Notes from the Road to Recovery... On
the Economy
August 2009
The road to recovery looks very much like a highway construction zone
and along the way we're finding that we have to reduce our speed and watch
out for unusual hazards and the unexpected. In traveling along that road,
there are a number of signs we're looking to that will provide answers
about the 'new' consumer that will be emerging.
What has
happened with consumers' income and spending power?
Having
over 6 million workers out of work has been a huge issue for the economy
as a whole. Economists say however, that there has not been the major
reduction in wages that often accompany a serious recession. The fact that
inflation has been low has helped stabilize incomes. Most consumers have
about the same income they had in the past but are simply distributing it
differently - saving more and spending less. This is very different than
what has been seen earlier in this decade.
What will people be
doing with their income?
The savings rate has jumped to almost
6% compared with 0.2% 5 years ago. Each time there is a recession, the
savings rate jumps up significantly. In the 1970s, the rate of savings
ranged from 9% to 10.5%, in the 1980s, the range was from 8.5% to 11.5%
and in the early 1990s, the rate was between 6.5% and 8%. The most
dramatic decline in savings took place in the last decade. For over seven
years, the range has been between 0% and 3%. The question now is whether
the consumer of today will behave like the consumer of the 1970s and 1980s
and continue to save or will the pattern be the same as it was earlier in
this decade? Many prognosticators think consumers will lean more toward
consumption as opposed to saving.
How much have the attitudes,
preferences and behaviors of the consumer changed?
Luxury and
convenience have ruled consumption since the late 90's. The trends focused
on pampering and the assertion that 'it is all about YOU'. Personal
services grew rapidly and stores moved from providing the basics to adding
all kinds of products and services to draw in the ever-demanding consumer.
Grocery stores added all types of special sections. Organic, natural
options grew rapidly as the assumption was that people had enough
disposable income to indulge their preferences. Unique and expensive items
served to help distinguish oneself from the crowd. Today there has been a
major reversal. Grocery stores are reporting that all the action is in the
center aisles and that store brands and private labels are dominating. The
'me first' notion has been replaced with a need to be socially responsible
and economically efficient. The fact that 'green' is the new driver is as
much about saving money as it is about the environment.
What
behaviors are reflective of the new consumer that will emerge?
The answer to this question may lie within the 3 key demographic
groups who are active consumers in the market today.
Baby
Boomers (1946 - 1965)
Their life-defining memorable events
include: assassinations, political unrest, landing on the moon, the
Vietnam War, Woodstock, social and drug experimentation, sexual freedom,
civil rights movement, environmental movement, women's movement, protests
and riots, Watergate, Nixon's resignation, oil embargo, raging inflation,
gasoline shortages, economic competition.
The highest levels of
consumption and the lowest level of savings for this segment showed up in
the 1990s and 2000s. It was prime time for The Boomers to spend. While
just a few years ago all the talk was about the mass exodus of baby
boomers from the workforce into retirement, a recent Pew Research Center
Social & Demographic Trends Project survey reveals that just over half
of all working adults ages 50 to 64 say they are likely to delay their
retirement. 16% say they never expect to stop working.
http://tinyurl.com/pmeoc2 So indications are that Boomers will remain in
the workforce and impact employment for some time to come.
Generation X, aka Baby Bust Generation (1965 - 1976)
Life defining memorable events: Challenger explosion,
Iran-Contra, social malaise, Reaganomics, AIDS, safe sex, fall of Berlin
Wall, single parent families
This is the generation that grew up
privileged and adopted the world of consumption as the norm. They grew up
in the 'me decade' of the 1980s and came to maturity in the 1990s and
2000s. This is the generation that drove technology and the subsequent
consumption patterns. Now they are focused on raising families and their
offspring will be interesting to watch.
Y Generation, aka
Millennials or Echo Boomers (1977 - 1990's) Defining, memorable
events: rise of the Internet, 9-11 terrorist attack, cultural diversity,
social networking, text messaging, wars in the Middle East and now a major
economic recession
This is the 'on demand' generation,
and the first since the 1970s to experience a marked decline in their
standard of living. While they are the most widely technologically adept
generation ever, they are having a harder time finding a job. Indications
are that they will not be paid as much, and it looks like they will be the
first in decades to have to contend with real inflation. This may end up
being the generation of reduced expectations and that could change their
consumption patterns for a long time.
Curious to know more about
how your business or organization will be impacted by these consumer
groups? The Matrix Group is ready to help you map your route through the
construction zone. Just give us a call.
Notes from the Road to Recovery... On the Economy
June 2009
Economist Dr. Chris Kuel, the keynote speaker at the 2009 Annual Marketing Research Association conference in Chicago, believes the recession bottomed out sometime in February or March 2009.
According to Dr. Kuehl, as the banks led the economic crisis, it will not end without bank recovery. But the rules will change back to 'old school' ways of doing lending when it does. That is, lending to those who can demonstrate that they are financially secure enough to pay back the loans.
The good news:
- The market looks to be handling big news with more resilience. On June 1, when GM officially declared bankruptcy, the market rose 200 points. In previous months news like that would have sent the market into a tailspin.
