted is bankrupt.inequality, and that message These misgivings find some has been heard. Dylan Byers validation in the bewilderingat Politico.com tracked a welter of proposals being putquintupling of mentions of forward to fix the economy. income inequality in print, But more than beliefs aboutbroadcast and Web media the economy are up for grabs.from the start of the Zuccotti Old rules and presumptionsPark Wall Street encampment of every sort have beento the end of October 2011. discredited. Yet with no good alternatives at hand, peopleNot just income inequality, feel they have permission tobut capitalism itself—at question everything, brandsleast the free market model included, and to try out freshof globalization known approaches, even if doing socolloquially as Anglo-Saxon means standing one’s groundcapitalism—has been put against conventional wisdomunder the microscope by the to the contrary.economic downturn. Thatfree market bastion, TheEconomist magazine, echoedthis critical sensibility in anOctober 22, 2011 cover storywith a red-letter headline,“Rage Against the Machine:Capitalism and Its Critics.” Asif to suggest this debate is nowover in developing economies,its January 21, 2012 issuecover featured an ink drawingof Lenin jabbing a cigar atblock letters reading, “TheRise of State Capitalism: TheEmerging World’s New Model.”This furor over capitalism isreflective of a deeper, more © 2012 The Futures Company. Some rights reserved. 22
  23. 23. The World OverThe economic troubles of the In that vein, WTO chief Pascal world to orchestrate globaldeveloped West also threaten Lamy warned in January that trade flows. But currencies the global economy, including global trade in 2012 was likely hold appeal as reserves onlybooming markets in China, to be smaller than in 2011. His if their underlying economiesIndia, Brazil and elsewhere. explanation was blunt: in 2012 are strong. In the words ofThese remain tightly coupled the economy will be “taking a Cal-Berkeley economist Barryto the economic welfare nosedive globally.” Eichengreen, the currentof their trading partners in situation is one in which “[b]Western developed markets. The weak economic y process of elimination, performance of the EU the world is left with theIn its June 2011 “spillover” also plays a big part in the dollar and the euro as thereport on China, the IMF noted ongoing maneuvering to only instruments capable ofthat China’s economy remains preserve the euro. The US supporting current levels ofvery dependent on exporting dollar and the euro are the international transactions.goods, not importing them. reserve currencies relied onIn other words, it sells stuff by companies, financial firms to other countries more than and central banks around theit buys from them. If China’strade partners cannot buyfrom it—either because theyare weak as in the US, the EUand Japan or because theremay be a bubble waiting toburst as in Latin America—China will feel the effects.Indeed, China has alreadyreported slowing growth, duein no small part to diminisheddemand from the EU. 23 Quickening the Pace
  24. 24. If doubts about the stability domestic capacities whileof these currencies deepen preserving favorable exchangefurther … central banks will rates. World Bank officials have less capacity to intervene warned of this late last year,in financial markets … In citing recent protectionistresponse, governments are moves by each of the BRIClikely to limit those flows via countries. The threat tocapital controls … Trade credit Western developed marketswould become more costly is that, as their economies… [a] situation [that] would worsen, trade barriers inresemble the wake of the developing markets will makefailure of Lehman Brothers … it harder for them to exportwhen dollar credits became their way out of trouble. If thisscarce and international trade happens, the cycle of declinedeclined precipitously.” But in the developed West willthis worst-case scenario is worsen, creating even morenot needed to spark a global challenges for businesseseconomic slowdown. Even trying to sustain their brandsa moderate shift in holdings in these markets.of reserve currencies wouldaffect some portion ofthe global trade on whichemerging economies rely.Another risk that arises duringglobal economic slowdownsis trade protectionism. Suchmeasures rose during thedepths of the Great Recessionin 2009, as hard-hit developedcountries used trade barriersas a lifeline for their sinkingdomestic economies.But trade protectionismworks the other way, too, withemerging economies nowlooking to insulate themselvesfrom economic troubleselsewhere by ramping up their© 2012 The Futures Company. Some rights reserved. 24
