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A New World Order of Consumption 2010
A New World Order of Consumption 2010
Catherine Roche
Patrick Ducasse
Carol Liao
Cliff Grevler
June 2010
bcg.com
© The Boston Consulting Group, Inc. 2010. All rights reserved.
Executive Summary 6
F
or several years now, BCG has been tracking The downturn has also sharpened the difference be-
an important phenomenon in consumer sen- tween the growth rates in China, Brazil, and India on
timent and spending behavior—a pattern one hand, and in the more mature markets on the other.
that we call trading up and trading down. Consumers in the former group of countries experienced
Our findings reveal how the recent economic a slowdown rather than a full-blown recession.
crisis has affected consumers around the world, Their economies are poised to grow at much stronger
and how the uneven recovery that is now tentatively un- rates in the near term, so their future outlook and
folding in many markets will shape intentions and pat- consumers’ spending intentions are much more
terns in consumer spending for the months and years optimistic.
ahead.
By contrast, many consumers in the United States, Eu-
The first quarter of 2010 saw positive trends in many key rope, and Japan expect the recovery to take several years.
economic indicators—and consumers suffering from “re- The “great deleveraging” of personal debt in the United
cession fatigue” clearly embraced these indicators as a States, which is still under way, could prevent the ever-
sign of better days to come. Optimism is up in our Spring important American consumers from spending their way
2010 survey, compared to the very, very low levels seen a to recovery as they have in the past.
year ago, and intentions to cut spending are markedly
down from peak levels. Consumers are even telling us Our researchers were in the field in March 2010, and the
that their willingness to splurge on “nonessentials” is re- story about Greece’s looming insolvency was already
covering, albeit modestly. starting to worry some consumers. Companies face a
“new world order” of consumption as they head into a
Yet despite a general uptick in outlook, consumers said multispeed consumer recovery. It will require them to re-
that they will not be so quick to abandon shopping be- think their growth expectations and to develop a highly
haviors that were forged or sharpened during the eco- de-averaged approach to the recovery.
nomic crisis. Our research points to a profound evolution
in motivations and attitudes when it comes to shopping, Our eighth annual consumer survey, taken in early 2010,
especially in the more mature markets. Values and pri- uses original research to capture spending trends in 14
orities are shifting—home and stability have taken on countries: the emerging markets of Brazil, China, India,
greater importance, while overt luxury and status have Mexico, and Russia, as well as the developed economies
faded. The great hunt to find the best value at the lowest of Canada, Japan, the United States, and six countries in
price remains firmly top of mind almost everywhere— Europe (France, Germany, Italy, Spain, Switzerland, and
particularly in Europe and the United States, where con- the United Kingdom). In all, once the survey data were
sumers “enjoy the feeling” of what they view as smarter adjusted by eliminating consumers in the bottom
shopping. As they return to spending again, don’t expect quartile of income, we surveyed approximately 12,000
consumers in markets hit hard by the downturn to be- consumers on approximately 50 trading-up and trading-
have the way they did before the crisis. down categories.
For most consumers, the recovery has arrived, but the ◊ Interestingly, in many countries, anxiety about the fu-
future remains overcast. ture far outweighs consumers’ sense of personal loss
from the downturn (so far). Reactions to the crisis
◊ Job losses have begun to stabilize in many key markets were, for many, driven more by anticipation of person-
thanks to strong government intervention. The Inter- al economic hardship than by the actual experience of
national Monetary Fund now estimates world GDP any hardship.
growth for 2010 at around 4.2 percent. Although such
a growth rate is not stellar, it is much better than the ◊ Although far fewer consumers than last year said that
1.9 percent predicted back in early 2009. they intend to cut back on spending, not many said
they plan to increase it. This “holding pattern” reflects
◊ But concerns are looming, including: the risk of insol- uncertainty about the recovery.
vencies among member states in the euro zone, sus-
tained economic instability in Spain and Mexico, and ◊ Retail sales are recovering in some markets: U.S. per-
a U.S. unemployment rate that lingers around 10 per- sonal consumption grew an impressive 3.6 percent in
cent—not to mention external shocks, such as the Ice- the first quarter of 2010, although it remains below
landic volcano and the recent oil-spill disaster in the precrisis levels. The luxury sector, which had contract-
Gulf of Mexico. ed sharply, is also rebounding from lows.
◊ Inflation has added to consumers’ declining purchas- The downturn has affected consumers in many mar-
ing power in some markets, particularly in India and kets profoundly. We have been tracking eight trends
Mexico. And some companies fear that growth in Chi- in consumer sentiment and behavior that are proving
na’s “overheated” market may slow. quite persistent even as consumers in many markets
embrace hope of recovery.
◊ In the United States, where household debt remained
at 95 percent of GDP in 2009, consumers continue to ◊ Anxiety about the future and mistrust of big business
struggle with deleveraging. have triggered a “back to basics” movement in which
consumers continue to rank home, family, stability,
Optimism is returning in most markets, but consum- and the environment high on their list of values.
ers remain cautious and tentative.
◊ Still suffering from a backlash against overspending,
◊ Anxiety levels among consumers are down overall consumers in the United States, Europe, and Japan
from peaks in early 2009, but they remain higher than continue to extol simplicity and denounce ostentatious
before the crisis and are extremely high in Spain and luxury.
Mexico. Confidence in the longer-term recovery has
also eroded in the United States, Europe, and most no- ◊ Trading down is a powerful trend but has fallen from
tably in Japan over the past six months. peak levels.
◊ Intentions to significantly cut spending and defer ma- ◊ Japanese consumers have yet to embrace the recovery
jor expenses are down in the United States and Europe, and are slow to recommit to spending.
but consumers still need a good excuse to spend.
◊ For consumers in Spain and Mexico, recovery still feels
◊ Increasing numbers of consumers are trying private- distant, and anxiety remains extremely high.
label and value brands—and are staying with them
into the recovery. ◊ Some categories, such as home appliances and even
luxury products, are seeing a resurgence from con-
◊ Even in the recovery, consumers continue to seek relief sumers who are eager to release some of their pent-up
for stressed budgets and emotions in the comforts of demand.
home—a trend known as “cocooning.”
◊ Women, as “purchasing agents,” continue to be a force
◊ Consumers fear big bills and will continue to avoid in the economy. Particularly in the United States, Can-
heavy debts. ada, and Europe, they have been more likely than men
to cut spending during the downturn. As the economy
The downturn and uneven recovery are driving picks up, however, women are just as likely as men to
a new world order of consumption. Familiar classifi- keep spending levels stable or to increase them. Young
cations such as BRIC markets (Brazil, Russia, India, singles, dual-income couples without kids (DINKs), and
and China) versus developed markets don’t apply income-secure empty nesters remain more buoyant in
when assessing the downturn’s impact or the recov- their intentions to spend.
ery’s trajectory. De-averaging is more essential than
ever across markets, categories, and consumer seg- Bringing together the findings from our research and
ments. our experience in working with consumer companies
around the world, we have identified six best practic-
◊ China, Brazil, and India remain bright spots, with con- es for tapping into consumers’ evolving needs as the
sumers in these markets having experienced a slow- fragile recovery progresses.
down rather than a recession. Therefore, their relative
importance as growth engines for the future has inten- ◊ Accelerate product innovations that feature quality
sified as the developed world braces for slower recov- and craftsmanship in order to fuel the recovery, espe-
eries. cially in the categories of health and wellness, home
furnishings and appliances, and affordable luxuries.