- Bad and unprofitable businesses are gone. They have left open spaces for new competitors to come in.
- Consumers have been saving. They are waiting to spend again and won't hold out forever--just likely only until they really want something. They'll have a good amount of cash saved when they plunge back in.
- Investors are itching to get back into the game. The activity seen in the commodities market is an early indicator of that. The stock market has gained back all that it lost last year and the bond market yields have returned to some semblance of normalcy.
The not so great news:
- Unemployment has exceeded 9%. There are over 6 million people out of work in the US.
- The amount of deficit is stunning!
- The next big thing to worry about is inflation. Price increases are already occurring in oil, copper, aluminum, steel and food.
Considerations as we move forward toward recovery:
- Competition is prepared to exploit weakness and move quickly into markets where they see opportunities and can fill voids. Those who are not prepared for an onslaught of new competitors could be in peril.
- Consumers are going to be very different than they were before. EVERYTHING has to be re-thought.
- There will be new variations to old patterns.
- Access to capital will be different. Error judgments in managing risk will make for new rules for accessing money.
- Manufacturing will continue to employ fewer people. There will be less jobs due to the continued movement toward using technology and robotics, decreasing dependency on labor. Other industries may have learned similar efficiency lessons.
- The ground lost through the crisis and longer life spans will result in a realistic age for retirement closer to 75, especially for those who are under 50.
- Every player in the market will want to make up for lost time and opportunities, and will want to try to increase prices as fast as possible, which may be easier if there have been some competitive casualties.
Dr. Kuehl emphasized that, as we move ahead toward recovery, market research is more crucial than ever for directional guidance and in separating reality from speculation. And we at The Matrix Group can provide you with the resources and information you need to map out a strategy for success.
Contact us to see how we can help your business get back on the road...to recovery!
Latest Polls Suggest that Frustration Over Economy is Growing
The latest polls from the Wall Street Journal/NBC show that the average American remains deeply concerned about the future of the economy and that almost every other issue pales in comparison. There is no surprise here as the pattern of economic crisis in the past has always included a deep public fear until there are real signs of recovery. What is a little surprising is that the Obama administration is starting to take some heat for the economy.
Up to this point the majority opinion has been that the Obama White House had inherited the problem from the Bush White House and was doing as good a job as could be expected under the circumstances. Now that opinion is starting to transition and Obama is being held to account on some issues that have not been connected to his predecessor.
At this point his personal popularity remains very high and for the most part there is still support for the basic idea of his economic reform.
There is still palpable anger over the bank's role in the economic meltdown and that has led to general agreement that they should be punished and more highly restricted in the future. Most still believe that the economic crisis was visited upon the country by greedy people and out of control corporations. Over 60% hold the financial sector solely responsible for the recession.
What have started to change are opinions regarding the burgeoning deficit and the decisions to bail out the auto companies and banks. At this point almost 70% express opposition to the involvement of the government in the auto industry with fully 60% opposing the bail out and 80% objecting to the government owning GM. There is also a stark increase in those that rank the deficit as the biggest problem facing the country's economy.
The percentage of people that think the economy is going to improve by the end of the year has risen from 37% to 46% and twice as many people are of the opinion that the recession has ended than was the case a month ago.
The real takeaway from all this is that economic concerns are moving from a crisis driven mentality to one that is a bit more contemplative and future oriented. There is a sense that the immediate crisis has past and no longer justifies unprecedented and risky maneuvers by the government. The economy appears to be on the mend even though the vast majority of the stimulus package has yet to be spent and that has people wondering if it still needs to be dispersed given the impact it would have on the deficit.
The transition towards normalcy continues. The wild party ended some months ago and the severe hangover prompted some radical remedies. Now that the economy is sobering up we are all examining the damage and deciding what to do to protect ourselves from the cause as well as the cure.
Source: Armada Corporate Intelligence
The Value of Market Research in Tough Times
The American Marketing Association surveyed it membership on marketing in the current economy. 60% of AMA respondents report that their (corporate, association and non-profit marketers) biggest mistake was to avoid marketing when there is an economic downturn, as we see now. This group, taking a hard look at their own industry, strongly agreed that it is easy to back away from market research but that there is no benefit to that other than decreasing a budget line item to alleviate managements' concern of a slowing cash flow. This caters to the immediate gratification of the executive board, but not what is best for the organization.
Further questioning and analysis of the marketers showed that market research is more necessary in a slow economy than ever--particularly with non-profits and associations who rely heavily on donations and memberships.
Highlighting the importance of market research for corporate, association and non-profit marketers, they listed key findings and recommendations:
1. Shape the message; don't slash the price.
2. Focus on who NOT to target.
3. Stand apart from the crowd.
The implications of these show that marketers, particularly in hard economic environment, will fare better in the long run and in the current market if they invest in knowing what to say and who to say it to. It is more effective to highlight the value in your service or product, rather than cut your price. The AMA went on to say in this economy market research is particularly important so marketers know when to demarket to inappropriate market segments, or avoid target audiences that will not yield you benefits as compared to separate market segments who could give you a greater return on your investment.
Source: Wilson Research Strategies and The Hill Ad Review (Blog)
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