  25. 25. Summing UpWith these facts in hand, the state of the marketplace for brands is clear. Five bullet points sum it up. ƒ Consumers—especially the middle class—in developed Western markets have been hard hit. The economic slowdown has put a big squeeze on household budgets. As a result, the marketplace has shrunk. ƒ Despite evidence of modest economic improvement of late in some markets, particularly the US, a full recovery will take years. Weak Western markets will be the norm for the foreseeable future. ƒ A lack of demand is the principal challenge facing both the economy at large and marketers in particular. The middle class is the traditional reservoir of consumer demand in developed markets. But the middle class has been particularly hard hit both by the Great Recession and the stagnant recovery. A long-term trend of growing inequality adds to the financial pressures affecting the middle class. ƒ Consumer confidence has been battered to the point that people are staging large-scale, often violent demonstrations all around the world in protest of an economic system that no longer works for them. Economic models are being questioned, trust has been eroded and people are more open than ever to alternatives. ƒ Emerging economies are watching the developed West with bated breath because they are not immune to economic troubles in the rest of the world. As a result, they are more than willing to take whatever steps might be needed to protect themselves. This would only worsen the economic prospects for developed markets in the West.A difficult situation faces business strategists and marketers in developed markets, difficulties that touch emerging markets as well. But even in these difficult times, there are opportunities for smart companies. Not every brand has failed or shrunk during these tough economic circumstances; infact, some have thrived. There remain sources of growth for savvy brands able to follow through. Inthe next section, we explain how. 25 Quickening the Pace
  26. 26. Section 3: Follow-Through ...What does it mean for marketers? • The Best Thing for the Business • The Power of Repulsion • A Culture of Contentment and Kinship • Trading Off • Dis-Ownership • Curation • Owe Not Earn • Age-Appropriate • Closing Thoughts© 2012 The Futures Company. Some rights reserved. 26
  27. 27. The Best Thing for the BusinessP&G made headlines late P&G has received a lot of presslast year with news that in for its change in strategy,mid-2009 it had reinvented but the new circumstancesits approach to selling to the precipitating its shift affect allUS middle class. From its companies and brands. Yetbeginning, P&G’s core strategy today’s business leaders havehad been to sell innovative, limited—if any—experiencehigher-priced staples to a with a financially weakened, broad, aspirational middle. slow-growth marketplaceBut in the wake of the financial split down the middle. To getcrisis and with growing the running room needed toevidence from the US gini quicken their pace, brandsindex of income polarization, must be managed andP&G scrapped its established marketed in new ways. P&G’sapproach in favor of a two-tier recent experience offers usefulstrategy, selling value-add to guidance, but there is more tohigher-income consumers be done.and low price to lower-incomeconsumers.This new strategy forcedP&G to change almost everyelement of its business model.Selling up means lower volumelines for a company usedto high-volume efficiencies. Selling down means protectingmargins through costreductions rather than pricepremiums. In particular, P&G’stwo-tiered approach meansa wholly different way ofmanaging retail assortments,shelf placements, promotionaltargeting and advertisingmessages. 27 Quickening the Pace
  28. 28. The first reaction of many The Power of Repulsioncompanies to this changed • Aspiring to stay inplacemarketplace has been to try … Rather than to move upharder at tactical execution.But business leaders are best The Culture of Contentment and Kinshipserved by first understanding • Make people happy by treating them like family the strategic imperatives of … Without any material trade-offsa slow-growth marketplace,many of which conflict with Trading Offthe rules of thumb with which • Sell to consumers prioritizing, not doing withoutbusiness strategists and … Trading down on lots of things to trade up on somemarketers have grown up.Seven such strategic insights Dis-Ownershipare highlighted here: • Sell benefits without selling the product … A new transaction model Curation • Networked self-reliance …Bottom-up authority Owe Not Earn • Targeting consumers by debt …Not by income Age-Appropriate • Go gray …Shifting franchise consumers from younger to older© 2012 The Futures Company. Some rights reserved. 28
  29. 29. The Power of RepulsionWell-being is relative. People What consumers fear mostdo not evaluate their station nowadays is not failing to reachin life in absolute terms but the top but tumbling down to Key Takeaway:relative to others. Social rock bottom. The possibilitypsychologists call this “social of losing everything is a real Reference groups havecomparison,” and most of time peril in a slow-growth economy. changed. Consumersthe comparisons are upward, Most consumers have little if are now engaging inthat is, relative to people with anything to fall back on should downward not upwardmore. For example, happiness the worst happen, so it’s social comparisons, so quitresearchers have found hardly surprising that they are trying to close an upwardrepeatedly that the satisfaction thinking more about avoiding gap. Instead, help peoplepeople derive from something the worst than getting the best. put distance betweenunambiguously positive, like a themselves and thelarge sum of money, depends It wasn’t too long ago that downward reference groupslargely on how it compares to consumers compared their defining their aspirational the