◊ The United States, Canada, the United Kingdom, and Move consumers up the ladder of technical, functional,
Russia are all seeing consumer sentiment rebound but and emotional benefits.
at varying speeds. U.S. consumers continue to struggle
with very high levels of personal debt and constrained ◊ Upgrade capabilities in capturing consumer insight to
access to credit, making them cautious spenders. Ca- pinpoint opportunities for differentiation and growth
nadians are embracing the recovery more forcefully in the uneven recovery. Pockets of opportunity still ex-
than their American neighbors. Anxiety levels in Rus- ist. (See the sidebar “Hearing the Consumer’s Voice.”)
sia remain more in line with the United States and Eu-
rope than with China or India. ◊ Rethink the business model and develop scenarios to
anticipate the capabilities that will be needed in an
◊ Recovery in the euro zone is still fragile. Except for uncertain future, such as supply-chain management,
those in Spain, the consumers we surveyed in Europe pricing, talent cultivation, and political lobbying
have yet to feel significantly affected in a personal way skills.
A
fter a sustained period of negative news on Consumers are still grappling with personal debt and
the economy, key indicators in many affect- tighter access to credit, particularly in the United States,
ed markets have recently been exhibiting where more than 6.6 million of them have lost their jobs
more positive signs. As of April 2010, the since the collapse of Lehman Brothers. Housing values in
International Monetary Fund (IMF) was ex- the United States—as well as in the United Kingdom and
pecting world GDP growth for the year to slightly exceed Spain—remain down from precrisis levels.
4 percent, buoyed strongly by an expected 10 percent
growth in GDP for China and 8.8 percent for India.
Anxiety Is Down from Crisis Peaks
Recession-weary consumers have embraced the news that
a recovery may have finally begun. Our research in Spring Although most consumers in most markets—and about
2010 found significant increases in optimism across most three-quarters of consumers in Spain and Mexico—say
markets relative to levels from a year earlier. In recent re- they are worried about the future, anxiety about the econ-
cessions, it was consumers’ appetite for goods that ulti- omy is actually down sharply from the peak levels seen in
mately pulled the economy out of the slump. It remains 2009. (See Exhibit 1.) Furthermore, lower levels of anxiety
to be seen just how long that might take this time. about the future have held stable in most markets.
China Brazil Italy United Canada Russia Germany France United India Japan Mexico Spain
Kingdom States 77
70 7
65
58 14 2007
53 54 2
50
47 48 9 1
43 44 7 7 2007
1 23
35 10 10
26 2007
10
12
Exhibit 2. In Most Countries, Fewer Consumers Are Worried About Jobs and Finances
How secure do you feel in your Which statement best characterizes your
current job in the next 12 months? feelings about your personal financial situation?
United 10 23 United 16 37
States States
Europe 5 21 Europe 10 34
Canada 2 13 Canada 8 28
Japan 3 24 Japan 7 39
Mexico 7 30 Mexico 5 42
Russia 18 25 Russia 27 27
Brazil 3 16 Brazil 6 33
India 9 15 India 21 32
China 8 12 China 2 12
Germany 2 28 Germany 7 48
United 6 22 United 6
Kingdom Kingdom 29
Spain 3 22 Spain 11 30
Italy 3 17 Italy 12 29
France 10 16 France 11 25
Very insecure (%)1 Somewhat insecure (%)1 I am in financial trouble (%) I am not financially secure (%)
Increase from March 2009 through Decrease from March 2009 through
March 2010 (percentage points) March 2010 (percentage points)
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom.
1
Percentage of employed respondents only.
Consumer spending is a function of real and perceived Most consumers say they are taking a wait-and-see atti-
wealth as well as actual buying power. As consumers’ tude on their spending plans. In the first quarter of 2009,
perception of being “better off” has picked up, so too has a staggering 73 percent of U.S. consumers said they
spending in many markets. Retail spending indices in the planned to cut back on spending, but that number fell
United States and the United Kingdom are trending posi- dramatically to 46 percent in our Spring 2010 survey.
tive, although per-capita spending levels are not expected Likewise, 41 percent of Europeans now say they intend to
to return to precrisis levels until 2014. In Japan, per-capi- cut spending, whereas 63 percent made that statement a
ta retail spending is still under pressure. year ago. Intentions to spend on “nonessentials” are also
on the rebound: 65 percent of Americans now say they
Spending intentions in our survey have also shown clear plan to cut back versus 81 percent a year ago. Only 26
improvement. Far fewer consumers are now telling percent of Chinese consumers and 24 percent of Russian
us that they intend to cut back further on spending. consumers told us they intend to further decrease their
Exhibit 3. Fewer Consumers Plan Cuts, but Not Many Plan Increases
United Canada Europe Japan Germany United Spain Italy France China Brazil India Mexico Russia
States Kingdom
27 10 22 9 20 22 26 23 24 0 13 12 1 33
35 26 24
41 41 38 42 43
46 43 44 44 46
Decrease
spending 56
51
66
51 55 39
Spend about 50 47 43
41 45 48 40
the same 49
38
23 19
Increase 14 14
spending 13 12 9 12 11 10 10
6 8 7
Increase from March 2009 through Decrease from March 2009 through
March 2010 (percentage points) March 2010 (percentage points)
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Some percentages do not add up to 100 because of rounding. Europe is defined in this study as the Big Five countries in the European Union:
France, Germany, Italy, Spain, and the United Kingdom.
I
n the past, consumers spent their way out of a priority for many brands. Indeed, brands that have re-
downturns, especially in the United States. There, tained that trust during the downturn can wield it as a
consumer spending has played a significant role competitive weapon.
in GDP, accounting for an estimated 70 percent
of U.S. GDP in 2009 and 58 percent of global GDP.
Consumers remain the center of the global economy— Trading Up Is Tempered with Caution
but so far they are reluctant (and some are actually un-
able) to boldly spend themselves back to better times. Luxury companies experienced a backlash against con-
spicuous consumption in 2009, as U.S. and European con-
Consumers in many markets have already returned to sumers blamed overspending for at least some of their
spending at least a little more, but they are also exercis- suffering. Consumers are continuing to make amends by
ing greater caution than before. Our research has been extolling simplicity and denouncing ostentatious luxury.
tracking eight powerful shifts in consumer attitudes and Trading up remains an important theme, but consumers
shopping patterns. Some were present even before the are becoming even more selective in the United States
global economy weakened, but they’ve grown stronger and Japan.
during the downturn—and are clearly lasting into the
early recovery. By contrast, consumers’ intentions to trade up remain
stronger in some developing economies: 37 percent of
survey respondents in China and about 25 percent in In-
Consumers Are Redefining Values dia and Russia plan to trade up, but only 13 percent of
respondents in Europe and 18 percent in the United
Recession anxiety has triggered a clear shift back to ba- States plan to do so.
sics in what consumers say they value most. Home and
family, stability and calm, saving, and the environment As cautious as consumers in the United States, Europe,
have all increased in importance for consumers over the and Japan may be, they still told us quite forcefully that
past two years. By contrast, luxury and status continue to they refuse to compromise in some categories, such as
decline on their priority lists (See Exhibit 4.) fresh foods. In these markets, consumers say they par-
ticularly value—and cite as reasons to trade up—func-
Furthermore, a strong majority of consumers in the Unit- tional and technical benefits that promote health, secu-
ed States and Europe (and more than 40 percent in Ja- rity, and comfort for the family. Consumers in developing
pan) still claim that the crisis has boosted their distrust of markets also agree that health and wellness is a key driv-
big business—especially financial institutions. In the er for trading up, but—more frequently than their coun-
United States, 47 percent of our respondents felt that terparts in the developed world—they justify paying
companies are profiting at the expense of consumers and price premiums with the rationale “I deserve it” or “It’s
employees, up 11 percentage points from our Fall 2009 a better brand” (especially in China and India). (See Ex-
survey. Winning back consumers’ trust will continue to be hibit 5.)
“Do you see each value as more or less important to you than it was two years ago?”
