Calamity: Marketing Your Way Out of This Recession

CALAMITY presented at the 7th Americas Marketing Forum The Economist and Young & Rubicam Brands 17-18 March 2009 St Regis Hotel, San Francisco, California please use with permission only, just ask, we’re happy to grant John Gerzema

CALAMITY: MARKETING YOUR WAY OUT OF THIS RECESSION SOURCE: CONDE NASTE PORTFOLIO, JANUARY 2009 Copyright John Gerzema/Young & Rubicam

Copyright John Gerzema/Young & Rubicam RESULTS 1–10 OF ABOUT 22,200,000 FOR RECESSION AND MARKETING 2

FUNDAMENTAL SOCIETAL SHIFT FROM A CREDIT TO A CONFIDENCE CRISIS SEA CHANGES IN CONSUMER BEHAVIORS COMPANIES MUST CHANGE HOW THEY CONNECT WITH CONSUMER Copyright John Gerzema/Young & Rubicam

SUPERIOR CASH FLOW AND SUSTAINABLE GROWTH

ALIGN BRAND AND BUSINESS STRATEGY

ACQUIRE TALENT AND QUALITY

DO MORE WITH LESS

SHARPEN MESSAGING AND ROI

RETURN TO YOUR CORE

FACE YOUR CUSTOMER

MANAGING FOR AN UPTURN 3 Source: Y&R Strategy, HBR: Anthony T Jan, John Quelch Copyright John Gerzema/Young & Rubicam

HALF OF ALL GLOBAL WEALTH HAS EVAPORATED $36 TRILLION DOLLAR LOSS WORLDWIDE S&P 500 DECLINED 64.4% FROM 2000 45% OF AMERICAN WEALTH FROM LOSS OF EQUITY AND HOUSING VALUES AVERAGE RECESSION IS 6-12 MONTHS. THIS IS A MARATHON 5 Source: Bloomberg, Iconoculture March 2009 Copyright John Gerzema/Young & Rubicam

UNEMPLOYMENT

HOUSING VALUES

EQUITY MARKETS

INTEREST RATES ?

COMMODITY PRICES

IN(STAG)FLATION ?

BAILOUT ?

THE NEW FEAR ECONOMY 6 NATIONAL DEBT DETROIT CURRENCY VALUATION ? PROTECTIONISM ? BANK LENDING FACTORY & HOUSING STARTS CREDIT CARD EXPOSURE CONSUMER CONFIDENCE } Copyright John Gerzema/Young & Rubicam

THE LARGEST U.S. BUDGET DEFICIT POST WWII 8 Source: Board of Governors of the Federal Reserve System Copyright John Gerzema/Young & Rubicam

VISUALIZING THE BAILOUT 9 Source: The Atlantic Copyright John Gerzema/Young & Rubicam

HOUSING VALUES CONTINUE TO DECLINE ACROSS THE U.S. http://www.nytimes.com/interactive/2008/11/25/business/20080624_HOUSING_GRAPHIC.html 10 Source: “Irrational Exuberance”, 2 nd edition, 2006, by Robert J. Schiller Copyright John Gerzema/Young & Rubicam

A GROWING REALITY: 19 A MORTGAGE IS FOREVER Source: Copyright John Gerzema/Young & Rubicam

AMERICAN’S HOMES NO LONGER PERSONAL LINES OF CREDIT 11 Source:Us Department of Housing and Labor, 2009 Copyright John Gerzema/Young & Rubicam

WHILE THE CREDIT CRISIS HAS HALTED HOUSING STARTS 12 Source: www.calculatedriskblog.com Copyright John Gerzema/Young & Rubicam

INTO THE GREAT WIDE OPEN UNEMPLOYMENT 8.1%; HIGHEST IN TWENTY-FIVE YEARS THIRD STRAIGHT MONTH OF 600,000 JOBS LOST 4 Copyright John Gerzema/Young & Rubicam

THIS PERIOD MARKED BY MOST JOB LOSSES, WEAKEST RECOVERY 13 Source: Change in Nonfarm Pay rolls, Reported Monthly, Bureau of Labor Statistics, U.S Dept of Labor Copyright John Gerzema/Young & Rubicam

(Bottom of pyramid)14,000 Americans losing health insurance every day. http://www.americanprogress.org/ 15 MILLIONAIRES HAVE LOST ONE-THIRD OF THEIR NET WORTH. Source: AN EQUAL OPPORTUNITY RECESSION Copyright John Gerzema/Young & Rubicam

AFFLUENT MORTGAGE RATE DEFAULTS 16 Source: LPS Applied Analytics Copyright John Gerzema/Young & Rubicam

THE ONLY CERTAINTY IS UNCERTAINTY 22 Source: Copyright John Gerzema/Young & Rubicam

THE AMERICAN NIGHTMARE THEHTTP://WWW.NYTIMES.COM/2009/03/01/US/01SURVIVAL.HTML?PAGEWANTED=ALL 18 Source:New York Times ONE STORY IN THE AMERICAN NIGHTMARE Copyright John Gerzema/Young & Rubicam

