In the marketing world we spend so much time looking for trends and data to explain the world and consumer behavior. But it seems like we often overlook the biggest trend of all - the macro economic cycle. What if this one cycle is the macro-trend that explains changes in brand value, changes in innovation, and changes in customer values?

1. IS THE SKY FALLING:
WHERE ARE WE IN THE
ECONOMIC CYCLE…
AND WHY YOU SHOULD CARE
July 21, 2015

2. THREE QUICK NOTES
• This is 100% stolen and/or 100% half-baked
• Chill out not really “stolen” just cited from people smarter than me. And
not really “half-baked”; it is data supported but proof is only for fictional
detectives…
• Not meant to make us experts on macro-economic
indicators
• Three good take-aways:
1. Economic cycles are going to happen. And they are going to
impact our consumers, brands and innovation, so we should be
briefed
2. Understand the financial realities that consumer will be facing,
and how we might be able to best react to it
3. Get a new interesting take on the meta-macro trend that might
influence all of the other trends people like us talk about
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3. 1. Economic cycles are going to happen.
And they are going to impact our clients,
so we should be briefed
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Who doesn’t like economic data charts?

4. Where are we in the cycle:
• Broad economic trends
• Business sentiment
• Investor sentiment
Three sets of data can tell us where we are in the economic cycle.
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5. US economy is driving growth
GDP growth rates
• US picking up
• Europe still struggling
• Japan difficult
• China slowing
But expectations may be getting too much
5Source: FactSet

6. Expectation are for improvements
2015 and 2016 better than 2014
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In almost every country 2015 and 2016 GDP projections are higher than 2014
Source: FactSet

7. Business are looking to expand
Fixed investment and capacity
• Closing in on 80% utilization
Growth in utilization, inventory, hiring
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Inventory and cap expenditure
• Inventories not out of line and growing
Hiring
• Forecasted
hiring is on rise
Source: Oxford Economics, NFIB,
Manpower

8. Earnings are at record highs
No. Seriously… this is why S&P is up near double in last 5 years
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Sales and Earnings are at record, highs…
Where does future growth come from?
Source: FactSet

9. Unsure of where future growth is coming from
Past Earnings per share was driven by margin
We can break down EPS into components -> (Sales*Margin)/ #Shares
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Margin has been growth driver. But
productivity might be tapped out
Be wary when
# of shares is
the reason for
future EPS
growth
Source: FactSet

10. Companies are buying back…
But they tend to not be much better than individual investors
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Maybe they are only concerned with returning value to share holders,
but they are also conveniently keeping EPS inflated
Source: FactSet

11. Which might be why forecasts are down
All industries and size companies are projecting a downturn
11Source: FactSet

12. The technical warning bells are going off
Which is almost always a very bad thing….
“Smart” money is forecasting down, and “Dumb” money is up
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Dumb money – Margin
Debt
• Dumb investors borrow
to invest while the
market crashes
Source: Conference Board

13. Where are we in the cycle?
• Investors and businesses have enjoyed outcomes of nice sustained growth
• Unfortunately the next drivers of growth are not apparent
• All the technical indicators say “watch out…”
Late F or G
Quick Sum up…
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• Slower ramp up might mean longer boom
• Change in rates and inflation could help
• Maybe Europe improves
But maybe…

14. 2. Consider the financial realities that consumer will
be facing, and how we might be able to best
react
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Five things to consider to put this info to use
without sounding like an econ professor

15. WHAT IS THE ROLE OF YOUR PRODUCT?
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16. WHAT HAPPENED IN PAST DOWNTURNS?
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17. WHAT IS YOUR POSITIONING IN THE
COMPETITIVE SET?
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18. HOW DOES YOUR CUSTOMER DEFINE
VALUE?
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19. HOW DOES YOUR
CUSTOMER CHANGE
UNDER STRESS?
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20. 3. A new interesting take on the meta-macro trend
that might influence all of the other trends people
like us talk about
20
My hunch is that trends in brand, customer values,
and innovation are tightly linked to economic cycles

21. I’m willing to bet the following is true.
o In good times all boats rise, but in the downturn a brand’s
positioning / adaptability/ and value can become more apparent
to consumers.
o Brand data suggests that within categories, brand values and
rankings shift more in times of want than in times of plenty.
o Some categories are more ripe for changes in brand leadership.
During economic downturns…
Brand leadership within a category is more in flux
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22. I’m willing to bet the following is true.
o Innovation addresses points of need and friction, these points are
easier to identify and isolate in downturns. Also when belts tighten,
investment and talent have less room in big companies.
o Recessions past have shown us a consistent pattern of innovation
influx. The cases from SXSW alone are telling. In 2009, at the depth
of the last recession, 3D printing and Uber took the stage.
During economic downturns…
The rate and diversity of innovation accelerates
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23. I’m willing to bet the following is true.
o Economic downturns bring a lack in institutional trust and lots of
finger pointing and some soul searching; all can drive changes in
meta consumer-values
o Data tells us the tipping points on mass consumer-value shifts align
with changes in the economic cycles.
o It can be hypothesized that - these changes of value fuel the next
round of innovation, which in turn impact brand leadership.
During economic downturns…
Macro consumer value-shifts occur
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24. BIG WRAP UP
1. We are much closer to the next downturn than the last
1. There are a handful of thing we should be pressure testing
on our clients and customer insight now, to prepare for the
downturn
1. What if changes in brand leadership, innovation trends,
and customer value are all sort of a side effect of the
economic cycle?
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