Saving 58
Stability 2 54 3 39 1 50 7 28
Family 2 54 2 40 2 45 2 47
My home 4 44 2 37 3 33 4 47
Ethics 3 42 5 27 6 17 9 28
Friends 4 41 4 32 5 26 5 31
Education 5 40 5 34 8 31 9 35
Locally grown products 7 40 7 32 8 18 22 15
Calm 3 39 3 36 1 41 9 18
Environment 6 38 5 36 3 35 7 35
Spirituality 9 36 21 13 16 11 7 29
Crasmanship 7 30 10 18 10 17 29 7
Local communities 6 30 10 17 7 16 18 16
Religion 15 30 30 9 24 4 34 10
Authenticity 6 29 6 22 7 25 18 13
Professional success 16 29 13 24 12 25 9 33
Tradition 9 28 11 18 9 12 18 16
Wealth 16 26 14 21 1 60 9 33
Change 14 24 10 19 8 15 20 14
Less important
Naturalness 10 21 5 23 3 25 12 26
Excitement 13 20 9 20 10 21 16 10
Altruism 14 15 13 15 10 10 5 26
Conviviality 11 14 6 22 18 17 6 32
Bright colors 21 12 14 11 2 22 20 13
Status 35 9 18 14 16 13 14 26
Luxury 50 8 44 6 46 5 45 7
Respondents who find a value more or less important (%)
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Percentages do not add up to 100 because exhibit excludes those responding “no change.” Europe is defined in this study as the Big 5 countries in
the European Union: France, Germany, Italy, Spain, and the United Kingdom.
Being selective when trading up doesn’t mean that con- 2008 and into the first quarter of 2009, we saw an explo-
sumers in developed markets won’t find room in their sion in trading-down sentiment as it became more about
budgets for affordable spirit-lifters. And some consumers necessity than fun. For those years, we saw the largest an-
will even seek out luxury items (indeed, luxury sales are nual increases in consumers’ intention to trade down
rebounding), but they are more likely to desire products (and corresponding declines in plans to trade up) since
that offer quiet elegance rather than showy status. The we began tracking the data.
overall luxury and “masstige” sectors have clearly been
hurt by the downturn, but the degree of that impact var- Our 2010 survey results show that trading down is still go-
ies by category segment. ing strong in most markets, but it has fallen from the
overall peak levels we found in late 2008. However, trad-
ing down continues to gain strength in the United States,
Trading Down Is Still Prominent but Off where it is up 5 percentage points over 2008 levels—mak-
from Peak Levels ing U.S. respondents among the most avid about trading
down of all the consumers we surveyed in mature mar-
Even before the downturn, many consumers were devot- kets. (See Exhibit 6.)
ed treasure-hunters—more for the thrill of finding a great
deal than for the constraints of a tight budget. The mar- Still, finding fun in “smart shopping” is very much alive
ket responded with a proliferation of products that per- among both European and U.S. consumers, who said they
formed well and were remarkably affordable. Then, in will continue to hunt for the best prices and actively look
I deserve it 32 30 31 64 61 65 39
Change in Change in
United States (2002–2010)1 percentage Europe (2005–2010)1 percentage
points points
(2002–2010)1 (2005–2010)1
18 19 13 13 9
26 20 22 20
31 27 28 26
37 37
31 36
29
32 33
33
30 32 33 32
32
30 29
20 6
53 56 51
48 45 47
38 43 40 41 42
33 34
2002 2003 2004 2005 2006 2007 20081 20101 2005 2006 2007 20081 20101
Percentage of category buyers
Trade up Neither Trade down
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, 2002–2010.
Note: Some percentages do not add up to 100 because of rounding. Europe is defined in this study as the Big Five countries in the European Union:
France, Germany, Italy, Spain, and the United Kingdom.
1
Data for 2008 were collected in the third quarter of 2008; 2010 data were collected in the first quarter of 2010 and cover selected categories only; no
additional data were collected in 2009.
Cut spending
on nonessential 65 57 83 55
items
Defer major
expenses that 75 65 61 65
can wait
Shop in discount
stores more oen 65 51 67 52
Overall, consumers are still interested in green ... ... and are more willing to pay a premium
Q1 2010 12 60 19 8 Q1 2010 17
Q3 2009 5 69 16 10 Q3 2009 10
United Q1 2009 7 66 19 8 Q1 2009 13
States Q3 2008 11 64 17 8 Q3 2008 17
Q1 2010 8 66 17 9 Q1 2010 23
Q3 2009 7 66 18 9 Q3 2009 17
Q1 2009 8 66 17 9 Q1 2009 16
Europe
Q3 2008 11 68 15 7 Q3 2008 21
Q1 2010 4 67 16 12 Q1 2010 9
Q3 2009 6 84 82 Q3 2009 16
Q1 2009 5 82 10 3 Q1 2009 23
Japan
Q3 2008 5 88 7 1 Q3 2008 22
Respondents who engage in purchasing behavior Respondents who are ready to pay more for
1
for environmentally friendly items (%) environmentally friendly products (%)
Systematically buy Sometimes buy Have bought but currently don’t buy Never bought
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Some percentages do not add up to 100 because of rounding. Europe is defined in this study as the Big Five countries in the European Union:
France, Germany, Italy, Spain, and the United Kingdom.
1
Prior to 2010, respondents could choose from five rather than four answers; responses were recalibrated so that systematically buy corresponds to the prior
years’ response systematically look for/mainly purchase; sometimes buy corresponds to the prior years’ responses of systematically look for/often purchase and
sometimes look for/purchase; have bought but currently don’t buy corresponds to the prior years’ response rarely look for/purchase; never bought corresponds to
the prior years’ response never look for/purchase.
While More Open to Spending, higher levels of stress and feeling underappreciated than
Consumers Still Need Permission to Buy men did during the downturn, and they were more likely
to stick to seeking out bargains. They’ll cut back on prod-
Reluctance to indulge oneself, natural in a downturn, hit ucts for themselves first (especially apparel and accesso-
a peak in our Spring 2009 survey, when consumers told ries), before sacrificing on products for their family mem-
us they would significantly cut spending on nonessen- bers—often defined to include cherished pets. (See the
tials. But there has been some easing up on this front section later in this report “No Two Segments Are Alike.”)
over the past year. Our Spring 2010 survey shows those Companies could help consumers better manage the bal-
numbers significantly down for the United States (from ancing act between recession fatigue and indulgence guilt
81 percent to 65 percent) and Europe (from 72 percent to by offering products that contribute to a comfortable
57 percent), and slightly down in Japan (from 87 percent home and a sense of security.
to 83 percent). Intentions to defer major expenses have
also fallen from last year’s peaks in all three of these mar-
kets. But for many consumers, spending still just doesn’t Consumers Are More Willing to Switch
feel right now.
The downturn led more consumers to discover discount
In most households, women are responsible for most of channels and value brands, and they have been pleased
the daily spending. And when times get tight, it is women with what they have found. In past recoveries, many con-
(typically mothers) who are tasked with making the budg- sumers remained loyal to these products, and that “stick-
et stretch as far as possible. It’s a role many assume will- iness” is likely to prevail again—especially since retailers
ingly, but it is a stressful one—especially during hard are upgrading their retail brands and value offerings.
times. In Western markets in particular, women reported Higher-priced brands will be challenged to justify their
Exhibit 9. Even During the Recovery, Interest Has Remained High in Private-Label Products
Did you increase or decrease your private-label Will you continue to buy
purchasing in the last 12 months? more private labels into the recovery?
United 42
States
61 27 6 94
Europe 45 42 7 94 42
Japan 49 28 10 87 41
Germany 39 51 8 98 38
United 53 35 45
Kingdom 5 93
Spain 56 36 4 96 57
Italy 41 40 8 89 31
France 46 41 8 95 42
0 20 40 60 80 100 0 20 40 100
Percentage of respondents Respondents who agree
or strongly agree (%)
Increased Did not change Decreased = Total percentage
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Percentages do not add up to 100 because respondents represent only those who actually purchased private-label products. Europe is defined in
this study as the Big 5 countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom.
