Bcg Winning Consumers Through Downturn Apr 2009


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Bcg Winning Consumers Through Downturn Apr 2009

  1. 1. Winning Consumers Through the Downturn 2009 BCG Global Report on Consumer Sentiment R Abu Dhabi Amsterdam Athens Atlanta Auckland Bangkok Barcelona Beijing Berlin Boston Brussels Budapest Buenos Aires Chicago Cologne Copenhagen Dallas Detroit Dubai Düsseldorf Frankfurt Hamburg Helsinki Hong Kong Houston Jakarta Kiev Kuala Lumpur Lisbon London Los Angeles Madrid Melbourne Mexico City Miami Milan Minneapolis Monterrey Moscow Mumbai Munich Nagoya New Delhi New Jersey New York Oslo Paris Philadelphia Prague Rome San Francisco Santiago São Paulo Seoul Shanghai Singapore Stockholm Stuttgart Sydney Taipei Tokyo Toronto Vienna Warsaw Washington Zurich
  2. 2. The Boston Consulting Group (BCG) is a global manage- ment consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep in- sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet- itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more infor- mation, please visit This report is a product of The Boston Consulting Group’s Consumer practice and its Center for Consumer Insight (CCI), which provides world-class consumer-insight capa- bilities to the firm’s clients. Established by the Consumer practice and the Marketing and Sales practice, the CCI leads BCG’s proprietary research for publications on consumer trends and purchasing patterns. For a complete list of BCG publications and information about how to obtain copies, please visit our Web site at To receive future publications in electronic form about this topic or others, please visit our subscription Web site at 4/09
  3. 3. Winning Consumers Through the Downturn 2009 BCG Global Report on Consumer Sentiment Catherine Roche Michael J. Silverstein Patrick Ducasse Natalia Charpilo April 2009
  4. 4. © The Boston Consulting Group, Inc. 2009. All rights reserved. For information or permission to reprint, please contact BCG at: E-mail: Fax: +1 617 850 3901, attention BCG/Permissions Mail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA
  5. 5. W C T  D  Contents Preface 4 Executive Summary 6 No Ordinary Recession for Consumers 8 High Anxiety Fuels a Vicious Cycle 8 Business Takes It on the Chin 8 Uncertainty Drives New Sentiments and Spending Behaviors 11 Trading Down Comes on Strong 11 New Ways of Coping 11 What, Where, and Who: De-averaging Required 16 Category Differences 16 Emerging Markets: A Few Bright Spots, for Now 20 Developed Markets: Trading Down Rises as Trading Up Comes Under Pressure 29 No Two Segments Are Alike 33 Eight Winning Strategies for Hard Times 37 Get Your House in Order 37 Think Value, Value, Value 37 Leverage Brand Strength 38 De-average to Find Pockets of Opportunity 38 Innovate for the Rebound as Well as the Downturn 40 Customize the Go-to-Market Playbook 40 Be a Predator Instead of the Prey 42 Rethink the Business Model and Develop Alternative Scenarios 42 Appendix: Methodology and Product Categories Covered in the BCG Consumer Sentiment Survey 43 For Further Reading 45 Note to the Reader 47
  6. 6.  T B C G Preface F or several years,The Boston Consulting Group has been tracking an important phenomenon in consumer sentiment and spending—a pat- tern that we call trading up and trading down. We continue to track this behavior as a van- tage point for understanding consumers during the cur- rent economic cycle. There is no doubt that the global recession has radically changed how consumers approach spending, saving, debt, and long-term investing. The great objective is to find the best value at the lowest price. The intensity of this focus on value is reverberating around the world, putting enor- mous pressure on retailers and their suppliers. Yet the shi in consumer behavior has also introduced new op- portunities for smart companies to gain share in both de- veloped and developing markets. This special report on how consumers are reacting to the economic crisis uses BCG’s own research to capture overall trends around the world as well as in specific countries. Our seventh annual consumer survey, which began in October 2008 and extended into February 2009, covered Japan, the United States, and Western Europe— developed economies that we have studied for years—as well as the developing economies of Brazil, China, India, Mexico, and Russia.1 In all, we surveyed some 13,800 consumers on a total of 19 product groups covering 150 to 170 product categories. Then, in March—when the cri- sis was just beginning to spike—we went back to refresh our data with snapshots of the developed markets, in- cluding Canada. This survey yielded an additional data- base of just over 8,000 consumers. Together, our readings of the pulse of the world’s markets over the past six months provide a dynamic picture of what consumer sentiment has been like and where it is trending as the downturn marches on. We asked consum- ers to describe their attitudes toward spending, environ- mental issues, and life in general. We also asked them whether, when, and why they might consider trading up in the current economy, how they feel about trading down, and what emotional satisfaction they gain from buying goods and services. As consumers steel themselves for a potentially lengthy global recession, concerns about their sentiments have taken on a new urgency. How can companies win them over in such turbulent and uncertain times? Our findings will help companies begin to answer some of these criti- cal questions: How is the economic crisis affecting consumer behav-◊ ior around the world? What impact will it have on consumer product and◊ service categories in 2009 and beyond? Is this the end of trading up and the lucrative luxury◊ and “masstige” sectors? Are there opportunities for differentiated products in◊ the middle market for consumers who downshi from trading up? Will consumers continue to buy green products during◊ the downturn? 1. Our survey in Western Europe included consumers in Denmark, Finland, Norway, and Sweden. In this report, however, survey re- sults from France, Germany, Italy, Spain, and the United Kingdom, weighted by population, are reported as a summary for Europe.
  7. 7. W C T  D  For how long will emerging markets, such as China◊ and India, continue to offer opportunities that have disappeared elsewhere? What will it take to win in a trading-down market?◊ How can consumers be encouraged to keep spending◊ in particular categories and to choose one company’s products over another’s? About the Authors Catherine Roche is a partner and managing director in the Düsseldorf office of The Boston Consulting Group; she can be reached at Michael J. Silverstein is a senior partner and manag- ing director in the firm’s Chicago office and the former leader of the Consumer practice; he can be reached at Patrick Ducasse is a se- nior partner and managing director in BCG’s Paris office and the leader of the Consumer practice; he can be reached at Natalia Charpilo is a project leader in the firm’s Munich office; she can be reached at
  8. 8.  T B C G C onsumers’ increasing anxiety is fueling a vicious cycle, with spending cuts mak- ing a deep recession a self-fulfilling prophecy. In the past, consumers helped their country’s econo-◊ my by spending their way out of downturns. Today consumers are at the center of a global economy, but so far they have been unwilling (and are oen unable) to spend their way back to good times. Most consumers are curtailing spending in anticipa-◊ tion of pain to come more than from real hardship, at least for now. Anxiety about the economy has spread to every mar-◊ ket in the world—even to countries where the key eco- nomic indicators remain fairly positive and consumers have yet to experience significantly negative effects from the downturn. Inflation has added to consumers’ fears and declining◊ purchasing power in many markets, especially Brazil, India, Mexico, and Russia. Stores everywhere are filled with crowds of shoppers◊ who fail to buy. Discounts provide great value for consumers but low margins for both suppliers and retailers. Uncertainty drives new emotions and behaviors as consumers adopt clever ways to cope. Consumers are taking refuge from the economic storm◊ by spending more time at home. Women have become expert purchasing agents for◊ their families, working actively to stretch the house- hold budget even further in tough times. The trading-up and trading-down trends are still very◊ much in play around the world—but with a massive shi in recent months toward trading down. Trading down is increasingly the name of the game.◊ Consumers’ expressed intention to trade down grew slowly from 2004 through 2007 in the United States and Europe, and 2008 saw the largest single-year in- crease across all regions. The explosion in trading down is mostly at the ex-◊ pense of trading up (rather than at the expense of middle-market offerings), as consumers search out value at reduced prices in everything from tea to travel. Frugal is the new chic and a back-to-basics sentiment◊ has taken root—at least among consumers in Europe, Japan, and the United States. Consumers are still spending in the categories that they love, but they need “permission” to indulge. Taking care of oneself and one’s family remains an es-◊ pecially powerful emotional hook. For example, even jittery consumers will trade up for high-quality fresh foods. Marketing messages can assuage buyer’s guilt by em-◊ phasizing superior quality, durability, and long-term savings, as well as the great pleasure that can come from small indulgences. Executive Summary
  9. 9. W C T  D  De-averaging is a must, since spending patterns vary by product category, geographic region, and consum- er segment. Some categories, such as coffee and tea, are proving to◊ be relatively robust even in the downturn, whereas many luxury, masstige, and deferrable discretionary products are suffering. Although trading down is growing in most of the de-◊ veloped world, trading up is still strong in China and India. Women in general are expert at hunting down value,◊ whereas young singles, dual-income couples without kids (DINKs), and income-secure empty nesters are more likely to continue spending without giving as much thought to price. From the findings of our research and our experience working with companies serving consumers every- where, we’ve developed eight best practices for tap- ping into consumers’ evolving sentiments about spending and addressing their need for superior val- ue. Companies that implement these practices now will succeed through the downturn and come back stronger than ever. We advise companies to do the following. Get their house in order by taking bold action on cash◊ and costs in order to fuel consumer-driven invest- ments. Focus intensively on value by gaining an understand-◊ ing of the ways in which consumers’ current emotions influence how they define and shop for value and by getting rid of features that consumers don’t want and overdelivering on what matters to them most. Leverage brand strength by supporting and refreshing◊ iconic brands and repositioning others as effective val- ue brands. De-average across categories, markets, and segments◊ to find pockets of opportunity. Invest in innovation both in response to the downturn◊ and in anticipation of the rebound. Customize the go-to-market playbook by employing in-◊ telligent pricing techniques,reallocating support to sen- sitive brands, and streamlining the product portfolio. Behave as predators instead of as prey by capturing◊ talent, real estate, and other opportunities and assets that are freed up by market turbulence. Rethink the business model and develop scenarios re-◊ garding capabilities that might be required to succeed in an uncertain future.