amount held by others. personal situations to those point of comparison. with more, and worried aboutUpward social comparisons how they stacked up. This pulltend to create a sense of and tug of the top fueled therelative deprivation that breeds frenzy of trading up. Marketersthe frustration marketers use both fed the sense of relativeto motivate people to buy. deprivation and sold massHumans are social creatures, affluence or affordable luxury so looking to others, or social brands that offered more.proof, is the primary way These brands had a powerfulpeople know how to act and attraction.react. In other words, peopleuse reference groups to Lately, surrounded by otherscalibrate and guide emotions, who have lost it all, manyopinions and actions. The consumers now compare theirGreat Recession changed the individual situations to thosereference groups people are with less, not to those withusing these days. In particular, more, and they worry aboutsocial comparisons are no how to avoid winding up inlonger upward but downward. their position. As a result, the context of the marketplace has refocused almost everybody 29 Quickening the Pace
  30. 30. on looking down with dread reassurance that they’re not In short, the power of repulsionrather than looking up with putting their finances at risk. is front and center in today’saspiration. What shapes marketplace, and it affectsconsumer behavior nowadays Anger adds to avoidance. As every sort of brand, not justis the repulsion of the bottom, people grow more frustrated, the sorts of loser brands thatnot the attraction of the top. impatient and anxious, they have always failed. Attraction don’t just take to the streets; no longer predominates asHelping people feel better they take it out on brands a brand motive because,about their situations by they believe have crossed the nowadays, consumers arechanging their reference points line and put them at risk. In oriented more to the bottomfrom looking up to looking the US, Bank of America was than to the top.down is a technique taught forced to rescind, at leastby psychologists. However, temporarily, a proposed $5looking down only makes monthly fee on debit cardspeople feel better if they also after an online petition drivefeel secure in their situations. sparked national outrage.When people feel stalked by Anger, not aspirations, is whatthe risk of hitting bottom, many consumers feel aboutlooking down paralyzes them brands these days. Mistrustwith dread. feeds suspicions and worry about risks makes peopleThe good life beckons; it gets edgy, not aspirational.people coming. The worstrepulses; it sends people This means that safe havensrunning. are in demand. Consumers don’t want cheap brands soIt’s as if brand magnetism has much as they want safe ones.been turned on end. Rather But safety comes wrapped inthan pulling consumers in paradox. The cheapest brandby the force of attraction, may, in fact, be the riskiest.consumers are being pushed Poor quality or bad serviceaway by the force of repulsion. could make it more expensive. So, within reason, that mightAvoidance has emerged as mean paying more for athe bigger motive force in this premium brand, yet many ofeconomy. First and foremost, these have been tarnished byit’s avoidance of the worst the boom, for they are the verythat motivates consumers. brands that got consumers inEven when they are open to a over their heads in debt duringpremium offer, they first want the run-up to the recession.© 2012 The Futures Company. Some rights reserved. 30
  31. 31. A Culture of Contentment andKinshipThe geometry of desire in hunger to downscale theirthe consumer marketplace lives. Rather, they are yearningof the developed West is for contentment. Materialism, Key Takeaway:shifting from a pyramid of while still important, no longeraccumulation to a circle of defines the overarching Make people happy byself-contained contentment. context of life. Instead, treating them like family.This is recognized but materialism is being defined Use contentment metricsmisunderstood. People are in the context of contentment. to track success. Letnot renouncing material well- Global MONITOR research relationships dictatebeing; they just want more of The Futures Company business models, not thecontentment. documents the persistence other way around. of material ambitions. TheWith so many people unable countries highlighted in Figureto afford the material lifestyles 11 show that, as the economythey’d like, some pundits have has struggled, people haveconcluded mistakenly that become less—not more—people no longer want these likely to feel that they canlifestyles. Certainly, people do without. The pattern inhave had to look beyond Western developed marketsmaterialism to validate their is the same as in emergingchoices and lifestyles, but that markets. Materialism is andoesn’t mean that material enduring priority everywhere.things have lost all appeal. The biggest manifestationFrugality is a coping of this rising interest inmechanism, not a lifestyle contentment is a focus onaspiration. People don’t happiness. A New York TimesFigure 11: Attitudes about Materialism for Selected Countries UK France Italy China Brazil I’ve got all 2007 2011 2008 2011 2008 2011 2008 2011 2008 2011 the material things I need 60% 52% 58% 51% 55% 50% 34% 24% 41% 34%The Futures Company Global MONITOR 31 Quickening the Pace