W
hether consumers are trading up, Respondents in China reported the strongest desire to
trading down, or looking to find a trade up among all consumers in the countries we sur-
compromise in the middle, the recov- veyed. And that desire is rising—an average of 37 percent
ery will follow very different paths of Chinese consumers intend to trade up across survey
and speeds depending on the start- categories versus only 34 percent a year ago.
ing point of consumers in different countries. Therefore,
such traditional classifications as “mature versus emerg- Despite feeling even better than last year, Chinese con-
ing markets” or “West versus East” are too imprecise to sumers still profess to be cautious in how they will spend.
diagnose what’s happened to consumers, or to determine In 2007, a peak growth year for China’s economy, more
the path to recovery. than 60 percent of Chinese consumers said they planned
to increase their spending. In Spring 2010, about half of
Our research offers a very different way of looking at con- our Chinese respondents expected their discretionary
sumers’ starting points across markets; and it paints a pic- spending to remain the same, while the other half split
ture of a multispeed consumer recovery. (See Exhibit 10.) almost evenly between expecting to spend more and ex-
Our findings underscore the importance of de-averaging pecting to spend less.
the recovery toolkit for maximum impact.
The perceived need to save more money—primarily for
retirement, housing, and children’s education—is one of
Brighter Spots for Now: China, Brazil, the key reasons Chinese consumers cited when they said
and India they intended to stabilize their spending in the future.
This comes not from fear of job loss, but rather from lack
Some emerging markets have not felt the full brunt of the of a local social safety net, as well as sharp increases in
global downturn, and consumers there are much more some costs of living. For instance, residential property
open to spending and trading up. The importance of prices have skyrocketed in major Chinese cities—in Bei-
these emerging markets as frontiers for growth and ex- jing, they have more than doubled since 2007. Although
pansion in many categories has intensified through the average incomes have also been growing at double-digit
downturn. rates, the rising property costs continue to be watched
closely.
China: Full Steam Ahead. Optimism in China remained
comparatively high during 2008 and 2009, a period that However, in China, as elsewhere, it is critical to de-aver-
Chinese consumers experienced as more of a slowdown age the picture to see the full story. Although the Chinese
than a recession. It has continued even stronger in 2010, remain generally much more optimistic than everyone
with Chinese consumers on average reporting a more else about the economy, some parts of the country are
positive outlook on the economy, lower levels of stress more optimistic than others. A de-averaged analysis of
and anxiety, and an even higher sense of job and person- consumers, by income and city tier, shows three distinct
al financial security than they did a year ago. segments emerging. (See Exhibit 11.)
China
8
India
Brighter spots
Brazil
Mexico
4 United Recovering at
Kingdom varying speeds What
Canada Russia recovery?
United
States
2 France Spain
Handle
Germany with care Japan
Italy
0
30 40 50 60 70 80
Downturn-related anxiety among consumers (%)
Low level of anxiety High level of anxiety
Sources: International Monetary Fund, April 2010; BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Downturn-related anxiety was calculated by using the average of the responses to “I am affected by the downturn” and “I am anxious about the
future.”
Exhibit 11. Three Distinct Segments of Chinese Consumers Exhibit Very Different Spending
Patterns
High
“Positive as always”
middle-class and
affluent customers
1
living in smaller cities
“Recovering but cautious” ◊ Most willing among all
Percentage Chinese consumers to
intending middle-class and affluent
customers living in bigger cities
1 spend and trade up
to increase
spending ◊ Improving consumer sentiment, but still
cautious about spending intentions—
especially in the middle-income group
“Pressured” lower-
income urban consumers
◊ Constrained, with little
intention to spend and
trade up
Low
Low High
Percentage intending to trade up
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
1
We categorized bigger cities as tier 1 and tier 2 cities; all other cities were categorized as smaller cities.
China’s Emerging Middle and Affluent Classes: Lin Isn’t Affected Much
by the Downturn and Is Optimistic About the Future
Lin’s story
34 years old
◊ “I’ve been living in Shanghai for 16 years—since I came
Has a family, with a here to study when I was 18.”
four-year-old daughter ◊ “I ran my first company for five years and started my sec-
ond business, an Internet company, in 2004. This company
Lives in Shanghai and is a professional social-networking company.”
owns an apartment ◊ “I bought an apartment at the end of 2004 and I own a car.
downtown So I don’t have much financial pressure now.”
◊ “Family is very important to me. I cherish the time I spend
Entrepreneur; runs an with my child and my family. As I’m very busy with work
Internet company during weekdays, I try my best to spend more time with
my family and to play with my child on weekends.”
Exhibit 12. Across Markets, the Personal Impact of the Downturn Is Perceived Differently
60
60
49 50
48
45
41
40
35
31 32
29
25
20
0
China Germany Canada India France Brazil Italy Japan United United Spain Russia Mexico
States Kingdom
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Views on the downturn How they cope Reasons to trade up and down
◊ Experienced some employer-driven ◊ Cut expenses by: ◊ Trade down for meat and for house-
delays in receiving their pay • buying half as much hold supplies—such as paper and
◊ Enjoy using credit cards, but they • staying home to avoid expenses cleaning products
stopped using the cards after they fell ◊ Purchase only what is necessary ◊ Trade up for hair products because
behind on payments ◊ Manage debts to avoid bankruptcy Raquel says she simply cannot live
◊ Find it difficult to save, as there are al- without them
ways unexpected expenses, such as ◊ Willing to spend more on the baby—for
illness milk, clean clothes—because of his
greater need
Exhibit 13. Saving More Remains a Key Reason Consumers Intend to Spend Less
United States Europe Japan Canada Brazil China India Mexico Russia
Top reasons for
decreasing spending
Expect to be earning
less in salary 9 11 23 9 6 22 14 9 29
Expect to be earning
less in dividends 7 6 8 4 5 18 13 7 15
and capital gains
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom.
Avinash’s story
29 years old
◊ “I was born in Kota, a small town in Rajasthan, where
Single students are encouraged to study and prepare for
Lives by himself in a engineering-school entrance exams.”
two-bedroom house in a ◊ “I wanted to be a fashion designer, but my parents
posh residential insisted that the only way I could leave home was to
neighborhood in Bangalore study more. So I said, if not Mumbai and fashion, then
let me go to engineering college in Tamil Nadu.”
Team leader at leading IT ◊ “I have lived in Bangalore for six years now, and I like it
company here. Going back would be difficult, as I am used to my
way of life here and the lack of any restrictions.”
◊ “I work until about 9 or 10 p.m. every day. My job responsi-
bilities have greatly increased. Every day, I love to wrestle
with problems and challenges. That keeps me going.”
Exhibit 14. Trading Down Is Still on the Rise in Many Categories in the United States
1 U.S. average
Trend 2008–2010 across all
(country trend)2 categories (%)
Trade 10 10 13 11 12 10 12 12 14 12 10 13 16
2 17 18 21 25 20 18 18 18
up 19 19 19 17 15 20 17 22 26 25 27 22
31 26
26 27 26 30 30 33
31
3 Neither 25 25 25 27 30 25 34 29 32 34 30 30 24 29 39 32 32 37 29
27 28 24 27 25 39 34
26 31
5 Trade 64 63 61
down 59 58 58 57 56 56 55 55 55 55 54 54 54 54 53
53 52 52 51 51 51 50 50 50 50 50 48 48
45 45 43 43
Paper Mobile So Bottled Per- Chil- Home Hair- Over- Beer Athletic Chilled Vita- Shoes Furni- Dairy Wash-
products phone drinks water sonal dren’s décor care the- shoes prod- mins ture prod- ers
con- clothing clothing and services counter ucts and ucts and
tracts remod- health supple- dryers
and eling rem- ments
services edies
Fast- Canned Sporting Frozen Liquor Sit-down Juices Cars Home or
service food equipment food restaurants apartment
restaurants (including
renovations)
Household Entertain- Laundry Prepared Facial Wine Travel Organic
cleaners ment detergents meals skin-care and food
and vacations
cosmetics
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Data reflect 629 responses from U.S. category buyers only. Only categories covered in both the 2008–2009 and 2010 surveys were included.