  10. 10.  T B C G I n other recent recessions, consumers’ appetite for goods pulled the economy out of the doldrums. In the current recession, many consumers have put the brakes on spending in order to start saving. In the United States, unemployment has grown to nearly 9 percent, housing prices have fallen approximate- ly 19 percent, and the equity markets have declined sharply. The losses may be mostly on paper so far, but the prospect of an actual loss of income has caused house- holds to cut back on discretionary purchases. High Anxiety Fuels a Vicious Cycle Anxiety about the economy has spread to every market in the world—even to countries where the key economic indicators remain fairly positive and consumers have yet to experience significantly negative effects from the downturn. For example, when we asked consumers in March 2009 whether they thought the economy would get even worse in the next 12 months, 56 percent of re- spondents in the United States agreed or strongly agreed—an increase of 24 percentage points from Octo- ber 2008. (See Exhibit 1.) In Europe, 60 percent of con- sumers felt the same way, an increase of 11 percentage points from 2008. The emerging economies presented a more diverse picture, with consumers in China being the least pessimistic about the next 12 months (only 23 per- cent thought things would get worse), while consumers in Russia and Mexico were the most pessimistic (59 percent and 50 percent, respectively). Confidence is plummeting worldwide—by some meas- ures to historic lows in Japan, Spain, and the United States. As many as 33 percent of employed respondents in the United States and 26 percent in Europe said they feel insecure about their jobs, and 53 percent of U.S. con- sumers and 54 percent of Russians are worried about their financial security as well. (See Exhibit 2.) The media plays a critical role in this dynamic by influencing con- sumers’ perceptions of the economy. The recent deluge of bad news has tended to drown out the good, but the messages and their intensity vary by country. Because consumer spending is a function of perceived wealth as well as actual buying power, sharp declines are occurring across all income brackets. The newspapers are full of articles claiming that differences between younger consumers, accustomed to spending freely rather than saving, and previous generations shaped by the Second World War and the Great Depression are fading fast. The level of pessimism expressed by consumers in most of the markets we surveyed (China and India being notable ex- ceptions) is unprecedented and is bringing about major changes in the way people shop and in the choices that they make. The consequences of a more conservative approach to spending are profound. Because consumers are central to a country’s economy, a serious cutback in consumption leads to slower economic growth—which, in turn, rein- forces consumers’ dwindling confidence in the future. Business Takes It on the Chin Current market data show that manufacturers and retail- ers are feeling the pinch everywhere, albeit to varying de- grees. (See Exhibit 3.) The steep discounts that many re- tailers are offering are providing great value for consumers but little margin for suppliers and retailers. U.S. retail sales fell faster in the fourth quarter of 2008 than in any quarter in the past 30 years, dropping from about −1 per- cent in September 2008 to −9 percent in January 2009. No Ordinary Recession for Consumers
  11. 11. W C T  D  “The economic situation is as bad as it will get; things will only get better.” “The economy will get even worse in the next 12 months.” “I don’t think the economy will improve, at least not for the next several years.” Percentage point increase from October 2008 through March 2009 Percentage point decrease from October 2008 through March 2009 20 United States Europe Japan Canada Brazil Russia India China Mexico 32 11 27 36 23 55 56 43 56 60 55 40 37 59 40 23 50 34 37 53 20 27 26 14 29 43 3 24 2 7 11 8 Respondents who agree or strongly agree (%) Exhibit 1. Pessimistic Consumers Are Bracing for a Slow Recovery Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. Very insecure (%) 1 Somewhat insecure (%)1 I am in financial trouble (%) I am not financially secure (%) Percentage point increase from February or October 2008 through February or March 2009 How secure do you feel your current job will be in 2009? Which statement best characterizes your feelings about your personal financial situation? United States Europe Japan Canada Brazil Russia India China Mexico United States Europe Japan Canada Brazil Russia India China Mexico 19 7 14 33 26 27 14 19 43 6 20 31 47 12 11 54 39 36 46 44 53 6 12 Exhibit 2. Most Consumers Are Worried About Jobs and Finances Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. 1 Percentage of employed respondents only. Retirees, housewives, and the unemployed were excluded.
  12. 12.  T B C G Among U.S. retail giants, only major discounters, such as Wal-Mart and Costco, showed slight gains. In 2008, retail sales in parts of China, Europe, and Japan managed to hold up relatively well, but in the first quarter of 2009 they showed signs of weakening in many markets. (For instance, retail sales in Germany in February 2009 were down 5 percent, year on year.) The drop in consumer spending in the United States caused at least 45 major retailers and restaurant chains there to declare bankruptcy in 2008, including such long- standing companies as Circuit City and Sharper Image. Retailers in many markets are bracing for a much stron- ger impact from the downturn in 2009. Several key industries, such as automotive, telecommuni- cations, and media, are expected to suffer declines in vol- ume in 2009. In the consumer goods sector, spending as- sociated with vacation travel and deferrable big-ticket items, such as automobiles, has been and continues to be especially hard-hit. However, private-label brands and discounters are gaining market share as consumers begin to see them in a more positive light. The problems that consumers are facing in the current crisis are unusually severe, even if those problems are an- ticipated rather than actual for many, at least so far. As nervous consumers tighten their purse strings, they inad- vertently tighten their stranglehold on the global econo- my as well. Yet it is in such times that companies can take advantage of the opportunities that arise by innovating, exploring low-cost models, changing design specifications to radically lower costs, and achieving growth with prod- ucts that offer higher value. 2008 2009 China 18 Russia 4 Brazil 3 Canada –5 United States –6 –9 Europe 0 Japan –2 0 10 15 20 25 5 –10 –5 Year-on-year change in retail sales (%) May June July August September October November December January Mexico Exhibit 3. The Economic Crisis Has Weakened Retail Sales in Many Markets Sources: National boards of statistics; Thomson Datastream; BCG analysis. Note: Retail sales for Europe were calculated by averaging the sales indexes of France, Germany, Italy, Spain, and the United Kingdom, weighted by GDP.
  13. 13. W C T  D  C onsumers are at the center of the global economy but so far have been unwilling (and are oen unable) to spend their way back to better times. Instead they are devel- oping new behaviors to cope with the eco- nomic crisis, especially when it comes to how they shop and spend. Trading Down Comes on Strong Trading up was a powerful trend in the first half of this decade, and it continued to drive spending in emerging economies through 2008. But trading down has begun to pick up, especially in Europe and the United States. (See Exhibit 4.) It is now the prevailing inclination across all markets as consumers stretch their budgets. Through 2008 and into the first quarter of 2009, year-on-year in- creases in consumers’ intention to trade down (and cor- responding declines in their intention to trade up) were the largest we have seen since we began tracking these trends. Furthermore, trading down is taking on a different meaning than it had in the past. Until recently, trading down was more about treasure hunting for bargains—the thrill of getting a good deal— than about making compromises out of necessity. And the market responded with a proliferation of products that performed well and were remarkably affordable. But over the past year, the desire to trade down has begun to stem from anxiety—anxiety about a deep and lasting re- cession and about future financial constraints, job loss, and the prospect of being unable to care for one’s family. Consumers are cutting back on spending by deferring nonessential purchases, buying products at promotional prices, and shopping around to find the best deals. (See Exhibit 5.) Shopping has become an exercise in home- work, focus, patience, and legwork. That said, some consumers are still interested in trading up—but everywhere they are being much more selective about their choices, and they are trading up in fewer cat- egories overall. The middle market, which until recently had been under pressure in many categories in Europe and the United States, may benefit in this environment as companies try to attract consumers who want to step down from trading-up brands but not as far down as private-label and value brands. New Ways of Coping Besides trading down, consumers are adopting a variety of coping mechanisms to help them deal with the need (real or imaginary) to spend less, consume more modest- ly, and shop smarter. The following are just a few. Cocooning. Consumers are turning inward as a way of weathering the economic storm. “Cocooning,” as trend spotters are calling the growing tendency to seek comfort and safety by staying close to home, is a natural inclina- tion in stressful times. It happened in the United States aer 9/11, and it is happening now in many markets as family finances become increasingly uncertain. Cocooning has spawned two related trends that signal a sea change in consumer spending: in-sourcing and stay- cations. In-sourcing is the rediscovery of home economics and self-sufficiency: instead of buying, consumers are making it themselves; and instead of paying others to do things, they are doing it themselves. A staycation is a va- cation spent at home: taking day trips to nearby attrac- tions and festivals, for example, or just puttering in the Uncertainty Drives New Sentiments and Spending Behaviors
  14. 14.  T B C G United States (2002–2008) Europe (2005–2008) Percentage of category buyers Percentage point change (2007–2008) Trade up Neither Trade down 2003 2005 2006 2007 200820042002 2005 2006 2007 2008 37 37 31 27 28 26 20 30 29 31 30 32 33 32 33 34 38 43 40 41 48 22 33 45 42 32 26 20 33 47 13 31 56 –6 7 9 –7 Percentage point change (2007–2008) Exhibit 4. Trading Up Is Losing Ground as Trading Down Accelerates Sources: BCG Consumer Sentiment Survey, 2002–2008, in the United States; BCG Consumer Sentiment Survey, 2005–2008, in Europe. Spending tactic United States Europe Japan Canada Brazil Russia India China Mexico 70 71 75 82 81 59 71 80 74 72 70 61 70 69 87 49 61 67 65 57 65 69 82 75 63 36 33 31 71 59 66 68 65 75 82 43 51 48 53 48 71 65 75 65 76 Buy more products on promotion Top spending tactic Cut spending on nonessential items Defer major expenses that can wait Spend more time in stores to find the best prices Shop in discount stores more oen Respondents who agree or strongly agree (%) 1 Exhibit 5. Homework, Focus, Patience, and Legwork Are Key to Spending Less Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. 1 Multiple selections were allowed.