  32. 32. story in late 2008 had a make for loyal customers, not telling headline, “Even if You the other way around, a swap Can’t Buy It, Happiness Is Big of priorities that defines the Business.” This may seem new zeitgeist of consumer faddish, but it’s utterly serious, connection. too. Social psychologists, macroeconomists and national The biggest predictor of governments the world over happiness is relationships are working to devise new with others. So it is only to be metrics that add quality of expected that, in their search life to economic outcomes for contentment, people are like GDP. There is strong embedding their lives in circles potential in making happiness of intimacy, one manifestation the business of brands, as of which is the mushrooming explored in greater detail in of social networks. our Future Perspective on this topic. It’s not relationships with brands that matter; it’s Contentment is more than relationships with other happiness. Other values people, so the brands that are a bigger part of the matter are those that facilitate consumer decision calculus, and celebrate these circles too, including individual of intimate connections. improvement, personal Indeed, because people are freedom, the environment, putting a high priority on social responsibility and interpersonal relationships, intangibles like design, they are also redefining their spirituality, relationships and expectations about brand self-expression. interactions. Consumers want brand interactions to be less Maybe bliss is too much to like commerce and more like ask of brands, but brands family. Contentment has given can certainly do more than rise to kinship as a dynamic in settle for mere customer the consumer marketplace. satisfaction. Consumers are giving brands permission In turn, this has refocused to tackle happiness, and so consumers from ‘what’ that’s what Coke, Zappo’s they get to ‘how’ they get and UK retailer John Lewis it. Consumers care much are doing. Happy consumers more about how marketers© 2012 The Futures Company. Some rights reserved. 32
  33. 33. treat them than the treats This is exactly the approachmarketers sell them. This is not taken by WestMill Capital,a change in what consumers the developers of an H Streetthink about products; rather, neighborhood in Washington,it is a shift in balance from D.C. They created a Web sitethe product to the process called Popularise.com whereof getting it. In this context, local residents can debatethe standard of excellence for and decide what types ofbrands is the highest form of shops should occupy emptyrelationships, and that’s family. storefronts. It’s relationshipsTreating consumers like family first, product later, a process-is where value now lies in the based approach that bringsmarketplace, which means, in the product in last to fit effect, that the marketplace relationships rather thanis one in which consumers bringing the product in first to have begun thinking in terms create relationships.of kinship. The future is a“kinship economy,” a business The priority of contentment,and innovation concept we first process, relationships andexplored in our MONITOR LIVE kinship answers the questionteleconference in December of value often asked about2011. social media. Social media are all about relationships,Consider new product and that’s the future. From adevelopment. The traditional product standpoint, the valueapproach is to find a needs of social media is hard togap and then launch the discern. But the new measuremost cost-effective solution, of success is the strength ofwhich becomes the basis for relationships. Media must beestablishing a product-based used to facilitate relationshipsrelationship with consumers. as well as move to goodsBut what if marketers were off the shelf. Social mediato first enable relationships come to the fore becauseamong consumers and only they are uniquely grounded inthen introduce a new product? relationships and interactions.Marketers might, say, hostforums in which consumersinteract with one another todebate what marketers shoulddo or offer. 33 Quickening the Pace
  34. 34. Trading OffPart of the challenge in making consumers are cuttingsense of the new consumer back, but in what way. One Key Takeaway:marketplace is getting a way in particular is under-proper understanding of appreciated. It’s no longer enough tothe end of trading up as the just be considered, soarchetypal shopping style. Consumers are trading off get out of ‘considerationIn particular, the opposite of more than they are trading set’ mindset. That’s antrading up is not trading down, down. Although squeezed incomplete marketingas illustrated in Figure 12. by tighter finances, most metric nowadays. A brand consumers are not walking must be at the top of theWhen shopping hit the skids away from the things that list when consumers areafter the financial crisis, matter. Instead, they are trading down on mostthere was much talk about a prioritizing those things, then things in order to trade upnew normal of frugality. The trading off everything else to on their top priorities.proper issue is not whether afford them. Brands sufferingFigure 12: Consumer Shopping Styles from trading down have simply done a poor job of making themselves a priority worth trading off for. What’s at work here is the undaunted desire of consumers to win and achieve the good life. People may be spending less, but they still want more. Consumers remain aspirational; they are just finding new ways to win what’s important to them. Trading off is a different path to purchase, one in which buying is more episodic, with the constancy of consumer reserve© 2012 The Futures Company. Some rights reserved. 34