1
Data for 2008 were collected in the third quarter of 2008; 2010 data were collected in the first quarter of 2010.
2
Trend reflects overall country trend and may differ slightly from the average for categories shown here.
Geoff’s story
Banker in London made
redundant during the crisis ◊ “I’m 37 years old, married, and have two children: a
two-year-old child and a four-month-old baby.”
Starting a new job at a ◊ “I graduated from Stanford University in the United
hedge fund States with a degree in business.”
Had to cut back expenses ◊ “I traveled for a while and then went to work in London
during the crisis in finance.”
◊ “I started as a bond trader for a proprietary desk. After
two years, I moved into operations at J.P. Morgan.”
◊ “I was ultimately made redundant as a result of the
financial crisis.”
◊ “Before the crisis, I was more comfortable spending
any excess income that I had, but now I want to pay
down my debts and save.”
said they trade down across categories whereas more further below). European consumers have not yet felt the
than 50 percent of consumers in the United States, Eu- downturn’s impact as severely as their counterparts in
rope, Japan, and even India made that claim. (See the vi- the United States, and they were already becoming more
gnette “Russia’s Frugal Youth.”) optimistic in our Fall 2009 survey. But Greece’s unfolding
debt crisis introduces more risk into their recovery and
may be one of the reasons behind an uptick in German
Handle with Care: Japan and the consumers’ anxiety levels over the past six months.
Euro Zone
Japan: A Slow Recovery and Even Slower Return to
The recovery mindset has yet to take firm hold in Japan, Spending. Japanese consumers are more pessimistic
where consumers have been very anxious through this about timing prospects for an economic recovery than are
downturn and remain so for now. We also singled out the any other group in our survey. Half of Japanese respon-
euro zone for special caution (excluding Spain, covered dents expect the recovery to take several years. Worries
Views on the downturn How they cope Reasons to trade up and down
◊ Saw Julia forced to switch from fixed ◊ Trying to live a more frugal lifestyle ◊ Trade up in electronics because they
to project-based pay—resulted in ◊ Avoiding unnecessary purchases value high quality—especially if the
greater financial insecurity ◊ Spending more time at home— product is used for work
◊ Believe the economic situation in cooking meals instead of eating out ◊ Choose the best and most expensive
Russia will get better in the next 12 education because “it will stay with
months them forever”
◊ Trade down in home appliances and
cosmetics to save money on catego-
ries they care most about
about job and financial security have fallen off from peak a much smaller number of categories when trading up. For
levels observed in 2009, but a full 56 percent of consumers example, 5 percent of Japanese claim to trade up on aver-
said they intend to cut spending in the coming 12 months. age across the categories in our survey, whereas 18 percent
This is a higher percentage than in any other developed of Americans and 13 percent of Europeans do so.
market, and a complete reversal from a year ago when Jap-
anese consumers’ intention to cut spending was the lowest So how is it that Japan remains one of the world’s largest
among developed markets. Per-capita retail spending in markets for luxury goods overall? The answer lies in dis-
Japan is not expected to return to precrisis levels within tinguishing between the total amount spent by Japanese
the next four years. Clearly, Japanese consumers are still consumers on luxury goods and how many luxury goods
very much in the throes of this downturn. categories they choose to participate in. Although Japa-
nese consumers purchase in a smaller number of luxury
When compared with their U.S. and European counter- categories, they are more willing to “rocket” their spend-
parts, Japanese consumers are more selective and consider ing in the categories that matter most to them. Winning
Akiko’s story
23 years old
◊ “After I left junior high, I took a high-school-correspon-
Unemployed dence course and went to nail-art school. I also did
Getting married this part-time work as a clerk and an exhibition hostess.”
year ◊ “My parents and fiancé helped me with the rent [of an
upscale studio], and I lived there for two years, but I
Lives in an upscale residential and moved back home in November 2009.”
shopping area with her family, who ◊ “I get up around 9 a.m. and have breakfast. In the
support her financially and morning, I go grocery shopping with my mom, pick up
emotionally my fiancé’s dry cleaning, because he lives near us, and
I do the laundry. I have lunch with my mom, then I
No full-time work experience since watch soap operas on TV and read.”
graduating from nail-art academy ◊ “My dad worked for an industrial conglomerate, but
now he is at a subsidiary. My mom is a housewife.”
Views on the downturn How she copes Reasons to trade up and down
◊ Has experienced no direct impact ◊ Waits for online discounts and auc- ◊ Is willing to trade up in well-being
on the finances of her family or her tions if in-store prices are too high categories, such as transportation
fiancé ◊ Manages two bank accounts for pur- ◊ Trades up to luxury when justified
poses of bookkeeping and avoiding ◊ Tries to trade down on luxury when
overspending possible by looking for good deals
◊ Spends less on entertainment and
more time and money on cocooning
◊ Handcrafts jewelry and does her own
nails
Ruth’s story
84 years old
◊ “I’ve been living here on the beautiful Lüneburg Heath
Widow, with two since 1936. I also met my husband here. He was born
children and two in this house.”
grandchildren ◊ “After the war, the big house was so rotten. The win-
dows held together with paint until we finally saved up
Lives in her own house in the enough to start modernizing the house and make it
countryside in northern Germany into what it is today.”
◊ “I’m not the kind of person who says, ‘I can’t do that.’
Retired bank employee First I try; if it doesn’t work, too bad.”
◊ “Sometimes my monthly pension isn’t enough, but the
next month I have a little left over, and it balances out.”
◊ “My two grandchildren are my pride and joy. I’m happy
with them, we get along, and they come to visit often.”
Views on the downturn How she copes Reasons to trade up and down
◊ Feels the most negative impact is her ◊ Believes that the current crisis has ◊ Trades up for foods like meat and
granddaughter’s difficulty finding a job had no impact on her because she is bread because she wants good quality
◊ Believes the impact is harder on used to living a frugal life ◊ Trades down for household supplies
younger generations because they are ◊ Tries in general to achieve economies like paper and cleaning products be-
used to prosperity and have never ex- on electricity and heating costs cause she cannot keep up with all the
perienced difficulties like wartime new product introductions and she
◊ Is convinced that the economic situa- does not need them
tion will get better in Germany in the ◊ Is willing to trade up for furniture be-
next 12 months—believes that the cause she buys it once and wants to
German government will manage make sure the quality is good
United 15 13 72 United 7 27 67
States States
Europe 13 21 65 Europe 5 30 65
Japan 42 28 31 18 48 34
Japan
France 3 13 84 France 2 21 77
United 9 14 77 United 3 20 77
Kingdom Kingdom
Italy 9 31 60 Italy 6 43 51
Germany 16 25 59 Germany 5 32 63
Spain 35 22 43 Spain 13 35 52
Prices have gone down/are expected to go down No change Prices have gone up/are expected to go up
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Some percentages do not add up to 100 because of rounding. Europe is defined in this study as the Big Five countries in the European Union:
France, Germany, Italy, Spain, and the United Kingdom.
most of the European Union’s Big Five markets. Further- unemployment spiked, and consumers responded by
more, only 38 percent of Italian consumers said that they closing their wallets. Retail sales are still trending nega-
intend to cut spending in 2010, and only 31 percent of tive, although declines are less extreme now than we saw
those who said that they purchased more private labels a year ago.
in the downturn also said that they intend to stick with
private labels. That’s the lowest level of “stickiness” re- In response to this continued economic turmoil, Spanish
corded in our European survey. (See the vignette “Italy’s consumers remain extremely unsettled—77 percent say
Working Students.”) they are anxious about the future, more than in any oth-
er country we surveyed. And 60 percent claim to have
been personally affected by the downturn to date.
What Recovery? In Search of a Rebound:
Spain and Mexico However, their feelings of job and personal financial in-
security have improved over the levels seen a year ago.
