The Great Recession is Over, Sort of…
By Al McClain
While we seem to be past the worst of the Great Recession, for
now at least, we keep getting conflicting signals. For example, the Dow was
at its highest level in 17 months yesterday, while existing home sales declined
for the third straight month in February.
At the IRI Summit 2010 in San Antonio,
Dr. Romesh Wadhwani, chairman of the newly renamed SymphonyIRI Group, said
marketers can no longer take for granted that brands will be strong, price
increases will be possible, and promotions will be effective. He sees the next
few years as an age where consumers will be thrifty and affordability will
be an issue. He also said that convenience has been overtaken by value, as
the number of shopping trips taken in search of value was up by six percent
in 2009, with a similar increase predicted for 2010.
Meanwhile, the number
of stores visited per month has nearly doubled, according to Dr. Wadhwani,
and the percentage of shoppers making lists has grown from 50 percent to 83
percent over the past year. One interesting conclusion that Dr. Wadhwani draws
is that the “first
moment of truth” is no longer in the store but in the home, where shopping
lists are made.
So, what’s a marketer to do in this changing environment? Dr. Wadhwani
suggests the need to develop better consumer insights – faster – and integrate
their use throughout the organization. He says that companies have relied too
much on looking in the rear view mirror and that now they need to develop better
foresight, so they can respond to trends that are about to happen. Of course,
SymphonyIRI (a RetailWire sponsor) has tools to help manufacturers and
retailers do that.
Dr. Wadhwani cited as unexpected happenings for 2009 the
fact that low income boomer shoppers spent 12 percent more in 2009, while retirees
spent seven percent more. For 2010, he expects dollars per trip in 2010 to
be up three to five percent. He mentioned that manufacturers and retailers
who are able to develop the most granular insights the quickest will be best
able to detect trends like these in advance and be proactive in response.
Dr. Wadhwani
also suggested that manufacturers focus more on consumers and shoppers, which
he says are the same people at different parts of the day, versus being brand
and category centric. Another idea is to think less about “share of wallet” and
focus more on “share of occasion,” such as sports weekends, holidays,
days of the week, etc. And, he advocates strategic segmentation of consumers
based on health stage, life stage, etc. Sooner rather than later, Dr. Wadhwani
sees targeted marketing getting down to the individual household level, or
at the very least down to a very small cluster of homes.
Other suggested changes
include renaming market research departments as business insights, or something
similar, because he feels the former name creates too much of a silo and ensures
that the information these departments produce will not be given proper attention.
Also, he suggested reallocating trade spend, diverting at least some portion
of resources away from store promotions into direct response, to reach consumers
when they are first organizing their shopping trips.
Discussion Questions:
Do you feel that manufacturers and retailers are working fast enough on developing
foresight, as opposed to insights? How do you think the experience of living
through this recession has changed the ways manufacturers and retailers are
making use of business insights?
It’s time for retailers and CPG companies to pivot from a focus on reduced expenses and inventories to driving top-line sales. The initial reaction to the speed of the downturn was a collective retreat on cost issues, and many stores’ bottom lines showed strong improvement during the second half of 2009 despite lackluster sales.
But there is plenty of statistical data (as the article points out) showing a thaw in consumer spending and a more upbeat mentality. Yes, shoppers are still spending frugally…but they are spending. (Reductions in the jobless rate during the second half of 2010 can only help.) If retailers and other consumer-driven companies can leverage existing cost/inventory savings against a rise in consumer demand, 2010 can be a very profitable year.
We can’t predict the unpredictable, so in this economic environment, we have to be quick on our feet, and that comes from putting insights/information into the hands of decision-makers quickly. Everything else flows from that.
When you don’t know what the total spend on an “occasion” is, getting a bigger share of that equation is sort of meaningless. Value remains important to the majority of consumers, but NOT all.
Using inventory as a shared resource represents an enormous opportunity in a world of uncertainty…we can buy less, localize assortments, and then fill customer requests from wherever the product might be.
Foresight will come later. In the meanwhile, insights based on data gathered from points of sale, social media, focus groups and competitive intelligence is retailers’ best tool.
I can only say at the start of the financial meltdown I wrote a piece for SCDigest and RetailWire titled “Welcome to the Real Value Chain” that predicted we would be in this mode for years, not due just to being in recession for that long but as a result of the semi-permanent effect this shock would have on consumer behavior, just as the Great Depression did.
Several respondents thought this was off the mark. I am feeling pretty “foresightful” about that column today.
That bit of shameful boasting aside, the comment about the first moment of truth being when the shopping list is made is a good one–but I would add that it increasingly occurs in tandem with what coupons the shopper has laid out on the kitchen table.
There is no doubt in my mind that looking at trends is looking in that rear view mirror mentioned in the article. While it’s harder of course to forecast the future, it behooves retailers and manufacturers to spend a little time with the here and now so they can better plan for the future. Knowing where consumers stand on the choices they are making and the context in which they make their purchase decisions today is incredibly useful for planning strategy, media, and developing new products (if you can get them out in the marketplace quickly).