  15. 15. W C T  D  garden. But cocooning, in-sourcing, and staycations aren’t just about saving money. They also offer emotional re- wards in terms of quality time spent with the family, the rediscovery of lost traditions, and the satisfaction of get- ting back to basics. (See the sidebar “Let’s Stay in To- night.”) Frugality: The New Chic,for Now. Frugality has become ubiquitous. Most of the consumers we surveyed in Eu- rope and the United States said they have lost consider- able trust in big corporations and institutions—a view that is no doubt fueled by continuing bonus payouts to top executives and the sense that transparency into what is really happening in the financial markets is lacking. Most consumers agree that “spending more doesn’t feel like the right thing to do now” and “basic simple products are all we need.” Although consumers in Europe and the United States believe that their new-found frugality will endure beyond the downturn, that remains to be seen. More likely, a balance will be struck between the free- spending exuberance of the past and today’s tendency toward belt-tightening. Mom: The Family’s Purchasing Agent. In most house- holds, women are responsible for the bulk of day-to-day spending. And when times get tight, it is women (espe- cially mothers) who have the task of making the budget stretch as far as possible. It’s a role that they take on will- ingly, but it’s also a stressful one—especially during hard times. In fact, our survey results show that, in Western markets in particular, women are feeling more stressed and underappreciated than men during this downturn. They are also more likely than men to trade down and to make deeper overall reductions in spending. They’ll cut back on products for themselves, especially apparel and accessories, before sacrificing products for the family (which can include cherished pets). (See the section “No Two Segments Are Alike” on page 33.) Trading Up, but Much More Selectively. Some catego- ries (particularly fresh foods, which speak to the need to “take care of me and my family”) are seen as just too im- portant for compromise. Consumers are still open to com- pelling claims about a product’s superior technical, func- tional, and emotional benefits and will trade up in those categories that they feel are most important. (See Exhibit 6.) They will also find room in their budgets for smaller “spirit liers” for themselves and affordable indulgences for their loved ones. But in the current climate, guilt is as- sociated with most nonessential purchases. To overcome The desire to become reacquainted with the simple pleas- ures of home, family, friends, and pets was a constant re- frain in our consumer surveys as well as in personal inter- views.Such statements as “I am happiest when I’m home” and “My home is my castle” resonated with more than 75 percent of consumers—both men and women—across all markets. Understandable as the cocooning trend is,it is hardly good news for the entertainment and restaurant sectors. Still, if some categories are suffering, others—such as video and board games, DVD rentals, and video on demand—are benefiting. As families rediscover the pleasures of spending time◊ together, the toy industry is enjoying a renewed interest in traditional family games,such as Monopoly and Clue. Between 2007 and 2008, sales of board games in the United States rose 6 percent,while total sales of toys de- creased 3 percent. Home video games are also selling quite well. Netflix, the top U.S. online DVD rental company, sur-◊ prised analysts and company executives (who had been predicting slower growth) when its share price jumped 8 percent in January aer it posted unexpectedly rosy quarterly results propelled by growth in its Internet vid- eo-streaming service and 2 million new subscribers. Smart companies have found innovative ways to take ad- vantage of the stay-at-home trend and to downplay the dreary side of budgeting. Grocers are offering prepack- aged ready-to-eat meals, including wine and dessert, that provide customers with an attractive compromise be- tween eating out and preparing meals at home. Of course, whether customers embrace these trends will depend, to some extent, on the product category and their own age and income bracket. Still, dining in on comfort food and watching the same 1930s musicals that cheered up an earlier generation in hard times sounds like a pretty good way to spend an evening, whether you are rich or poor, young or old. Let’s Stay in Tonight
  16. 16.  T B C G that guilt, consumers need to be reassured that their pur- chases represent smart choices and that they still have “permission” to spend and even to indulge, especially in small, relatively inexpensive daily luxuries. The overall luxury and masstige sectors have clearly been hurt by the downturn, but the degree of its impact depends on the specific segment. (See the sidebar “Luxury: Down but Not Out.”) Percentage point decrease from February or October 2008 through February or March 2009 Percentage point increase from February or October 2008 through February or March 2009 United States Europe Japan Brazil Russia India China Mexico Respondents who agree or strongly agree (%) 6775847678 456263 Still spending. . . ...selectively 1833241917153535 2 7 8671817473565965 1 48 7575 35 72 324440 17 5 1 2 0 8 9 1 1 5 0 5 “Some products are too important to scrimp on.” “Even when the economy is bad, I will spend on affordable luxuries.” “I concentrate my spending on the few categories that matter most.” “I scrimp, save, and cut back ... to have enough money for the things I like to splurge on.” 5 Exhibit 6. Consumers Are Still Open to Spending—but Selectively Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009.
  17. 17. W C T  D  Aer a decade of spectacular growth—driven primarily by increasing numbers of wealthy households,particularly in emerging markets—the luxury sector is taking a direct hit. Experts predict that global sales of luxury goods will fall by as much as 7 to 8 percent this year. Many affluent consumers have concluded that they no longer have the money for conspicuous consumption, while those who can still afford it feel uncomfortable in- dulging themselves when everyone else seems to be tight- ening their belt. It’s even been reported that shoppers in Milan and New York are asking for logo-free bags to carry away their designer purchases.“Flaunting is out and sham- ing is in,” as one observer of the fashion scene put it. Of course, the luxury segment as a whole usually tracks GDP growth in major markets, yet it has outperformed the general economy in past recessions. And it continues to be an area of relatively attractive margins in many cat- egories. However, in order to understand the dynamics of this sector and approach it strategically, it is essential to de-average. The recession’s impact on “so luxury” items, such as de- signer handbags and accessories, tends to be less severe than on “hard luxury” products, such as jewelry and high- priced watches. The purchase of many so-luxury prod- ucts has strong seasonal and impulse components, which make them more resilient in a downturn. Furthermore, so-luxury goods are oen sold in their own brand stores, whereas hard-luxury products are usually sold by third- party retailers, over which producers have less influence when it comes to marketing the products. Price tier also plays a role. In past recessions, “super lux- ury” purchases, such as trophy yachts, automobiles, and custom-designed high-end jewelry—which only the very wealthiest can afford—tended to be unaffected because the bank accounts of these consumers escaped relatively unscathed. (That may not be the case this time around.) In contrast, entry-level luxury products (or masstige items), to which the middle class aspires in normal times, tend to be vulnerable in recessions because middle-class budgets are more exposed. The luxury sector also varies considerably by region. In re- cent years, most of its growth has occurred in emerging markets such as China and Russia, as well as in the Mid- dle East. As more consumers in these markets begin to feel the impact of the downturn and alter their spending accordingly, this source of potential buoyancy may begin to flag. Yet even when the general economy and the luxury sector as a whole are suffering, innovative players with well-posi- tioned brands can thrive. The LVMH Group, for example, has managed to outperform world GDP growth by an aver- age of almost 6 percent per year over the past ten years. The group scored a big hit with fashionistas early in 2009 when designer Marc Jacobs’s updated Stephen Sprouse collection hit the stores. The Louis Vuitton handbags, bearing Sprouse’s signature splash of roses and Day-Glo graffiti, lend a burst of color in dark times—at $175 to $2,555 apiece. Louis Vuitton chairman and CEO Yves Car- celle says the brand is more about desire and emotion than money. He believes that during a recession people discover the real value of luxury brands, such as high- quality materials and manufacturing. The bottom line is that consumers will continue to desire a little luxury in their lives, even when times are tough. To be sure, middle-income consumers will cut back on some indulgences, buy less oen or in smaller quantities, and downshi to less expensive but still attractive products. High-income consumers will continue to buy fine prod- ucts, but they will be more careful to spend their money wisely. More than ever, they will insist on superior design, attention to detail, and lasting value. Luxury—Down but Not Out
  18. 18.  T B C G W hether consumers are trading up, trading down, or looking for a com- promise in the middle, all categories are vulnerable in the downturn. But spending patterns differ depending on product cate- gory, geographic region, and consumer segment. That’s why it is critical for companies to de-average the chang- ing needs and spending trends within their own catego- ries and among their own customers by region and demo- graphic group. Category Differences Fiy-nine percent of consumers in developed markets and about 43 percent of consumers in developing mar- kets, on average, plan to cut spending this year. (See Ex- hibit 7.) Trading down is strong and gaining ground in categories that consumers view as commoditized or less important to them personally. Basic services (such as car rental and postal and ship- ping services) and pantry staples (such as household What, Where, and Who: De-averaging Required Percentage point increase from February or October 2008 through February or March 2009 United States Europe Japan Canada Brazil Russia India China Mexico Respondents’ discretionary-spending intentions over the next 12 months (%) 17 10 13 16 21 32 36 37 32 37 50 50 43 73 63 47 53 55 57 34 26 42 6 4 6 25 15 18 14 12 13 14 9 9 1315 4314 4 21 Average planned spending decrease (%) Decrease About the same Increase Exhibit 7. Most Consumers—Except Those in China and India—Say They Will Cut Spending Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. Note: Some percentages do not add up to 100 because of rounding.