Consumers in Spain and Mexico suffered great distress in Only 22 percent said they felt insecure in their jobs,
the downturn, and they see no signs of a near-term recov- whereas 28 percent of Germans made that claim. Al-
ery. Consequently, they are the most reluctant to return to though 44 percent said that they plan to cut spending in
optimism and spending among our survey respondents. 2010, that value is down sharply from 70 percent one
year ago. And intentions to cut nonessentials are also
Spain: Still Stormy. Spanish consumers were hit hard by down sharply from last year. But don’t expect Spanish
this downturn. Housing values took a significant tumble, consumers to return to precrisis spending patterns any
Paolo’s story
University student in
Milan ◊ “I’m studying nuclear physics at the university of
Milano-Bicocca. After my lessons, I work in a bar near
Works at a bar during the the university, six hours a day, five days per week, and
evenings at the end of my job I usually come back home to Gluck
Was raised in a small town Road, where I live with a friend in a rented apartment.”
in Piemonte where his ◊ “My family lives in Arona, a small town in Piemonte.
family owns an insurance My family owns an insurance agency, and my father
works part time as an educator in a college.”
business
◊ “I don’t have a lot of spare time. In the morning, I attend
His girlfriend and friends lessons; sometimes in the afternoon I have lab study.
play a central role in his At 6 p.m., I start work and I usually come home at 12 a.m.
free time I meet my friends when I’m not working, and I spend the
rest of the time with my girlfriend.”
time soon: an overwhelming majority claim they will anxious about the future. Fully 80 percent of Mexican
stick to their budget-stretching practices as long as storm consumers said the downturn had a personal impact on
clouds continue to circle over their domestic market. (See them. Heightening these concerns is a sense of inevitabil-
the vignette “Spain’s Unemployed Professionals.”) ity, as consumers look back to the country’s volatile po-
litical and economic history.
Mexico: Extreme Anxiety Continues. After a period of
relative stability and economic development, Mexico Thirty percent of Mexican consumers in our survey re-
faced a recession that many in the media are billing as a ported feeling insecure about their jobs, and 42 percent
potential setback for the country’s economic future. Mex- felt insecure about their financial futures, down from 47
ican consumers have reacted with extreme anxiety and percent of consumers a year ago, but still among the high-
pessimism, which was already quite evident in last year’s est of any country in our survey. Forty-three percent say
survey and continued to appear strong in Spring 2010. they intend to decrease their spending in the coming
Seventy percent of Mexicans we surveyed said they feel year, and this after one-and-a-half years of steady declines
Single
Luis’ story
◊ “I’m getting €1,000 in unemployment benefits, and that’ll
Lives with his sister in their last eight months.”
parents’ apartment ◊ “I get up around 10 a.m. I try to find things to do, and I
look for work for 1.5 to 2 hours every morning. Then I try
Has an undergraduate to play paddleball or go out with friends who are unem-
degree in business from ployed too, grab something to eat, do something.”
ICADE and a master’s ◊ “I don’t have many expenses really.”
degree in international trade ◊ “I’m saving in case I run out of unemployment benefits.
The months go by, and I still can’t find any work. I keep
Worked for two years in a looking, but you never know when you’ll find something.”
lab equipment company— ◊ “I was happy in the sense that the last job I had was inter-
was laid off two months ago esting, but I felt underpaid, especially compared to what I
because of the downturn would have earned in another country.”
in retail sales. It is important, however, not to take ex- But such resolutions aren’t always followed through in
treme claims at face value. When confronting sustained full force. (See the vignette “Caring Stewards of the Fam-
economic turmoil, consumers’ resolutions to forgo spend- ily in Mexico.”)
ing are often made in response to a sense of helplessness.
Gabriela’s story
~60-year-old housewife
◊ “I was born in Michoacán, where I met my husband.
Married for 37 years, We moved to Mexico City just before we got married.”
with three daughters, ◊ “With a lot of sacrifice, we have gradually been building
one son, and six our house.”
grandchildren ◊ “I am a plain, common woman. I don’t need extrava-
Lives in Mexico City with her husband, gant things and I don’t have big needs, just normal
her recently divorced daughter, and ones.”
◊ “My husband is unemployed at the moment; right now
two grandchildren
one of my daughters is working to keep the house run-
Family is the central part of her life ning. She is recently divorced and she lives with us with
her two daughters.”
Views on the downturn How she copes Reasons to trade up and down
◊ Does not believe that the economic ◊ “We don’t ask for luxury; all we ask for ◊ Trades up for basic foods because she
situation will improve soon is well-being.” thinks quality is important
◊ Is highly affected by price increases ◊ Has moved beyond buying only essen- ◊ Trades down for clothing and nones-
• “The money that comes to me is tials for living; now resorts to spend- sentials
the same, but prices are higher, so ing even less on food, personal-hy- ◊ Can’t think of any product she might
I have to buy less.” giene products, and house cleaning trade up or down for after the crisis
products
◊ Has become more frugal and substi-
tutes cheaper purchases
L
ooking at averages alone across categories silient and hard-hit categories, as determined by spend-
and segments can be misleading. Levels of ing intentions.
spending can differ significantly depending
on the individual product category and More Resilient Categories. Consumers said that they
unique demographic segment. By scrutinizing have been most reluctant to cut back on products that
product categories, for example, we see that products for make their homes a nicer place to spend time. Indeed,
the home, and even some luxury categories, are experi- sales of home entertainment equipment (video games
encing a resurgence. Among consumer segments, compa- and movie systems) proved relatively resilient during the
nies can target women, young singles, and couples with- downturn, as many consumers sought shelter in their
out children as groups exhibiting the most buoyant own living rooms from the economic chaos. Video games
attitudes for continued spending. sales in the United States exceeded $20 billion in 2009
and grew at an impressive average annual rate of more
than 20 percent from 2007 to 2009. This growth was in
Categorical Imperatives line with annual growth rates in U.S. sales of 24 percent
from 2005 to 2007.
An average of 45 percent of consumers in developed mar-
kets said that they intend to cut their spending this year. Consumers also said that they would continue to spend
Indeed, trading down is a prominent shift that is gaining on high-quality fresh foods and health foods. The total
ground in categories consumers view as “commoditized” sales value of the health food category in the United
or less important to them personally. Basic services (such States exceeded $19 billion in 2009. Almost all its subcat-
as car rentals, postal and courier services, and Internet egories showed continuous year-on-year growth before
services) and pantry staples (such as household cleaners and during the crisis, with pasta experiencing the highest
and paper products) have long topped lists of categories overall growth rates.
that consumers trade down for in the United States, Eu-
rope, and Japan. Hard-Hit Categories. When times are tough, consumers
cut back on what they perceive to be nonessentials. In our
But the nervous 2009 market triggered further trading- survey, consumers said they were most likely to cut back
down gains in nearly half of the approximately 50 catego- on luxury, dining out, fashion accessories, and snack foods.
ries in our survey in the United States. And some catego- Even as the economy improves, there is still much reluc-
ries experienced astounding surges in trading down from tance to recommit to spending in these categories. (See the
2005 to 2009. But the situation revealed by our Spring sidebar “Competing in the New World of Luxury.”)
2010 survey varies greatly depending on the category. We
asked consumers where they have made spending cuts so The dining-out segment was particularly devastated by
far during this downturn, and where they feel they are the downturn. U.S. sales in the “cafés” segment, one of
most likely to continue doing so in the coming year. (See the most impulse-driven segments within the dining-out
Exhibit 16.) Consider the following examples of more re- category, illustrates this point best. The annual precrisis
80
Moderately Hardest hit
eroded
60
40
20
Hard-hit but poised
Resilient to rebound
0
10 20 30 40 50 60
25 50
Organic foods
More resilient Harder hit
Baked goods and pastry products Luxury products
growth rate approached 5 percent, but by 2009, the average between 10 and 44 percent from 2008 to 2009.
growth rate had dropped to below 1 percent, and it is ex- Room rates in Moscow and Mumbai experienced some of
pected to stay depressed through 2012. the biggest rate declines as hotels cut prices in response
to a drop in business-traveler volumes. Other cities with
The automotive sector also suffered. From 2007 to 2009, substantial decreases in average hotel room rates were
annual growth in sales dropped to a negative 20 percent Warsaw and Prague (with 35 percent and 27 percent de-
in the United States and a negative 6 percent in Europe. clines, respectively).