We used to make five year plans and while no one wants to admit to a 6 month plan, in today’s fast changing world it makes sense, but requires incredible agility. Consumers are your advocate, not your adversary. Staying in lock step with them may be the best you can do during this time of flux.
Renaming the research department positions research in the organization and lets staff know how the C-suite recognizes and possibly incorporates the value of research. For many years, based on my experience in the research industry, there has been a growing demand on the research department to align its activities with business objectives. Effective and respected departments use ROI as a gauge for the effectiveness of their insights and recommendations. And this depends in part on dissemination and implementation of these insights and recommendations.
A new name on the door does not insure anything at all. There must be collaboration among business leaders who recognize what solid research can deliver, for today, tomorrow and the months, if not the years ahead. Of course these leaders have to know what good research is…but that’s a discussion for another time.
I agree a renaming does nothing but change the name. What this industry so desperately needs is a total repositioning. We need to stop being a 19th century industry operating on industrial engineering principles and become a 21st century industry driven by new and creative ways of harnessing information, technology and communication theory.
Looking forward is tougher than looking backward–but it’s also far more rewarding.
This may be surprising news to some, but many of us have been making this claim for a long time. The mass consumer group is breaking up; consumers are purchasing on value; products need to create value that aligns with the price charged (branded or private label); the retailers and manufacturers who develop strong consumer insights and act on them will win. All the recession did was make this shift faster, quicker, and more pronounced.
Dr. Wadhwani offers some terrific insights and foresights.
Celebrating the end of “The Great Recession” because shopping trips and spending was up in the low single digits in 2009 over the disastrous 2008, however, seems misplaced. An apter description of the current environment might be “The Hangover Years” as American consumers and retailers recover from a decades-long credit binge. This irrational binge created an artificial level of demand (consumers)as well as an artificial level of supply (retailers). These levels are now returning to equilibrium. Just as it took a long time to create this artifice, it will take a long (painful) time for it to come back into balance.
Ironically, this means a modified return to what retail was like before the credit binge. In those days, successful retailers were close to and driven by their customers’ needs, preferences, and requests. More importantly, they understood and reacted to the major and subtle differences between markets and, in some cases, individual stores. In most cases, the buyers’ offices were located adjacent to their sales floor and they worked the floor on weekends. The credit binge replaced this with giant national retailers and buyers who worked in an office far removed from a sales floor. Customer insights were now gleaned from computer reports and screens or, as Dr. Wadhwani describes “looking through the rear view window” at what happened with what they (not the various customer segments) chose to put on the sales floor.
In my view we are still years way from finding the demand/supply equilibrium point. The retailers that will still be around when this is achieved are those that are able to adapt their operating model to 1) get closer to and better understand the variety of customers that they serve and 2) translate this understanding into decisions based more on anticipating what they want (foresight) than what they bought (insight).
Welcome to the next reality.
The current recession is feeling like a 15-year fundamental adjustment in the consumer economy. We’d best get used to it and accept that little tweaks to the status quo–like shifting market focus from “share of wallet” to “share of occasion”–are unlikely to have a lasting impact on shopper behavior.
In that context, many of Dr. Wadhwani’s suggestions seem interesting but not game-changing. In particular, the suggestion that the “first moment of truth” is shifting back to the kitchen table seems like pandering to traditionalists in the ad agency community.
I’m still a fan of IRI, and I appreciate the challenge of sustaining its business across a period of unprecedented, enduring change in consumer behavior. I believe its best opportunities lie within the store, where many behavioral influences are barely measured or understood.
On a separate but related note: The eerily strong securities markets make me nervous because of their apparent disconnection with the realities on the ground. How can stocks rise when the middle class standard of living is under such severe stress and government deficits are expanding? Are those factors actually good for capitalists? If so, what does that say about the moral health of our society?
Directives and objectives seem to be more focused on the customer and getting them to buy more at each visit. Retailers are now used to slower traffic patterns so it’s important to capitalize on each and every person that walks through the door. Insights related more to store format and layout are more important now.
Regarding the poll question on coping with the “new reality,” I voted “Focus more on direct response to reach consumers in-home” because I do believe you have to reach consumers before they hit the stores. If their mind isn’t made up until they are in the aisle, the shopper is increasingly opting for private label because they don’t see enough difference or understand your value.
Direct Response is great if you are A) willing to take the risk and B) have a great story to tell about your brand/product. Most marketers never get past A. Direct Response that combines Value + Great Story can be a huge differentiator, regardless of whether the consumer is deciding at home, or in the aisle.
Good article and comments. I too will indulge in a bit of self-promotion by pointing out some things about the Consumer Demand Index (CDI): our data did accurately foresee actual consumer behavior and continues to do so, leading other indicators such as the Conference Board’s Consumer Confidence by at least a month. Several reasons for that, including that we ask about real buying plans (what’s on the list!), as opposed to general sentiment.