  19. 19. W C T  D  cleaners and paper products), as well as home décor and bedding, have long been top trading-down categories in the United States, Europe, and Japan. But now the ner- vous market has triggered gains in trading down in near- ly all of the approximately 150 categories that we sur- veyed in these regions. And some categories, such as bathroom décor, experienced astounding surges in trad- ing down from 2005 to 2008. (See Exhibit 8.) But the situ- ation varies greatly depending on the category, as the fol- lowing examples illustrate. The Auto Sector: Stuck in Neutral. Automobiles are among the hardest-hit categories in the downturn. Sales of passenger cars in all markets declined sharply from September 2008 to February 2009—down a total of 18 percent worldwide, on a year-on-year basis. The combina- tion of descending volumes and reduced prices is squeez- ing OEM margins, particularly in the United States—and several companies have asked for direct support from their governments. The sector is not yet out of the woods. More than one- third of the respondents to our survey who had car pur- chasing or leasing plans have either postponed or can- celled them. Approximately 46 percent of the consumers we surveyed in Europe, Japan, and the United States in- tend to cut back on vehicle spending. (See Exhibit 9.) Even among the most affluent consumers in these mar- kets, about 40 percent said they will reduce their spend- ing on cars. 5 10 15 –5 0 30 35 40 45 50 55 60 65 70 Exerciseequipment/homegym Healthclubs/personaltrainers SportingequipmentSSSSp Toysandgames Bathandbodyproducts FFacialskincareandcosmeticsFFFF Oralcareservices Spasandspaservices Manicure/Pedicure Cosmeticsurgery/procedures Hair-careservices Hair-careproducts Pet-careproductsp Voluntary/optionalmedicalcareandservices(nutritionis Cars Kitchenappliances Washer/Dryery Homeentertainmentproducts Personalcomputers Personalinformationappliances Mobilephone Financialplanning/InvestmentmanagementservicesLifeinsurance Carinsurance Personaleducation HHomefurnishingsHHHH Kitchendecorand/orremodeling Bathroomdecorand/orremodeling otherhomeremodelingprojects Entertainment Internetserviceprovider Fragrances,perfume PayTV Lotteriesandgambling Postal/Shippingservices Mobilephonecontractandservices Lodging Carrental Freshproducefruitsandvegetables Accessories Frozenfoods Cannedfoods Cereal Bakeryandpastryproducts Otherdrygoods Juices Sodrinks Bottledwaterttledwate Cheese Icecream Snackfoods Conddimentsanddressingsdddd Householdcleaners Laundrydetergent PaperproductsPaperproducts Overthecounterremedies Oralcareproducts Women’nnshygieneproductsyg p’ Babycare Shavingproducts Dairyproducts Fishandseafood Preparedmeals Chilledproducts Petfood Energydrinks Sportdrinks Jamandotherspreads Soup Cakemixes Desserts Ethnicfoods Coffee/Tea Chocolate/CandyCaaCaa Gourmetfoods Organicfoodsg Takeoutfood Sit-downrestaurants Fast-servicerestaurants Wine Beer LLiquorLLLL Petfood Personalclothingootoot Kid’ddsclothing’’ ShoesShoes Athleticshoes Dresswatch Jewelry Lingerie Cookware Furniture Myhomeorappartmentitself Meatt Bathlinenshh sSalads Processedmeat BiscuitsscuB HaH Vitaminsandsupplements Eggs Frozenreadytoeatrozenreadytoe Frozenmeattt Frozenbread Men’nnshygieneprodductsdddd’ Butterandmargarinrrrr Percentage of category buyers who are trading down,2008 Change in percentage of category buyers who are trading down, 2005–2008 Bedding Homecleaningservices Travel/Vacations A 48 Average: 48Average:48Average:48 Ø 5%1 Average increase in trading down: 6 percentage points Sharpest increase in trading down: 13 percentage points (exercise equipment and home gyms, and bathroom décor) Average percentage of category buyers who are trading down: 48 8 10 12 14 6 4 2 0 48 50 52 54 56 58 60 62 64 6866 70 Fragrances and perfumes Takeout food Dress watches Paper products Mobile phones Frozen ready to eat Toys and games Over-the-counter health remedies So drinks Other dry goods Hair-care services Bath and body products Household cleaners Biscuits Hair-care products Energy drinks Snack foods Mobile phone contracts and services Lingerie Manicures and pedicures Frozen bread Sports drinks Cake mixes Postal and shipping services Health clubs and personal trainers Fast-food restaurants Spas and spa services Bottled water Exercise equipment and home gyms Fashion accessories Lotteries and gambling Car rental Kitchen décor and remodeling Laundry detergent Percentage of category buyers who are trading down, 2008 Change in percentage of category buyers who are trading down, 2005–2008 Chilled products Cereal Lodging Frozen foods Desserts Skin care and cosmetics Bathroom décor and remodeling Prepared meals Bakery and pastry products Frozen meat Jewelry Sporting equipment Jam and other spreads Chocolate and candy Personal clothing Home furnishings and décor Bath linens Condiments and dressings Entertainment Shaving products Baby care Men’s hygiene products Children’s clothing Grocery Nongrocery Exhibit 8. In the United States, Trading Down Is Rising in Most Categories Source: BCG Consumer Sentiment Survey, 2005–2008. Note: U.S. adults with household incomes greater than $35,000.
  20. 20.  T B C G So who will continue to buy cars? We found in Europe that about 50 percent of young, single men in our survey and about 47 percent of DINKs will either continue their normal spending on cars or spend more. In some European countries, the government has imple- mented measures to support new-car sales, such as offer- ing bonuses to consumers who buy green vehicles. Ger- many’s scrapping scheme has been particularly successful. Consumers who trade in their old gas guzzlers for scrap receive €2,500 toward the purchase of a new car in 2009. To compete in such a challenging market, OEMs need to be more sensitive to consumers’ needs. For example, among consumers who still plan to purchase a car in the next 12 months, a large majority in Europe, Japan, and the United States say they are interested in green cars, primarily for reasons of fuel efficiency. A few companies have already come up with some inter- esting strategies to address consumers’ concerns during the downturn, such as “altruism marketing.” Hyundai, for example, plans to address its U.S. customers’ uncertainty regarding employment by covering three months of new- car payments for buyers who lose their job—and by allowing returns if the loss of income persists. In Italy, Volvo offers consumers incentives, on top of government subsidies, to purchase low-emission vehicles. Beauty and the (Recession) Beast. Fragrances, skin- care products and cosmetics, hair-care products, and bath and body products have enjoyed solid growth in recent years but are now suffering from falling sales, with no growth predicted in many segments. Forecasts from Eu- romonitor International indicate that demand is stagnat- ing worldwide. This was confirmed by our survey, which suggests that consumers plan to cut back in these catego- ries in particular in the coming months. Although spending has decreased across most markets, more consumers in the United States than in Europe or Japan have either cut spending on personal-care products or intend to do so. Fragrances and perfumes have taken the biggest hit: 70 percent of U.S. consumers say they have cut back on what they perceive to be a highly discre- tionary purchase. As for skin- and hair-care products, con- sumers have become very price sensitive and say they are actively searching out sales and promotions. Private la- United States Europe Japan 8 44 23 20 5 35 12 11 38 4 Have not cut but will cut Have increased or will increase 36 12 18 29 5 49 47 43 Percentage of respondents Have not cut and don’t expect to Have already cut and will cut further Have already cut but will not cut further Recent spending and intentions to spend on cars Exhibit 9. Nearly Half of Consumers Plan to Cut Spending on Cars in the Coming Months Source: BCG Consumer Sentiment Barometer, March 2009.
  21. 21. W C T  D  bels are expected to make considerable gains in several beauty segments, but this is less likely in fragrances, where brand image and loyalty remain powerful. Families and divorced women are cutting back on per- sonal-care products more than other segments. Young, single men and empty nesters are least willing to de- crease their spending in these categories. Of the various ways to spend less, not purchasing at all or purchasing less oen wins out for fragrances, whereas purchasing less oen and buying on promotion are popular tactics for skin care and cosmetics and for hair-care and body products. (See Exhibit 10.) The downturn is also driving a shi in favor of lower-price channels, particularly in hair-care and body products. Some beauty segments may actually benefit from the downturn. For example, some budget-conscious consum- ers who used to go to a professional salon for hair color or other treatments are now planning to do it themselves in their own homes, using “salon quality” products pur- chased off the shelf. Many retailers and manufacturers are catching on to this trend by offering more trading-up and professional-quality hair-care products. Downturn Pick-Me-Up: A Good Cup of Coffee or Tea. Among the most robust products in our study, coffee and tea have enjoyed steady growth in recent years. Despite the downturn, industry experts expect that growth to con- tinue, especially in developing markets. When we asked in which categories consumers in devel- oped countries intend to cut spending, only about one- third of our respondents said they would spend less on coffee and tea. (See Exhibit 11.) Coffee and tea may even benefit from consumers who consider them to be a less expensive alternative to other nonalcoholic beverages, such as so drinks and juices. Most consumers view coffee and tea as necessary sta- ples—although certainly not as commodities, since peo- ple are particular about the brands they consume. Conse- quently, there is a strong affinity for national brands in this category, although private-label sales of coffee in some markets are relatively high (28 percent in Germany, for instance). If they feel they must reduce spending on coffee and tea, consumers are more likely to drink these beverages less United States Europe Japan Fragrances and perfumes Skin care and cosmetics Hair-care and body products 10 2 13 7 30 43 Buying less oen Buying in smaller quantities Buying on promotion only Switching to private labels Shopping at places offering better prices Not buying at all 15 9 21 12 41 20 20 16 27 14 37 6 Price Quantity Price Quantity Price Quantity 10 5 15 8 42 25 Buying less oen Buying in smaller quantities Buying on promotion only Switching to private labels Not buying at all 12 9 21 12 37 16 15 16 29 13 32 8 10 1 10 10 38 34 Buying less oen Buying in smaller quantities Buying on promotion only Switching to private labels Not buying at all 18 12 24 14 38 4 26 12 34 14 30 3 Percentage of respondents1 Top two spending tactics Shopping at places offering better prices Shopping at places offering better prices Exhibit 10. Budget-Stretching Strategies Vary Across the Beauty Category Source: BCG Consumer Sentiment Barometer, March 2009. 1 Multiple selections were allowed.