MASLOW UPENDED: MARKETING MUST MOVE FROM PASSION TO COMPASSION (Bottom of pyramid)14,000 Americans losing health insurance every day. http://www.americanprogress.org/ 17 Source: American Progress.org February 2009 2007 2009 Copyright John Gerzema/Young & Rubicam

TECTONIC SHIFTS IN CONSUMERISM FROM THE CULTURAL LOSS OF TRUST 23 Copyright John Gerzema/Young & Rubicam

24 Copyright John Gerzema/Young & Rubicam SELFISHNESS AND COLLUSION

http://www.theglobeandmail.com/servlet/story/RTGAM.20090218.WBwblogolitics20090218151500/WBStory/WBwblogolitics/ http://news.yahoo.com/s/ap/20090216/ap_on_fe_st/toy_fair_madoff_doll 25 BEHAVIOR Copyright John Gerzema/Young & Rubicam EGREGIOUS AND CRIMINAL

33 Copyright John Gerzema/Young & Rubicam FAILURE OF REGULATORS

30 Copyright John Gerzema/Young & Rubicam TAXPAYERS ARE NOW SHAREHOLDERS

26 Copyright John Gerzema/Young & Rubicam DECAYING INFRASTRUCTURE

28 Copyright John Gerzema/Young & Rubicam LACK OF PERMANENCE

Copyright John Gerzema/Young & Rubicam

Source: Millward Brown Optimor 2007 Copyright John Gerzema/Young & Rubicam

THE 250 MOST VALUABLE GLOBAL BRANDS ARE $2.197 TRILLION DOLLARS WHICH EXCEEDS THE GDP OF FRANCE Copyright John Gerzema/Young & Rubicam

BRAND ESTEEM AND REGARD IS DOWN 12% BRAND AWARENESS HAS DECLINED BY 20% PERCEPTIONS OF BRAND QUALITY HAS ERODED 24% TRUST IN BRANDS HAS DECLINED BY 50% Copyright John Gerzema/Young & Rubicam

TRUST IS DESIRABLE, BUT IT HASN’T DIFFERENTIATED 35 Source:BrandAsset Valuator 1993-2007 Copyright John Gerzema/Young & Rubicam

Base: BAV USA Q4 2007, Q4 2008; All Adults IN THE PAST QUARTER, A ‘TRUST VIRUS’ INFECTED MANY CATEGORIES 36 Copyright John Gerzema/Young & Rubicam

37 Source: Barack Obama Press Conference, February 2009 Copyright John Gerzema/Young & Rubicam “ I SCREWED UP”

CONSUMERS ARE BEGINNING TO OWN THEIR PROBLEMS 38 Source: Time Magazine Copyright John Gerzema/Young & Rubicam

SAVINGS RATE HAS RISEN IN PAST FIVE CONSECUTIVE MONTHS 40 Source: U.S. Department of Commerce: Bureau of Economic Analysis Copyright John Gerzema/Young & Rubicam

Q4 SPENDING FELL 3.7% FROM Q3 - STEEPEST DECLINE IN 62 YEARS. $3 TRILLION IN SPENDING STOPPED IN Q4, WAS SUSTAINING US GDP 41 Source: www.calculatedriskblog.com Copyright John Gerzema/Young & Rubicam

CREATE COMPETITIVE ADVANTAGE NOW EVERY RECESSION ENDS...EVENTUALLY CONSUMERS MOVING FROM ANXIETY TO ACTION HOW YOU ACT NOW WILL SHAPE YOUR FUTURE PERFORMANCE Copyright John Gerzema/Young & Rubicam

THE NEW RULES OF ‘POST-CRISIS CONSUMERISM’ 44 Copyright John Gerzema/Young & Rubicam NEW CONSUMER BEHAVIORS NEW CULTURAL VALUES NEW MANAGEMENT PRINCIPLES

POST-CRISIS CONSUMERISM RULE #1 CULTURAL VALUE = INDESTRUCTIBLE SPIRIT CONSUMER STRATEGY = DURABLE LIVING MANAGEMENT = BRAND THAT PRINCIPLE LASTS Copyright John Gerzema/Young & Rubicam

DURABLE LIVING

CONSUMERS ARE DRIVING AND DINING OUT LESS

USE OF COUPONS IS UP 300%

PRIVATE LABEL UP 12%

“ SWISHING” PARTIES TO EXCHANGE CLOTHING

REPAIR FOR SHOES, CLOTHES AND CARS IS UP 22%

AMERICANS SPENDING IN ‘RETURN TO HOME’