  35. 35. interrupted periodically bybouts of spending to seizeopportunities. Just look atthe 2011 holiday season in theUS—bursts at the beginningand the end with a lull in themiddle that nearly panickedanxious marketers. Actingslow then fast then slow againis what trading off looks like.Most importantly, there isnot enough to go around inan era characterized by lowerspending, a smaller economyand consumer prioritization.Some brands will lose. Growthin the developed West will be atooth-and-claw fight for share, and not just within a brand’sown category. The consumerconsideration set now crossescategory boundaries. Forexample, vacation travel mayrise to the top by tradingoff against a down paymenton a new car or a kitchenrenovation or dinners out forhalf the year. Just being in theconsideration set is no longerenough nowadays. To securetheir fair share, marketersmust rearticulate their valuepropositions with trading off inmind, giving consumers goodreasons to put a brand at thevery top of the list. 35 Quickening the Pace
  36. 36. Dis-OwnershipFinancial pressures dictate is more than digital and morethat business strategists and than just sharing. It is a shiftmarketers need to design in the transaction model such Key Takeaway:more affordable ways for that ownership is immaterial. Take the fixed costs and consumers to shop and buy. It may be replaced virtually hassles of ownership toThis may mean cheaper goods or collaboratively, or in one of zero. Adopt flexible pricing and services, but it can also several other ways, too. tied to usage. Then sellmean changing the transaction the experience, not themodel to enable consumers This shift toward alternative product, and build volumeto enjoy the benefits without transactional relationships through loyalty. Track uses,owning the product. This is preceded the Great Recession, not facings.“dis-ownership.” but the downturn has intensified interest in dis-This is not a new idea. Social ownership. Consumerscritic Jeremy Rifkin first need more accessible, more should invest in innovativebroached this idea at the affordable alternatives, which transactional models thatheight of the dot-com boom could range from fractional confer legitimacy on thesein his 2000 book, The Age ownership to auctions to ways of acquiring benefits of Access, arguing that the swapping to leasing to without having to acquire thedigital economy would obviate borrowing to bartering products that deliver thosethe need for ownership and to sharing to user fees to benefits.companies would become recycling to ‘freecycling’ tonetwork managers rather than digitization to just plain piracy,product manufacturers. This and more. All of these formsidea was reprised a decade of dis-ownership are familiar,later by Internet entrepreneur of course. What’s changedLisa Gansky in her 2010 book, is their revitalized appeal inThe Mesh, in which she argued lieu of ownership and all of itsthat sharing was replacing expenses and obligations. Notowning as the preferred form owning something has neverof consumption. looked better.The concept of dis-ownership Consumers are reinventingis a similar but broader idea, their styles of consumptionfirst discussed in our 2006 to satisfy their lifestyleYear-End MONITOR LIVE ambitions in the context of ateleconference. Dis-ownership smaller economy. Businesses© 2012 The Futures Company. Some rights reserved. 36
  37. 37. CurationVolatility, mistrust and anxiety recommendations abouthave made people suspicious where to look and whatof authority and of established to do. Such lifestyle and Key Takeaway:ways of doing things. Tight information curation has Target conversations,household budgets and frayed utterly transformed the way not individuals. Get yoursafety nets have thrown people marketing reaches and affects message into the mix andback on their own resources. consumers. gauge your success byPeople have been forced to retweets, not by recall. Helpbecome more self-reliant than A study completed a few people become more self-ever before. years ago by Columbia sufficient by contributing University sociologists, to and supporting theBut this is a new type of self- including Duncan Watts of networks on which peoplereliance. What people want Yahoo! Research, illustrates rely.now is networked self-reliance, the impact of curation onmeaning individual autonomy consumer decision-making.augmented by intimate These researchers conductednetworks of homegrown an experiment in whichsupport and resources. respondents were asked to listen to and rate songs theyPeople have always looked had never heard before, afteraround for guidance and which they were given thedirection. What’s changed opportunity to download foris the context of advice. The free all of the songs they liked.downturn provided a receptive One group made downloadaudience for the mushrooming choices independently,of the social Web since the without knowing what otherstipping point of 2006-2007. downloaded. The other groupThe biggest infrastructure- made download choices onlybuilding of this downturn has after being informed of thebeen the nexus of networked download choices of previousself-reliance. respondents. The findings showed unambiguously thatWith traditional authorities in the influence of others matters decline and financial needs a lot, completely overridingpressing, people have tuned personal preferences. Tointo the advice and counsel put it another way, onceof friends and family for respondents knew what 37 Quickening the Pace