  22. 22.  T B C G frequently, seek out promotions, or avoid expensive brands away from home in favor of high-quality but less expensive brands at home. Some makers of coffee presses and noncommercial espresso machines claim that users can save more than $1,000 per year drinking premium coffee at home. Indeed, retail coffee giants are facing stiff- er competition from coffee and espresso makers made for the home, as well as from fast-food outlets offering bet- ter-quality coffee drinks (such as McDonald’s McCafé). Since most coffee and tea drinkers are unwilling to sacri- fice quantity or quality but still want good value, compa- nies in this sector should avoid deep and lasting price cuts and focus instead on promotions that encourage con- sumers to sample their products. They should also in- crease package sizes to encourage stocking up while con- tinuing to deliver value through quantity discounts. Finally, they can play to consumers’ cocooning inclination by pointing out that even gourmet blends are much less expensive when prepared at home than coffee or tea pur- chased at a shop. These days, enjoying a really good cup of coffee or tea with a friend may be one of the few af- fordable luxuries still available to most consumers—any- where in the world. There are still some bright spots for a few other catego- ries in which consumers’ desire to trade up or maintain their current spending levels has remained fairly stable. The most resilient categories are family related and in- clude high-quality foods (particularly fresh foods) and green products—especially those that offer energy cost savings or health and safety benefits. Another category in which consumers are reluctant to trade down is health care (when it is not publicly funded). Emerging Markets: A Few Bright Spots, for Now Emerging markets present a mixed picture, which is not surprising considering their varied economic, demograph- ic, and cultural profiles. Some, like China, have yet to feel the full brunt of the global downturn, and consumers there are still eager to trade up. Others, like Mexico, are deeply concerned that the recession may bring disaster to their economies. Still, across most emerging markets, trading down is on the rise. (See Exhibit 12.) China and India: Cautious Optimism. China and India remain comparatively optimistic despite the troubles in United States Europe Japan Canada 65 10 10 13Have already cut and will cut further Have not cut but will cut Have already cut but will not cut further Have increased or will increase 69 9 12 7 6 65 7 13 9 67 72 71 Recent spending and intentions to spend on coffee and tea 332 78 7 81 Percentage of respondents Have not cut and don’t expect to 6 6 Exhibit 11. Two-Thirds of Consumers Will Maintain Their Spending on Coffee and Tea Source: BCG Consumer Sentiment Barometer, March 2009.
  23. 23. W C T  D  the rest of the world. A sizable segment of consumers in both countries continue to trade up for products that offer higher quality or a sense of achievement and social status, and a better brand name is still an important incentive. (See Exhibit 13.) Chinese and Indians are willing to spend, but in a more focused and price-sensitive manner. The question on everyone’s mind is how long China and India will remain bright spots. The government in both countries, and especially in China, is working on stimulus measures to boost domestic spending and protect em- ployment. Employment in both markets is under pres- sure as exports to struggling Western markets continue to slump. Domestic spending, particularly in China, would have to pick up a great deal of slack to fully cushion the blow to exports. Therefore a note of cautious optimism is warranted for these two important markets. China. Although the Chinese are generally more opti- mistic about their economy than Westerners are, some parts of the country are more optimistic than others. A de-averaged analysis of consumers, differentiated by in- come and city tier, shows four distinct segments emerg- ing. (See Exhibit 14.) The two groups with the highest degree of security (that is, at least 90 percent report feeling “somewhat” or “very” financially secure) either live in the largest cities and have the highest incomes or live in the smallest cities and have relatively lower incomes. The former group consists mainly of white-collar workers, many in international companies; although they have healthy savings accounts, these people would be highly exposed in a downturn. We label them “secure but anxious.” Consumers in the latter group have been benefiting from the relocation of busi- nesses to the inner provinces; they enjoy the highest rate of expected income growth and are typically purchasing their first home appliances. The phrase we apply to this group is “Downturn? What downturn?” Consumers who are wary but still hopeful (their attitude can be expressed as “life goes on”) mainly have middling incomes and live in China’s midtier cities. Although these people have heard of the global crisis, they feel fairly se- cure about their jobs and savings. Consumers who are most worried about their future— the “insecure”—live mainly in second- and third-tier cit- ies and have the lowest incomes. They are aware of the Percentage of category buyers United States 1 Europe 1 Japan 2 Brazil Russia 2 India China 3 Mexico 20 32 48 56 31 13 5 42 53 50 33 17 20 46 34 38 30 32 37 31 32 89 8 3 6 7 9 11 8 7 3 1 8 10 Trade up Neither Trade down Exhibit 12. Trading Down Is Rising in Emerging Markets, Including China Source: BCG Consumer Sentiment Survey, 2008-2009. 1 Arrows denote percentage point increases and decreases from October 2007 through October 2008. 2 Arrows denote percentage point increases and decreases from February 2008 through February 2009. 3 Arrows denote percentage point increase and decrease from summer 2007 through January 2009.
  24. 24.  T B C G Tier 1 citiesTop three cities Tier 3 citiesTier 2 cities Tier 4 cities 5,000–8,000 3,000–5,000 2,000–3,000 <2,000 >8,000 Less than 80 percent 80 to 89 percent “Downturn? What downturn?” low-income consumers “Secure but anxious,” high-income consumers “Insecure,” low-income consumers “Life goes on,” middle-income consumers Percentage of consumers who feel “somewhat” or “very” financially secure 90 percent or more Household income (RMB/month) Exhibit 14. Confidence Is Not Spread Evenly Among Segments of Chinese Consumers Sources: BCG Consumer Sentiment Survey, 2009; BCG analysis. Note: The cities surveyed were as follows: top three cities = Beijing and Shanghai; tier 1 = Chengdu, Jinan, and Xiamen; tier 2 = Changchun, Xi’an, and Nanchang ; tier 3 = Jingzhou and Zhongshan; tier 4 = Chenzhou. United States Europe Japan Brazil Russia India China Reasons for trading up Top two reasons 20 27 27 32 38 60 65 73 Meaningful technical differences Categories are more important to me I enjoy the feeling of using these products I can afford to I deserve it Better brand name I enjoy the feeling of buying these products Products give better results 24 17 27 25 34 39 45 44 16 15 19 16 24 58 65 47 55 52 64 50 60 57 57 60 41 33 53 43 54 60 62 62 74 79 72 73 73 71 73 78 46 71 48 55 53 57 71 70 Respondents who agree or strongly agree (%) Exhibit 13. Brand Is a Key Reason for Chinese and Indian Consumers to Trade Up Source: BCG Consumer Sentiment Survey, 2008–2009.
  25. 25. W C T  D  worldwide economic troubles because they have seen factories close and jobs disappear. This group also has the highest proportion of retired people, who are among the most vulnerable in a downturn. Half of our Chinese respondents said they expect their discretionary spending to remain the same, with the re- mainder split between those who expect it to increase and those who expect it to decrease. Even wealthy con- sumers are watching their budgets. When cutting back, the wealthy reduce spending on vacations and fashion apparel. But they continue to spend on fresh and high- quality food. Trading up remains very strong in China, yet it dropped 10 percentage points between the summer of 2007 and January 2009, whereas trading down increased 8 percent- age points. On average, consumers are trading down most oen in basic services (mobile phone and land-line con- tracts, Internet service providers, and pay TV), out-of- home entertainment (including fast-food restaurants), and vacation travel. (See the vignette “China’s Emerging Middle Class.”) India.With its low levels of household and corporate debt and limited reliance on international trade (approximate- ly 20 percent of GDP), India’s economy is relatively healthy. Yet the effects of the global downturn can be seen in rising unemployment that is expected to exceed 7 percent in 2009. Indians are also concerned about such potentially destabilizing factors as the country’s relations with Pakistan. 33 years old Married with no children; he and his wife both work Owns an apartment in Shanghai Senior manager at an IT company China’s Emerging Middle Class: Kelvin Is Financially Secure but Wary About the Economy Kelvin’s story “When I married the woman I love, I paid cash for a small◊ apartment for us and furnished it. Although I like our place, I would like to trade up to a bigger one someday.” “I’m not too particular about my wardrobe. The most expen-◊ sive item I ever bought was a slim-cut designer suit for my wedding.” “I think of myself as ‘progressive’ rather than ‘aggressive’ in◊ my career. I believe in working hard and climbing the career ladder. My wife and I oen bring work home from the office, and then we don’t have time to prepare meals.” “We have a lot of interests in common—badminton, travel-◊ ing, and, of course, our puppy.” His dreams Having a baby “I’d love to have a boy I could play with.”◊ A higher standard of living “I would like a bigger house.”◊ “My wife seems to have an unlimited de-◊ sire for premium clothes and jewelry.” Traveling the world “We would love to go on vacation more◊ oen.” His fears Not living up to his personal standards “I fear making careless mistakes at work.”◊ Missing out on a bargain “I bought an LCD TV for $900. But then my friend bought◊ one with a bigger screen at a lower price. I think I pur- chased too quickly.” Boredom “It makes me sad when I have nothing to do—life should◊ be lived to the fullest.” Views on the downturn Does not feel that the downturn has◊ had a big impact in China, and hasn’t changed his spending habits Is confident of the government’s abil-◊ ity to support the economy Believes it will be some time before◊ the world economy revives How he copes Plans to shi from stocks to more sta-◊ ble investments Is deferring large expenses, such as a◊ bigger apartment Takes time to consider purchase op-◊ tions and seeks advice from friends Arranges group discounts for large◊ purchases Reasons to trade up and down Trades up for food because freshness◊ is important Trades up for home furnishings be-◊ cause he prefers a “modern” look Trades up to international brands in◊ consumer electronics Trades down for apparel because fit is◊ more important than brand name
  26. 26.  T B C G For all of these reasons, consumer confidence in January 2009 dropped 20 percentage points from January 2008, while GDP growth is forecast to fall from 9 percent in 2007 to 6 percent in 2009. About 62 percent of Indian consumers feel anxious about the future in general, and 40 percent expect the economy to get even worse in 2009. However, only 14 percent think the economy will take several years to recover. While they are working hard and clearly feeling anxious, 83 percent of our survey partici- pants reported being happy with their lives, particularly in their homes and communities. Although two-thirds of Indians are not ready to cut back on spending, almost all claim to be very selective in their purchases and sensitive to prices. Approximately 80 per- cent of our respondents said they will concentrate their spending on a few categories that matter most. Their pri- mary motivation is to save more, and many consumers told us that savings on discretionary items would be ap- plied mainly to their children’s education and their own retirement. (See Exhibit 15.) Indian consumers trade up and down very actively across the 89 categories we asked about (32 percent trade up and 38 percent trade down). But even in a downturn, In- dians will not compromise on fresh foods or name brands. They are most likely to trade down for out-of-home enter- tainment, vacations, and cars. Sixty-nine percent of Indi- ans who trade down—a higher percentage than in Eu- rope or the United States—told us that they particularly enjoy the feeling that they are saving money. (See the vi- gnette “India’s Urban Middle Class.”) Brazil: Wait and See. Brazil has enjoyed moderate growth in GDP of about 3 percent per year since 2000. Private consumption rates among the emerging middle class have been rising steadily, driven primarily by falling interest rates and easy access to consumer credit. Infla- tion was stabilized in 2002, and the government has been improving its support programs for the poor. Consequent- ly, consumer confidence rose 45 percentage points be- tween 2003 and 2008. Now, with the downturn settling in, GDP growth is ex- pected to hover around 1 percent in 2009, and consump- tion is not expected to increase. Brazilians anticipate higher unemployment and reduced wages. Consequently, consumer confidence has fallen 15 percentage points United States Europe Japan Canada Brazil Russia India China Mexico Top two reasons 6 14 4 15 72 27 28 30 31 46 Expect to be saving more Expect to be earning less in salary Worried about job loss Expect to be earning less in dividends and capital gains Expect to have less access to credit 17 18 27 27 42 8 13 24 51 44 18 10 21 11 44 4 2 37 37 40 19 43 33 40 35 4 8 38 16 41 15 18 17 20 43 Reasons for decreasing spending Percentage of respondents with intentions to decrease their discretionary spending Exhibit 15. Saving More Is the Main Reason Indian Consumers Spend Less Sources: BCG Consumer Sentiment Survey, 2009; BCG Consumer Sentiment Barometer, March 2009.
