Winning Consumers Through Value and Innovation

Winning Consumers
Through the Downturn
2009 BCG Global Report on Consumer Sentiment
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4/09

Winning Consumers
Through the Downturn
2009 BCG Global Report on Consumer Sentiment
bcg.com
Catherine Roche
Michael J. Silverstein
Patrick Ducasse
Natalia Charpilo
April 2009

© The Boston Consulting Group, Inc. 2009. All rights reserved.
For information or permission to reprint, please contact BCG at:
E-mail: bcg-info@bcg.com
Fax: +1 617 850 3901, attention BCG/Permissions
Mail: BCG/Permissions
The Boston Consulting Group, Inc.
One Beacon Street
Boston, MA 02108
USA

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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

 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.

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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 roche.catherine@bcg.com.
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
silverstein.michael@bcg.com. 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 ducasse.patrick@bcg.com. Natalia Charpilo
is a project leader in the firm’s Munich office; she can be
reached at charpilo.natalia@bcg.com.

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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

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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.

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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

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“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
1
Percentage of employed respondents only. Retirees, housewives, and the unemployed were excluded.

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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.

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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

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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
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
1
Exhibit 5. Homework, Focus, Patience, and Legwork Are Key to Spending Less
1
Multiple selections were allowed.

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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

 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
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

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

 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
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
Note: Some percentages do not add up to 100 because of rounding.

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
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
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.

 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.

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
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
Not buying at all
18
12
24
14
38
4
26
12
34
14
30
3
Percentage of respondents1
Top two spending tactics
better prices
better prices
Exhibit 10. Budget-Stretching Strategies Vary Across the Beauty Category
1
Multiple selections were allowed.

 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
Have not cut and don’t expect to
6
6
Exhibit 11. Two-Thirds of Consumers Will Maintain Their Spending on Coffee and Tea

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
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.

 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
Exhibit 13. Brand Is a Key Reason for Chinese and Indian Consumers to Trade Up
Source: BCG Consumer Sentiment Survey, 2008–2009.

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

 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
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
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.

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.”
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
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

 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 house...it’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.”◊
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
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

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.”◊
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.”
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
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

 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.

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.”
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.”◊
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
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

 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

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.”
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?”
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
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

 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
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
Exhibit 17. Many Weakened Categories in Europe Will Suffer Further in the Coming Months

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◊
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◊
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◊

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