Rather than trading down to a less-expensive vehicle,
many consumers chose instead to defer buying until the In addition to this pricing pressure, the hotel industry has
economy felt more stable. The good news for this sector also struggled with scarce development capital. Since De-
is that intentions to cut back on cars have fallen off in cember 2008, the number of domestic hotel rooms under
our recent survey, and more consumers are starting to construction has declined by 14 percent.
feel that now might be the right time to get back into the
market for a new car. Indeed, industry experts expect
near-term demand to rebound and even exceed precrisis No Two Segments Are Alike
levels.
Although consumers continue to hunt for bargains, they
The travel category was also sharply affected by the are also becoming more willing to indulge in nonessential
downturn, in particular hotel room prices, which fell on purchases. This is good news for companies, but not all
The global recession took a heavy toll on the luxury goods The Lure of Emerging Markets
industry as a whole. But like many sectors, it now seems Mature markets still account for the lion’s share of sales,
to be on the road to recovery. Still, as encouraging as the but there has been a shift toward nontraditional markets,
signs of a revival are, they do not indicate that the indus- notably China and Russia. The change was evident before
try is returning to precrisis normalcy. the crisis, but the events of the past two years have lent
even more weight to developing markets.
Rather, the world of luxury has changed. It is no longer the
exclusive domain of iconic brands, elite consumers, and Yet as dynamic as “new growth” markets are, they still ac-
traditional markets. The Great Recession was more than count for only a small part of the global luxury market.
a drag on demand; it was the tipping point for several Companies that devote too much time and effort to pen-
trends, described below, that had been steadily eroding etrating these markets could end up weakening their
the mystique of luxury. presence in the traditional centers of demand.
From Conspicuous to a More Conscious Here are four steps that luxury companies can take to
Consumption make these trends work for them.
Conspicuous consumption was in full swing in the late
1990s and early 2000s. Once widespread access to infor- Showcase the value of your goods. By reemphasizing
mation made it easier for luxury consumers to compare the quality and craftsmanship of their goods and high-
luxury goods, however, quality began to matter more than lighting the creativity of designers and their teams, luxury
brand image. The crisis sent this trend into overdrive in companies can further distance themselves not only from
mature markets, where people became less interested in ordinary retail but also from their competitors.
acquiring status symbols and more interested in the ac-
tual worth of a purchase. Interestingly, our research shows Provide a luxurious experience. In the new world of luxu-
that, despite this trend, the visibility of a brand name re- ry, consumers are looking more to “be” than to “have.” The
mains quite important for some consumers, particularly trend toward experience-based luxury (spas, hotels, and
in China. travel) provides an opportunity for all luxury companies to
offer value-added services, including home delivery, custom
Blurring Boundaries Between Luxury and tailoring, personal shopping, and concierge services.
Masstige
When mass-market competitors borrowed tactics used Embrace new media. The rise of new media like social-
by luxury firms—such as celebrity endorsements, trendy networking sites and mobile applications has led to a revo-
logos, and well-known designers—the line between luxu- lution in the fashion world. Consumers do not want to be
ry and masstige retail began to fade. The crisis aggravat- walled off from their favorite brands. Luxury companies
ed the problem by triggering massive discounts of could showcase new online commercial portals, live feeds
high-end goods. Fully 53 percent of luxury buyers in of fashion shows, and consumer-generated visual content.
the United States told us that “getting a discount”
was very important to them when making luxury pur- Refresh the retail experience. Although consumers
chases. Many luxury producers have now extended their know on sight whether a product appeals to them, the
product ranges—and prices—in order to reach more con- probability of their making a purchase increases if they
sumers. spend more time in a store. Luxury consumers, in general,
will be drawn to stores that exude a sense of authenticity
Game-Changing Technologies and originality.
As recently as a few years ago, the communication of lux-
ury remained a top-down directive from brands to con- Luxury companies need to make fundamental changes in
sumers. With the proliferation of new technologies and every major aspect of the business: their target markets,
communication platforms, however, luxury has become consumer segments, product portfolios, and distribution
more of a dialogue. New media are giving consumers ev- channels. Players that skillfully manage these tensions will
erywhere a virtual seat at a table once reserved for a hand- find opportunities for growth in both mature and emerging
ful of illustrious, well-paid image-makers. markets—even as economic times remain turbulent.
67 64
55 54 54 51
49 42
“I feel anxious about the future.”
39 36 33 36 43 30
35 25
“I feel financially insecure.”
46 37 42 48 43 43
32 35
“I have a great deal of stress in my life.”
39 45
38 37 39 41
“I don't think the economy will improve 19 17
in the next six months.”
Women Men
Sources: BCG Consumer Sentiment Survey, March 2010; BCG Consumer Sentiment Barometer, March 2010.
Note: Europe is defined in this study as the Big Five countries in the European Union: France, Germany, Italy, Spain, and the United Kingdom.
Exhibit 18. Spending Intentions in Japan Vary Widely Across Consumer Segments
I
t will take time and a string of sustained good Although they may not always be conscious of their
news for consumer anxiety to fully return to pre- value calculations, consumers determine how much
crisis levels and for purse strings to loosen again. they are willing to pay for a particular product or service
But companies should not expect a return to “busi- according to a ladder of increasing benefits. (See Exhibit
ness as usual” from a consumer standpoint. This 19.) To move them up the ladder, companies must un-
downturn has made a deep impression on consumers in cover consumers’ latent dissatisfactions and introduce
many markets, one which will not be quickly erased by a solutions that address them. So what themes are having
slow return to prosperity. broad appeal with recovering consumers these days?
To stay afloat on the rising tide of recovery, companies “My home is my castle.” Products that make home more
will find it essential to understand how long this altered comfortable or entertaining—affordable appliances, take-
reality will endure and how it will play out in various home meals, board games—are increasingly popular.
markets, categories, and consumer segments. Companies
that embrace this challenge and offer focused, meaning- “I am making a smart choice.” Consumers today need
ful products will gain the advantage. We’ve looked across a good reason to part with their money. Companies can
the consumer industry and identified seven best practices help by providing messages about product benefits that
to help companies stimulate and capture recovering con- support consumers’ need to be practical.
sumer demand, capitalize on slower competitive respons-
es, and lay the foundations for a faster recovery. “I am fed up with doing without and deserve a little
treat.” Coax consumers back to the market by offering
small indulgences and everyday luxury. One example:
Accelerate Innovation for the Rebound video game products that make an at-home workout a
compelling alternative to a pricey gym membership.
The downturn has left consumers naturally inclined to
think in terms of less; in its wake, they have been asking “I feel underappreciated and on my own in this cha-
themselves, “What can we cut back on to save money?” os.” Women continue taking the lead in shopping for the
Savvy marketers understand that the early recovery is a household, and they have shown higher levels of stress
time to get consumers to start thinking of more—not during the downturn. Many said they feel as if they have
wastefully or lavishly, but with offerings that dispel the sacrificed their own needs and have borne the lions’
feelings of doing without while not taxing consumers’ el- share of making ends meet. Although mistrust of busi-
evated sense of caution. Consumers remain open to com- ness is high in the West, consumers can still react favor-
pelling stories about technical, functional, and emotional ably to credible offers of empathy from companies that
benefits that provide reasons and incentives to return to understand their stress and help make their lives easier.
the markets and buy. Innovation remains a powerful lev-
er in protecting margins, and pockets of more robust de- Yet many investments made today in product develop-
mand and openness to trading up exist everywhere. ment will only bear fruit after the recession is long past,
100 5
Intangibles (brand benefit of doubt,
90 recognition awareness, and peer influence)
80 4
Value from integrated retail—
70 control of the point of sale
3
60 Merchandising at the moment of purchase—
stimulation that drives excitement,
50 conviction, and energy
2
40
Implied brand value for guaranteeing reliability,
30 consistency, and aersale service
20 1
Estimate of value for better raw materials,
10 design, manufacturing quality, convenience,
and easier-to-use packaging
Source: Michael J. Silverstein, Treasure Hunt: Inside the Mind of the New Consumer (New York: Portfolio Books, 2006).
so it is also critical to have a view on the postdownturn Rethink the Business Model and
landscape and what consumers will be looking for then. Develop Alternate Scenarios
Delaying investments until the recovery is in full force
will compromise a company’s ability to capitalize on fu- Five years from now, most industries and sectors will look
ture opportunities. vastly different than they do now. As a result of cyclical
and structural changes—some coming in the form of gov-
ernment interventions—companies in many industries
Upgrade Capabilities in Consumer will need to find fundamentally new ways to compete.