  27. 27. W C T  D  since September 2008. As many as 45 percent of Brazil- ians now say they are anxious about the future. One out of every two Brazilian consumers in our survey said they plan to decrease their spending by an average of 13 per- cent, especially in discretionary categories, although the amount varied depending on the demographic segment. While this number is high,it is actually lower than in most of the other markets we surveyed (except China). Retail sales have already been affected in big-ticket categories, such as automobiles, furniture, and appliances. Brazilians have also become much more price sensitive, with 50 percent of respondents saying they plan to trade down—to balance their budgets, save money, and find good deals. That percentage is about the same as in the United States, but it is higher than in any other develop- ing country except Mexico. Consumers in Brazil are most likely to trade down in out-of-home entertainment, travel, consumer electronics, home décor, appliances, and appar- el and shoes. Although some consumers intend to con- tinue trading up, they will focus on a few select catego- ries, such as high-quality foods and products that offer personal gratification. Despite all the economic gloom, 75 percent of our Brazil- ian respondents said they are generally happy with their 34 years old (Narender) and 32 years old (Neetu) Married with a daughter and a son Live in New Delhi Narender is a manager in a private insurance company Neetu is a housewife India’s Urban Middle Class: Narender and Neetu Are Moving Up in Life Despite the Downturn Narender and Neetu’s story “We are quite proud of India’s recent achievements—and op-◊ timistic about its future.” “One of our favorite activities as a family is shopping. We◊ look for quality first in just about everything we purchase.” “We shop for groceries about once a month, mostly at More◊ supermarket, where we can find everything under one roof. It’s not the cheapest store, but its prices are reasonable.” “We usually buy brands, although we’re not particularly loyal,◊ except in personal-care products. Brands provide good quali- ty, aer-sales service, and a guarantee of performance.” “Our family is healthy, and we are enjoying this stage of our◊ lives.” Their dreams Owning a big, beautiful home in a posh location “In Delhi, having a home matters very◊ much. We have purchased a flat in Farida- bad and are planning to move into it in November 2009.” Buying social-status symbols “In our new flat, we will buy all new things.◊ We will buy an LCD TV and a computer, and I will upgrade my car to a Honda City or a Hyundai Accent to reflect my status.” Their fears and concerns Becoming ill “Only if our health is okay will life be bright.”◊ “Initially there was not much money. But now we have◊ enough. Now life is comfortable.” “We have health-related worries. Health and wealth go◊ hand in hand.” Views on the downturn Are aware of the downturn but are◊ not currently affected by it Express concern that friends and rela-◊ tives with their own businesses al- ready feel the pinch Are confident about doubling their◊ wealth in the next ten years, despite the downturn How they cope Feel no need to change their shopping◊ habits, but plan to take some precau- tionary measures, such as cutting down on home entertainment expenses Definitely won’t cut back on health-◊ related expenses, such as food and personal care Reasons to trade up and down Trade up for long-lasting value, health-◊ related purchases, electronics, food, and personal-care products Trade down in products with imper-◊ ceptible quality differences among brands Research products before buying but◊ are also persuaded by dealers Don’t like bargaining and prefer prod-◊ ucts with fixed prices
  28. 28.  T B C G lives, despite high levels of stress. They are starting to get worried about the economy but are not quite as negative as people in other countries. (See the vignette “Brazil’s Next-Billion Consumers.”) Russia: An Unexpected Blow. Aer several years of sig- nificant growth in real wealth and GDP growth in excess of 5 percent per year, as well as increasing employment and rising export prices for natural resources, Russia is taking a beating in growth and consumer confidence. Most Russians did not expect the global downturn to sig- nificantly affect their lives, so when it arrived at the end of 2008 its impact was particularly severe. GDP in 2009 is expected to shrink—with negative growth of about 2 per- cent—inflation is rising, the value of the ruble against the dollar and the euro has fallen drastically, and consumer credit is scarce. Consumers are wondering whether growth and confidence will return as quickly as they did aer the 1998 crisis. When we asked Russian consumers whether they felt anxious about the future, 71 percent said yes (up 10 per- 31 years old Married with two children Earns less than the minimum wage Lives in a favela in São Paulo Brazil’s Next-Billion Consumers: Rosana Manages Despite a Severely Restricted Budget Rosana’s story “My parents used to work in the countryside before they◊ moved to São Paulo to earn more money. But the money nev- er appeared.” “I work as a coordinator of a community association in the◊ slums, where I help youngsters stay out of trouble through sports and cultural activities. People praise me for my work, although I also encounter a lot of envy.” “My friends live far from the city, so instead I spend time◊ with colleagues. My work takes up a lot of time, and I don’t go out oen, except to church once a week.” “My home is my refuge—where I can feel safe with my hus-◊ band and kids.” “I have faith in Obama’s ability to solve the world’s problems.”◊ Her dreams Escaping the favela “My greatest dream is to see all my family◊ out of the favela, owning their own houses.” Being able to afford more and better products “If I had more money, I would buy more◊ things and better quality.” Her fears and concerns Growing criminality “My family suffered a lot; the criminality has infiltrated my◊ family.” “All the youngsters on the streets are smoking pot.”◊ Seeks shelter at home “I love my’s important to love it.”◊ “My house is my refuge—where I can rest and where I feel◊ safe with my family.” “I have just painted the walls and the ceiling.”◊ Views on the downturn Doesn’t understand the reason for the◊ crisis, but is alert to it Believes the downturn will last at◊ least a year Fears that she and her husband will◊ lose their jobs as businesses cut back Worries about government pressure◊ on informal markets Is not able to save because most of◊ their money goes for groceries How she copes Canceled her credit cards as a way to◊ control spending Looks for sales in supermarkets◊ Occasionally switches to discount◊ brands Buys apparel at secondhand stores◊ Carefully balances the tradeoff be-◊ tween quality and price Reasons to trade up and down Splurges on perfume and hair-care◊ products once in a while Won’t buy cheap pasta or rice be-◊ cause they don’t taste as good Goes to barbecue restaurants once or◊ twice a month Trades up for products that last long-◊ er or are more effective Trades down when there is little dif-◊ ference among products Avoids green products because of the◊ price, but believes in the cause
  29. 29. W C T  D  centage points from 2008) and 59 percent said they do not believe the economy will recover in 2009. Fully 43 percent of employed Russians now feel insecure about their jobs, and 50 percent are worried about their person- al finances. Most Russians plan to spend less in 2009, with the num- ber who expressed this intention up a staggering 43 per- centage points from just 12 months ago. (See the vignette “Russia’s New Frugality.”) These consumers are focusing spending on those categories that are most important to them. Of the many ways to spend less, deferring expenses that can wait is preferred by 71 percent of the Russians we surveyed, while 59 percent said they will cut spending on nonessential items, such as vacation travel and fashion accessories. As in other countries, however, fresh foods will be spared. Seeking out promotions is for Russians the least popular money-saving tactic. Russian consumers cited several reasons for tightening their budgets but appear to be motivated primarily by the need to save more in the face of lower salaries and 25 years old Married with one child Works part-time as a nurse and psychologist Lives with her husband’s parents in a three-bedroom apartment in Moscow Russia’s New Frugality: Maria Hopes to Survive the Crisis by Careful Budgeting Maria’s story “I care more about my family than my career, and taking care◊ of them is fulfilling.” “Living with my in-laws isn’t bad.”◊ “My husband and I would like to have our own apartment.◊ But if we moved out, we would have other problems.” “We spend time together at home in the mornings and eve-◊ nings.” “It is also important to spend time with friends. They can◊ make you miss home, but when you return, your good mood is infectious.” Her dreams A new car “We cannot afford to buy a new car, al-◊ though we need one.” Her own apartment “We share our apartment with my in-◊ laws—five of us living in a three-bedroom apartment.” “We would love to have our own housing.”◊ Her fears and concerns Unemployment “If one of us loses our job, it will be even more difficult for◊ us to survive.” Money shortage “Money is definitely not a source of joy for me—I’m unhap-◊ py when I want something and can’t afford it.” “It would be better not to have to care about the price◊ when we go shopping.” Views on the downturn Is fairly confident about job security◊ for now, but worries about the ruble’s devaluation Is anxious about what she hears re-◊ garding the downturn in the media and from friends Feels she is “just surviving” and can◊ afford only necessities How she copes Purchases only essentials◊ Avoids credit cards◊ Is deferring expensive travel and◊ a new car Hunts for bargains and discounts◊ Buys clothes for herself only when◊ really needed Looks for cosmetics deals from◊ catalogs Won’t buy online because of per-◊ ceived poorer quality Reasons to trade up and down Still trades up when the product of-◊ fers superior quality If paying full price, chooses name◊ brands for prestige as well as function Won’t trade down for medicine or◊ doctors Won’t cut food expenses because she◊ is a nursing mother—but is open to private labels in some categories, such as yogurt