68% OF AMERICANS NOW CARRY A LIBRARY CARD

SPICES BEING USED IN LIEU OF EXPENSIVE FOODS

VALUE RECIPES GROWING MORE POPULAR

CRAIGSLIST POSTING 100% INCREASE IN TRAFFIC

46 CULTURAL VALUE = INDESTRUCTIBLE SPIRIT CONSUMER BEHAVIOR = DURABLE LIVING MANAGEMENT PRINCIPLE = BRAND THAT LASTS Copyright John Gerzema/Young & Rubicam

BRAND THAT LASTS CULTURAL VALUE = INDESTRUCTIBLE SPIRIT CONSUMER BEHAVIOR = DURABLE LIVING MANAGEMENT PRINCIPLE = BRAND THAT LASTS Copyright John Gerzema/Young & Rubicam

POST-CRISIS CONSUMERISM RULE #2 CULTURAL VALUE = ETHICS AND FAIR PLAY CONSUMER STRATEGY = EMPATHY AND RESPECT MANAGEMENT = VALUE AND PRINCIPLE VALUES Copyright John Gerzema/Young & Rubicam

SEEKING BRANDS THAT SUPPORT SIMILAR BELIEFS AND CAUSES

BE TRANSPARENT (WHITEHOUSE.GOV)

USER REVOLT AND RESPONSE (FACEBOOK)

ENCOURAGE CONSUMER PROBLEM SOLV IN (LEGO)

CONSUMERS EXPECT YOU TO Don’t s t op believing

GOING GRASS ROOTS AND GREEN (TR UE NORTH)

CULTURAL SHIFT TOWARD SCORNING GREE D

CONSUMERS EXPECT TO BE REASSURED DURIN G A CRISIS

ENRICH COMMUNITY TO CLOSE SAL E

50 CULTURAL VALUE = ETHICS AND FAIR PLAY CONSUMER BEHAVIOR EMPATHY AND RESPECT MANAGEMENT PRINCIPLE = VALUE AND VALUES Copyright John Gerzema/Young & Rubicam EMPATHY AND RESPECT

VALUE AND VALUES Copyright John Gerzema/Young & Rubicam CULTURAL VALUE = ETHICS AND FAIR PLAY CONSUMER BEHAVIOR EMPATHY AND RESPECT MANAGEMENT PRINCIPLE = VALUE AND VALUES

POST-CRISIS CONSUMERISM RULE #3 CULTURAL VALUE = LIQUID LIFE CONSUMER STRATEGY = DÉCLASSÉ CONSUMPTION MANAGEMENT = DOLLARS AND PRINCIPLE SENSE Copyright John Gerzema/Young & Rubicam

DÉCLASSÉ CONSUMPTION CULTURAL VALUE=LIQUID LIFE CONSUMER BEHAVIOR = DÉCLASSÉ CONSUMPTION MANAGEMENT PRINCIPLE= DOLLARS AND SENSE Copyright John Gerzema/Young & Rubicam

DOLLARS AND SENSE CULTURAL VALUE=LIQUID LIFE CONSUMER BEHAVIOR = DÉCLASSÉ CONSUMPTION MANAGEMENT PRINCIPLE= DOLLARS AND SENSE Copyright John Gerzema/Young & Rubicam

POST-CRISIS CONSUMERISM RULE #4 CULTURAL VALUE = RETURN TO THE FOLD CONSUMER STRATEGY = COOPERATIVE CONSUMERISM MANAGEMENT = COMMUNITY PRINCIPLE ORGANIZER Copyright John Gerzema/Young & Rubicam

COOPERATIVE CONSUMERISM CULTURAL VALUE = RETURN TO THE FOLD CONSUMER BEHAVIOR = COOPERATIVE CONSUMERISM MANAGEMENT PRINCIPLE= COMMUNITY ORGANIZER Copyright John Gerzema/Young & Rubicam

COMMUNITY ORGANIZER CULTURAL VALUE = RETURN TO THE FOLD CONSUMER BEHAVIOR = COOPERATIVE CONSUMERISM MANAGEMENT PRINCIPLE= COMMUNITY ORGANIZER

THE OPPORTUNISTIC CEO: BRAND MANAGER IN CHIEF Copyright John Gerzema/Young & Rubicam

MARKETING IS NOT A COST, BUT A FIDUCIARY RESPONSIBILITY TO SHAREHOLDERS Copyright John Gerzema/Young & Rubicam

THE CHINESE CHARACTER FOR CRISIS ALSO MEANS OPPORTUNITY 65 BAD COMPANIES ARE DESTROYED BY CRISIS. GOOD COMPANIES SURVIVE THEM. GREAT COMPANIES ARE IMPROVED BY THEM.” — ANDY GROVE Copyright John Gerzema/Young & Rubicam

Source: Gerzema, Jacobson, Lebar, Mizik, Stanford and Poor’s COMPUSTAT over 1988-2003, University of Chicago’s Center for Research in Security Prices from 1993-2003. BAV 1993-2004 CONSUMERS REWARD BRANDS WITH ENERGIZED DIFFERENTIATION Copyright John Gerzema/Young & Rubicam

Copyright John Gerzema/Young & Rubicam