Insight
Forces such as globalization, increasing environmental
This downturn has changed consumers’ shopping behav- concerns, accelerating technologies, and protectionism
iors and their attitudes about spending. Although the lin- create challenges for incumbents—and opportunities for
gering effects will vary across markets and categories, it companies capable of seizing them. Companies need to
is important for companies everywhere to look more consider how (and how fast) their business models and
closely at how the downturn has affected their heavy strategies need to change if they are to win in the long
spenders in their targeted markets and specific categories term. Is evolution or transformation required?
—and determine what products and services these high-
value consumers are still willing to spend on. Smart companies looking to prepare for a highly uncer-
tain future will start thinking now about the various sce-
Everyone knows how important consumer insight is, yet narios that could play out in their sectors. They will an-
many companies still find themselves woefully under- ticipate the skills and assets that will be required to win
equipped to leverage insight as a competitive weapon. in different circumstances.
(See the sidebar “Hearing the Consumer’s Voice.”)
We recommend developing at least three scenarios for
The winners coming out of the downturn will be compa- the postdownturn marketplace and understanding the
nies that can develop a capability for consumer insight changes in consumer needs that would result from each
and integrate it directly into go-to-market decisions, such in light of the likely pace and duration of the recovery. In
as pricing and product development. order to stimulate “out-of-the-box” thinking on how to re-
At a time when many consumers are being more deliber- If companies are not hearing the consumer’s voice, it is
ate in their buying decisions, it is critical for businesses to often because they follow a hemmed-in approach to mar-
know as much as possible about the gears that really turn ket research. Many companies structure their consumer-
demand for their products and services. insight functions as somewhat isolated units, walled off
from critical business decisions about pricing or market-
Most companies recognize the importance of the market ing, for example. Those who make sure that their insight
research function—commonly known as consumer in- organizations are best in class take a fundamentally dif-
sight—but they struggle to unlock its value. This was one ferent approach: their mandate spans the organization,
of the findings of a recent BCG report, The Consumer’s and findings influence cross-firm decisions such as acqui-
Voice—Can Your Company Hear It? The study benchmarked sitions, prioritization of brands and markets, and resource
the consumer insight capabilities of 40 global companies allocation.
by surveying more than 800 executives across a range of
industries and conducting nearly 200 interviews. Budget affects the development of this function—only
28 percent of executives believed they spent enough on
While all companies see consumer insight as a major con- market research—but more money will not ensure better
tributor to financial performance and growth, only 35 per- output. In fact, the best-practice companies spent less on
cent of the executives we surveyed in our study described consumer insight per full-time insight employee than oth-
their consumer-insight capabilities as best in class. Frus- er companies did. What matters most is how they spent
trations were evident among the recipients of market re- it—not on tactical research (geared toward a specific proj-
search—the line managers—and those who generate the ect) but rather on probing, incisive research that can be
output. translated into strategic implications for the business.
◊◊ When asked whether consumer insight teams consis- To capture the full potential of consumer insight, compa-
tently answer the question “So what?” about the data nies must focus on two factors. First, they need to improve
they provide, only 34 percent of line managers said that the engagement model. This involves getting senior man-
they do agers involved and expanding the scope of the function.
Second, companies need to improve the performance of
◊◊ Fewer than half (41 percent) of insight staff thought that the consumer insight function by upgrading capabilities
the business leaders in their organization could pass a and talent and focusing the team on the right activities
pop quiz on important facts about consumers and deliverables.
spond, consider including at least one scenario that seems ing the downturn, the majority of consumers feel they
improbably pessimistic to your management team. have endured price increases during the past year and
they expect more to come in the months ahead. Although
Quantify the impact of the scenarios on your business consumers in many markets will continue to be price sen-
and your balance sheet. Then decide how you’ll position sitive, there are ways to communicate value beyond just
your products for possible long-term shifts in consumers’ “cheapest price.”
values, attitudes, and purchasing behaviors. Allocate your
budgets for the long term. De-average pricing to tap price-resilient segments.
Some companies are commanding full prices for products
that offer features consumers are willing to keep spend-
De-average the Go-to-Market Playbook ing on while simultaneously lowering prices on other
highly visible items to attract budget-conscious consum-
As consumers change, so do their perceptions about pric- ers. Some leading luxury-jewelry brands have extended
es, their beliefs about which actions constitute trading up, their lines to include items with “more approachable”
and their attitudes toward channels. Despite all the price- price points (that is, below $1,000) to draw in a broader
slashing and discounted prices that consumers saw dur- group of consumers. Such brands seek to continue to at-
Create a renaissance in the middle. Brands with mid- Bold action on cash and costs have been imperative for
market positions may benefit from the fact that consum- companies throughout the downturn—for some, such ac-
ers are becoming more selective about where they trade tion created a cushion to fund price decreases; for others,
up while also curtailing their trading-down activities it enabled them just to survive. Although many execu-
somewhat. When consumers care about a category and tives are no doubt tired of cutting back, these steps are
regularly purchase upscale offerings, they rarely descend very important through the recovery. Companies need to
all the way to a private-label or value brand. Rather, they free up the resources required to accelerate much-needed
The BCG Consumer Sentiment Survey that underpins 2,585 (or 2,090 when results from one of the two China
this report took place between March and April 2010. studies were excluded); Europe’s Big Five markets =
The countries surveyed were Brazil, Canada, China, India, 3,735; India = 1,067; Japan = 746; Mexico = 743; Russia =
Japan, Mexico, Russia, the United States, and six countries 313; Switzerland = 779; and United States = 629. Respon-
in Western Europe—France, Germany, Italy, Spain, Swit- dents were allowed multiple selections on some survey
zerland, and the United Kingdom. Survey results for Eu- questions.
rope’s Big Five markets (France, Germany, Italy, Spain,
and the United Kingdom), weighted by population, served Consumers were asked about a total of 17 product groups
as a summary for Europe. In all, more than 15,000 con- covering 70 product categories, 49 of which were trading-
sumers were surveyed; responses from Chinese consum- up and trading-down categories. Not all categories were
ers reflect a composite of two studies. covered in all countries. (See the exhibit “Product Catego-
ries Covered in the BCG Consumer Sentiment Survey.”)
To capture the distribution of real income and to reflect For an itemized list of categories included in a specific
the population of potential consumers in each market, country’s survey, please contact one of the authors.
income was adjusted and the sample reweighted. As ad-
justed, the sample size was 12,057 respondents (or 11,562
when results from one of the two China studies were ex-
cluded). For the individual markets, the adjusted sample
size was as follows: Brazil = 682; Canada = 778; China =
Patrick Ducasse
BCG Paris South America
+33 1 40 17 10 10 Olavo Cunha
ducasse.patrick@bcg.com BCG São Paulo
+55 11 3046 9142
Catherine Roche cunha.olavo@bcg.com
BCG Düsseldorf
+49 2 11 30 11 30
roche.catherine@bcg.com
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