  30. 30.  T B C G job loss. Still, many respondents noted that with rising in- flation and a devalued ruble, they might just as well “spend it while they have it.” Russian consumers actively seek opportunities to trade up and down across categories. In terms of trading down, they intend to do so in as many as 87 out of 99 product categories. Levels of trading up remain high when com- pared with several other markets we surveyed (including Brazil, Europe, and Japan), but there are signals that Rus- sians will be more selective in response to the crisis. First- quarter results for 2009 showed a significant soening in the intention to trade up, with the willingness to splurge down 17 percentage points from 2008. Still, 60 percent of Russians said they expect to trade up in five or more categories. Mexico: An Outlier. Aer a period of relative stability and economic development, Mexico is facing a recession that many in the media are billing as a potential setback for the country’s economic future. Consumers are react- ing with extreme anxiety and pessimism—the intention to trade down is higher there than in any other country in our survey. Heightening these emotions is a sense of inevitability as consumers look back to the country’s volatile political and economic history. Indeed, the economy has suffered considerably over the past year—a significant devalua- tion of the peso and considerable price volatility have generated expectations of higher inflation. (See Exhibit 16.) There has also been a significant drop in exports and a strong outflow of foreign capital. As a result, consumer confidence has declined 20 percentage points since the spring of 2008. Half of the Mexican consumers in our survey reported feeling insecure about their jobs and financial future. Plans to trade down far exceed plans to trade up. Howev- er, it is important not to take these extreme responses at face value. When confronting a potentially serious down- turn, consumers oen resolve to forgo spending out of a sense of urgency and a need to assuage feelings of help- lessness. But they don’t always follow through on these resolutions.Furthermore,when we asked in which catego- ries consumers were most likely to trade up and down, ev- ery single category was chosen as an area for trading down by nearly 90 percent of respondents—suggesting that the responses were more emotional than reasoned. A crisis mentality: “It’s 1994 all over again. I’m scared.” Struggling middle class: “I save on everyday purchases so that I can upgrade and access new categories.” High relative prices across nonfood categories: “Cars and clothes will get more expensive again.” Increased violence and insecurity: “The government’s war on drugs has backfired. The situation is out of control.” An imported crisis: “All this is coming from the United States, of all places.” Price increases: “I already adjusted my budget last year. Will I need to do it again?” The devaluation of the peso: “We are already at 15, and Banco de México cannot stop it. Will it get to 20?” Intense media coverage: “Every single day is crisis, crisis, crisis.” An aggressive government response: “Something must really be wrong for them to do all this.” Situational factors in trading down Structural and historical factors in trading down Exhibit 16. Mexico Is at the Extreme End of Trading Down Source: BCG analysis.
  31. 31. W C T  D  We also found that while more affluent Mexican consum- ers tended to claim frugal shopping behaviors on camera, they admitted off camera that they continue to trade up in their most cherished categories. When trading up, high- income consumers in Mexico tend to favor such catego- ries as gourmet foods, luxury apparel, out-of-home enter- tainment, and consumer electronics. Low-income consumers in Mexico tend to trade up for ev- eryday goods, such as a favorite brand of cooking oil or cereal. When they do trade up in big-ticket items, these consumers typically use some form of credit payment. Despite the strong inclination to trade down across all in- come segments, Mexican consumers are not among the most parsimonious consumers in our surveys. Rather, like most consumers around they world, they are inclined to spend selectively rather than stop spending altogether. (See the vignette “Mexico’s Self-Sacrificing Mom.”) Developed Markets: Trading Down Rises as Trading Up Comes Under Pressure Trading down continues to surge in Japan, the United States, and Western Europe, fueled by mounting anxiety 46 years old Married with two sons—one still at home—and a granddaughter Stays home to care for her son Lives in Mexico City Mexico’s Self-Sacrificing Mom: Doña Vero Believes Above All That Family and Loved Ones Come First Doña Vero’s story “I’ve been married for 18 years. I became pregnant with my◊ first son when I was 15 and had to drop out of school. Since then, my life has centered on my family.” “I worked for six years to help support the family, but stopped◊ to take care of my youngest because he wasn’t doing well in nursery school. Aer that I tried part-time work, but health complications forced me to quit.” “I live in the same apartment complex in which I was born,◊ and my mother lives below me. My two brothers have stable jobs—one is a civil engineer and works in construction in the United States, and the other is a mechanical engineer with graduate degrees from Germany, where he lives.” “I am very proud of my family—especially my granddaughter,◊ Frida, who is the center of my life.” Her dreams A better life for her children “I see my older son staying close by; he’s◊ never wanted to leave even when he’s had the chance. I see my younger son pursuing big things, maybe abroad.” A new car and vacations “If I had 200,000 pesos, the first thing I◊ would buy is a new car, and then we would take family holidays.” Her fears and concerns Poverty “My biggest worries are my kids and their well-being in this◊ crisis. It’s a difficult situation, and I tell them to prepare themselves.” Illness “My sister had a tumor and my father died—it was awful.”◊ Views on the downturn Is grateful that her husband’s job is◊ secure but worries about how others will survive the crisis Plans to support her sons if necessary◊ Is confident that her siblings abroad◊ will provide help if she needs it How she copes Stretches the budget for cleaning,◊ shopping, and preparing meals Purchases basic foods in bulk with◊ her husband’s company discount Tracks prices carefully◊ Buys fresh fruits and vegetables in◊ season Reasons to trade up and down Trades up for Internet services for her◊ children and to communicate with family outside Mexico Purchased an Apple computer for◊ her son Loyal to brands in hand creams and◊ coffee because they have proved superior over the years Trades down for dishwashing soap◊ and bleach because no one notices the difference
  32. 32.  T B C G about the economy. Worries about employment are up 6 percentage points in Europe and 14 percentage points in the United States. In Japan, consumers are even more anxious about the economic outlook than their U.S. and European counterparts, and levels of trading down there are even higher. Japanese consumers remember recent recessions and are pessimistic about the future, despite relatively healthy savings. Our surveys in Canada, Europe, Japan, and the United States show large reversals in spending intentions among consumers not yet directly affected by the downturn. More than 50 percent of consumers in all four regions believe that the crisis will continue to worsen in 2009. Everyone is saving up for what may be an extended pe- riod of rainy days ahead. Approximately 73 percent of U.S. consumers, 63 percent of Europeans, 53 percent of Canadians, and 47 percent of Japanese consumers said that they plan to cut back on spending in the com- ing year. Many categories are already hurting and many will suf- fer even more, including out-of-home entertainment, fashion accessories, and home-related items. Indeed, there is a rising backlash in developed markets against the more conspicuous forms of consumption that con- sumers associate with the corporate excess that many feel contributed directly to the economic troubles they are now enduring. The United States: At the Center of the Storm. The U.S. economy is reeling from what most economists are predicting will be the first year of negative personal-in- come growth since 1949. In 2008, the country suffered the worst retail sales in 30 years. Other key industries, such as oil and gas, banking, and construction, were also hard-hit. Although unemployment has crept up in recent months, by far the biggest effect on consumer spending was the sudden spike, in late 2008, in consumer savings, the effect of which was three times larger than the reduc- tion in disposable income in the fourth quarter of 2008. Fiy-three percent of U.S. consumers now report feeling financially insecure, up 19 percentage points from Octo- ber 2008, a level matched in our survey only in Russia. And with 73 percent of U.S. survey respondents now look- ing to cut their spending, trading down in the United States has accelerated in nearly all categories since Octo- ber 2007. The sharpest increases have been in exercise equipment and home gyms and in home-related catego- ries, such as bathroom and kitchen décor and remodel- ing, and home furnishings and décor. Despite all the bad news, U.S. consumers still feel positive about trading down: 63 percent say that they trade down in some categories in order to finance trading up in oth- ers. Only 32 percent expect to trade down because of fi- nancial constraints. Trading up is still alive but is becoming much more selec- tive. About two-thirds of U.S. consumers are willing to trade up in five or more product categories (down from 78 percent in 2007). (See the vignette “A Busy Mom in the United States.”) Canada: A Lower Dose of Anxiety. Canadians register lower anxiety levels about the economy than respon- dents anywhere else in the developed world. Only about 14 percent of employed Canadian respondents with household incomes of more than $35,000 per year said that they worry about losing their jobs, whereas 33 per- cent of employed U.S. respondents at that income level said they are worried. Canadians also believe that they are better positioned than U.S. consumers to weather the effects of the downturn, and their lower levels of house- hold indebtedness and exposure to falling property val- ues reinforce that view. As many as two-thirds of Cana- dian respondents reported that they are happy with their lives despite the turmoil, and 44 percent feel that the cur- rent environment is “part of an economic cycle that is likely to improve.” Still, Canadians are watching their largest trading partner to the south with trepidation, and they are spending more cautiously and embracing the back-to-basics trend. The European Big Five: A Varied Picture. Like consum- ers everywhere, Europeans are worried about their na- tions’ economies and uneasy about their personal financ- es. But among the Big Five markets, unease is particularly strong in Spain, where in March 2009, 84 percent of our survey participants said they were anxious about the fu- ture—up 45 percentage points from October 2008 and in marked contrast to an overall European average of 60 per- cent. Worry about job loss and personal finances is great- est in Germany, where as many as 55 percent of consum- ers feel financially insecure (up 10 percentage points from October 2008), compared with 44 percent of Europeans overall. Thirty percent of the employed Germans in our