  38. 38. others had downloaded, theydownloaded the same songs(even songs they didn’t like).The Columbia researchersadded that the traditional wayof approaching consumerdecisions as if they are context-free is inherently flawed “because when individualdecisions are subject to socialinfluence, markets do not simply aggregate pre-existingindividual preferences.” In otherwords, networked curation, notindividual preference, mattersmost.With consumers embracingcuration, marketers will haveto influence decisions by getting others to talk abouttheir brands, not by advertisingtheir brands themselves. Justgetting consumers to listento an ad is going to be harderbecause, increasingly, they arelistening only to one another.Every marketing message nowreaches people as part of aconversation. The new world ofconsumers no longer fits any marketing concept of old—it isnot one-to-many or one-to-oneor, indeed, one-to-anything.It swims in a social sea. It isnetworked and curated. Oldmetrics such as share of voicemust give way to more relevantmetrics such as share ofconversation.© 2012 The Futures Company. Some rights reserved. 38
  39. 39. Owe Not EarnFor consumers in the developed Much of the middle classWest, the better measure of feels disconnected fromspending power and confidence opportunities that before the Key Takeaway:is debt, not income. The downturn they could easily Debt is the newestdownturn flipped balance unlock by borrowing what demographic, standingsheets upside- down, leaving they needed. The irony is that alongside income as apeople across the range of the borrowing that promised key measure of financial income strata buried in debt. greater security, especially wherewithal. Even netFor many people, debt has for housing, has become the worth is not a goodnow become an unrelenting greatest source of insecurity measure of householdsource of anxiety. Tight credit and anxiety. finances if monthly markets have compounded expenses for debt servicethis by making it harder to The relative importance of debt are onerous. So includeborrow, even for people with over income can be seen in debt in every study and usesolid credit ratings. Income the two charts shown in Figure debt, where possible, forstill matters when it comes 13, which are taken from The targeting media, Web andto identifying high-prospect Futures Company’s January in-store initiatives.target consumers, but until 2012 Feeling the Pinch surveydeleveraging has worked its among UK consumers. Threeway through the economy, what segments were identified in people owe, not what they earn, this research on the basis ofwill be a far better predictor of financial anxiety and obligations. spending potential. All Hands on Deck is the most distressed. Plain Sailing is theLittle or no debt has become least distressed.the new marker of financial savvy because it means greaterinsulation from risk and greatercontrol. Debt prevents peoplefrom accumulating a sufficient cushion against the unexpected,depriving them of a safety net ata time when public safety netsare being weakened. 39 Quickening the Pace
  40. 40. The first chart in Figure 13 Figure 13: Debt vs. Incomeshows the income distributionacross the three segments.The middle-income stratumis roughly the same for eachsegment, with a skew in theupper-income segment forthe Plain Sailing group. Whatdifferentiates these groups isdebt more than income, andthat is relevant to the resultsseen in the second chartshowing personal financial evaluations.The second chart in Figure13 aligns the three financial segments with three incomegroups. In terms of financial worries, the income groups arebasically the same, thus incomehas little impact on financial worries. However, the debt-driven segments differ a lot,with the highest debt group, AllHands on Deck, expressing thehighest anxiety of any group.The contrast of incomegroups versus debt segmentsin terms of financial worries demonstrates that debt is a The Futures Company, UK Feeling the Pinch Study, 6th Wave, January 2012.much more differentiatingfactor than income. Other young people fear most about Until consumers in theresearch confirms this, including the future, mentioned by 28 developed West get householda mid-2011 survey of UK youth percent, well above death, debt back down to manageableaged 16 to 25 conducted by mentioned by a mere 4 percent. levels, it will be the mostthe online charity YouthNet. It By contrast, in 2008, death was important financial dimension found that debt is the thing at the top of their list. around which to organize business planning and consumer targeting.© 2012 The Futures Company. Some rights reserved. 40