  33. 33. W C T  D  survey said they feel insecure about their jobs, whereas only 20 percent of Italians feel that way. When asked about the economic outlook for 2009 and the prospects for a recovery, Spanish and German con- sumers were the most pessimistic. As many as 68 percent of Spaniards and 64 percent of Germans—much larger percentages than in 2008—believe that the economy will get even worse in the next 12 months. Consumers’ plans to decrease discretionary spending are similar across Europe. On average, 63 percent intend to spend less in the next 12 months, up 4 percentage points from October 2008. The use of budget-stretching tech- niques, such as buying more products on promotion, de- ferring major purchases, and cutting out nonessentials, grew in recent months in all European markets. Fiy-nine percent of Europeans (and 71 percent of Germans) said they would shop more frequently at discount stores. Eu- 33 years old Married to her second husband Has a 14-year-old boy and a 3-year-old girl Works with her husband for a service equipment company Owns a condo in a suburb of Chicago A Busy Mom in the United States: Donna Wants More Time for Family and Friends Donna’s story “I have five friends who understand that I don’t have a lot of◊ time to socialize—it’s hard to find friends like that. I love weekends. Being home, relaxing and spending time with the kids, is my idea of heaven. The TV is on morning to night, but I don’t mind—even if it’s just background.” “I like to go dancing with my husband—also bowling, to the◊ movies, and to the casino. But we don’t do a lot by our- selves—maybe just once a month.” “If I had a lot of money, I’d buy a big house, pay some hospital◊ bills, and put the rest in savings.” Her dreams Buying a house with a yard “I really want a house—with a big yard for◊ the kids.” Spending more time with her family and friends “I don’t want to be a stay-at-home mom,◊ but I’d like to reduce my work hours.” “I wish I had more free time. That’s when◊ I’m happiest. I want to spend as much time with the family as I can.” “I’d love a nice romantic vacation in Jamai-◊ ca—just the two of us.” Her fears and concerns Unemployment “My husband hasn’t worked at the company as long as I◊ have, and I worry that he might get laid off.” “If we both lost our jobs, we would not be able to pay the◊ mortgage aer three months.” Financial insecurity “I worry about our finances—we have always lived mainly◊ paycheck to paycheck.” “It’s not good that we don’t have anything to fall back on—◊ what have we been doing?” Views on the downturn Recognizes that when the economy◊ got bad, so did morale at work—it used to be a fun office, but now it’s somber Used to love work, but lately it’s been◊ very stressful Worries about losing money on their◊ condo and not being able to build their dream house Worries about her husband’s◊ health—he started smoking because of the stress Is not very optimistic—doesn’t think◊ anything is going to make the econo- my better for a long time How she copes Chooses not to have credit cards: “If◊ you can’t pay cash, you shouldn’t buy it” Tries to budget, but it’s hard◊ Drinks at home before going out for◊ the evening to save money Spends money on home entertain-◊ ment—such as video games—be- cause it’s cheaper than going out Uses coupons as much as possible◊ Is skipping a vacation this year and◊ taking day trips instead Waits for sales and markdowns◊ Has just one debit card and controls it◊ carefully Reasons to trade up and down Shops mostly at the supermarket be-◊ cause it is close, but goes to a dis- counter for cheese, other dairy prod- ucts, and staples Avoids buying online◊ Feels guilty when she buys things for◊ herself Almost never buys generic products—◊ believes in brands Buys the cheapest gas◊ Sticks with basic cable and forgoes◊ HBO, but trades up on game consoles for the kids
  34. 34.  T B C G ropeans also told us that they intend to shop less at con- venience stores and supermarkets for their groceries. Many categories that have already been hard-hit by spending cuts, such as fashion accessories, restaurants, and home furnishings, are at risk of further losses as Eu- ropeans pare back in the months to come. (See Exhibit 17 and the vignette “France’s Active Empty Nesters.”) Japan: Increasingly Selective Spending. Japanese con- sumers are more pessimistic about the prospects for an early economic recovery than any other group in our sur- vey. Only 11 percent think the situation is as bad as it will get, and 53 percent expect the recovery to take more than several years. Worries about job and financial security are high, yet only 47 percent of Japanese consumers say they intend to cut spending in the coming 12 months (fewer than in any other developed market). Compared with their U.S. and European counterparts, Japanese consumers are more selective and trade up in a much smaller number of categories. For example, only 3 percent of Japanese consumers claim to trade up in 15 or more categories, compared with 17 percent of Europeans and 43 percent of U.S. consumers. So how is it that Japan remains one of the world’s largest markets for luxury goods overall? The answer lies in the difference between the total amount that the Japanese spend on luxury goods and the number of luxury catego- ries in which they participate. Japanese consumers pur- chase products in only a few of these categories, but they are very willing to “rocket” their spending in the catego- ries that matter to them the most. Winning luxury categories to date have been consumer electronics, fresh foods, and vacation travel. (See the vignette “Japan’s ‘Six Pockets’.”) Grocery Nongrocery Organic food products Shoes Skin care and cosmetics Wine and beer All-natural cosmetics Cars Home or apartment Snack foods Home appliances Vacation travel Consumer electronics Fragrances and perfumes Spirits and other alcoholic beverages Toys and games Restaurants and fast food Home furnishings and décor Fashion accessories 0 10 Juices Fish and seafoodFood seasoning, ketchup,and sauces Hair-care and body products Eggs Environment-friendly home-cleaning products Energy-efficient appliances Chocolate and candy Fresh fruits and vegetables Dairy products Percentage of category buyers who cut spending in the last six months Percentage of category buyers who cut spending in the last six months Percentage of category buyers who plan to cut or cut further in the future Percentage of category buyers who plan to cut or cut further in the future Coffee and tea Pet food Meat Dry and canned foods Cereal Bottled water Frozen foods Home-cleaning products Bakery and pastry products So drinks Hardest hit Hardest hitWatch out Maybe overMore resilient More resilient Children’s clothing Baby and children’s food 20 30 40 15 20 25 30 35 6050403020 Average: 32 percent Average: 38 percent 10 0 20 40 60 80 65 70 60 55 50 45 40 30 35 40 45 50 55 Women’s and men’s clothing Percentage of category buyers who plan to cut or cut further in the future Percentage of category buyers who cut spending in the last six months Exhibit 17. Many Weakened Categories in Europe Will Suffer Further in the Coming Months Source: BCG Consumer Sentiment Barometer, March 2009.
  35. 35. W C T  D  No Two Segments Are Alike Consumers in general are curtailing their spending in an- ticipation of pain to come more than from real present hardship. But these anxieties do not affect all segments equally—and some continue to spend. The following are a few segments that are demonstrating unique reactions to the downturn and call for special attention. The Worried Affluent. Even the affluent are cutting back, as their dividends and (on-paper) equity dwindle. Experts estimate that U.S. millionaires have lost an aver- age 28 percent of their net worth since September 2008. The affluent in the United States are more likely than their counterparts elsewhere to decrease spending in the next 12 months—67 percent told us they would do so, compared with 58 percent in Europe and 44 percent in Ja- pan.But they are also more optimistic about the economy over the long term than middle-income consumers. For this segment especially, the impact of the downturn so far has been more psychological than financial—an as- 59 years old (Michel) and 56 years old (Elisabeth) Married with three children and two grandchildren CEO (Michel) and retired CEO (Elisabeth) at public-sector organizations Own a home in a suburb near Paris France’s Active Empty Nesters: Elisabeth and Michel Say That the Good Life Is Their Life Elisabeth and Michel’s story “We have a formula for a balanced life: one-third of our time◊ is for the two of us, one-third is for our children, and one-third is for our professional lives.” “We’ve attained that balance and are happy for having done◊ it. We don’t consciously budget and we don’t have to, but we think it’s fun to search out bargains and save coupons. It’s one of the things we enjoy doing together.” “We have had 35 good years together, and we have an active◊ social life, traveling with old friends and getting together with business associates.” Their dreams Satisfied with their current situation; not many needs or aspirations; difficulty iden- tifying an unfulfilled wish Michel: “I don’t have any wishes and◊ dreams. We are very happy with the lives we have.” Staying in good shape and health, and also looking for new challenges Elisabeth: “If I had to name one wish, I◊ would say that it is finding what to do now that I’m retired. I cannot imagine myself staying at home doing nothing.” Their fears and concerns Uncertainty over their pensions “When we are very old and ill, there will be no one to pay◊ for us.” Health issues Michel recently suffered some illnesses◊ Both fear the end of their active lives◊ Views on the downturn Are not affected by the downturn or◊ particularly worried about it, although friends who own businesses have been greatly affected Got out of stocks last September◊ Michel has never seen such a low◊ level of activity at work Believe that the downturn may be◊ more severe than past recessions but that it will pass Worry about their pensions and who◊ will pay for their needs in their old age How they cope Chose public-sector jobs in the 1970s◊ because of job security Shop at factory outlets and purchase◊ good brands on sale Search out bargains for travel on the◊ Internet Never purchase on impulse◊ Reasons to trade up and down Trade up for good furniture for the liv-◊ ing room Trade down at Ikea for furnishing oth-◊ er rooms Feel that quality is more important◊ than quantity for food purchases Purchased a Cartier wedding ring for◊ their thirty-fih wedding anniversary Like dining at high-end restaurants◊ Like high-end appliances◊