That being said, we are now of the opinion that “in the long-term, only short-term forecasts are accurate!”
We (and our subscribers) are looking forward to next week’s results; we feel they will show us an answer to this question. In my analysis of larger economic and consumer trends, I see the divergence between consumers widening; those with jobs, incomes and above-water mortgages are returning to spending, those without are not, and may not, for years.
The idea that the first moment of truth happens in the home is important for marketers to get their heads around. It means that in order to influence the shopper in the store, campaigns will have to be considerably more strategic, targeted, and integrated into the shopping environment. Despite the fact that decisions are more often being made at home, the fact still remains that the store presents the greatest opportunity for advertising and promoting to shoppers. However, now promotions must be highly creative, profit the shopper with benefits and implemented precisely in order to create lift.
The point about taking “share of occasion” over share of wallet is a valuable strategy for the store that wants to maximize those advertising and promotions investments. Implementing an in-store communications program that is creative and cohesive throughout the store around an occasion (Independence Day), Easter, Back to School) makes shopping easier for the consumer and builds a connection to the shopper’s life. These kinds of insights and analysis are playing a bigger role in design than they have before.
There’s been a lot presented and written about the new “consumer” and that things have changed. Yes, of course they have, but….
To speak of the new/different “consumer” is akin to saying that there is a plethora of insights and the next frontier is foresights: there is no single consumer and there are minimal insights today that really matter when talking about consumers (note: plural).
The key, now more than ever (and this is indeed nothing new) is understanding customers. The mixed economic signals of a Dow at highs and home sales declining is indicative of people who have jobs, people who have good jobs and people who have neither. They are all creating supply on the housing market which mutes sales. But the people who have good jobs are spending money, even if they are–in some cases only–more frugal.
Sweeping generalizations about things being different this time (think dot-com, cheap and easy mortgages/spiraling housing market and the ensuing great recession) are inevitably wrong, at least for many, if not all who benefit and/or get hurt from such assumptions.
Dr. Wadhwani makes several interesting and useful points, some of which I question (e.g., has the universe really shifted to in-home decision-making?…maybe more people have, but it is highly unlikely a wholesale shift has been made from in-store decisions to in-home decisions) and some of which are ‘laws of nature’ (e.g., focusing on consumers and shoppers vs. brands and categories).
Marketing effectively has always been difficult since (1) it requires peering into the future and accurately predicting, and (2) marketers tend to group consumers to allow for analysis (e.g., into ‘markets’, ‘demographics’, ‘categories’, or some other groups). This second issue, while understandable, inhibits the first. Reason: ‘markets’ don’t make decisions, nor do ‘demographic groups’ or ‘categories’…individual consumers are the only ones who make decisions and act.
Looking at trends (i.e., ‘in the mirror’ work) is essential, as is projecting from those trends. But the moment one groups consumers for analysis is the moment one adds a potentially dangerous variable to the ability to accurately interpret what one sees.
I find it ironic that Dr. Wadhwani sees ‘targeted marketing getting down to the individual household level’…yet another ‘grouping’ of consumers. Or, if that’s too tough, “at the very least down to a very small cluster of homes,” still another grouping. What is ‘right’ for an individual consumer at a specific point in time is not necessarily ‘right’ for the household and is hardly likely to be ‘right’ for a neighborhood.
We are all still at the ‘blunt instrument’ stage within the evolution of marketing. Re-categorizing the world for the so-called ‘new reality’ may make us all feel better, as though we’re all now on the ‘cutting edge’ but the truth of the matter is that until we can market down to the individual consumer level, we’re still in the stone age. And today, only Shopper Marketing provides us some promise of advancing beyond neanderthals.
While we have seen signs that the recession of 2008/2009 is over, savvy retailers and consumer products manufacturers have been positioning their businesses for a new marketplace. And this is not just a post-recession marketplace. Some of the consumer shopping characteristics were born long before the recession and are becoming more common today.
For example, the frugality trend among affluent consumers. This has been around for some time. All one has to do is look at the customers who do business with Costco. Another example is the growing number of consumers who are rejecting throw-away products and prefer to buy quality products that last.
Smart marketers will pay close attention to these consumer characteristics and take steps to serve these consumers.
It is ironic that virtually every retail business I know spends copious amounts of time and money paying people to analyze what already happened in the business. From sales analysis, to shopper feedback, we’re quite adept at analyzing the past and using legions of staff to do it.
When it comes to getting a hold on the future, the resources dwindle. For many companies, future analysis comes down to trusting the 3-5 year projections of their business units with precious little outside intelligence. The result is often thin and flawed strategy.
When you couple this with the current speed of change and major shifts in the marketplace, it could be the demise of many.
It’s imperative to measure results but it’s equally critical to develop an articulated view of the future.
For most of the country, the recession is far from over. In fact, is is getting worse because around here, people have given up looking for work, and their unemployment benefits keep getting extended; i.e. why work, when you can get a check for sitting at home?
Value pricing is critical, especially in our perishables, if we even have a chance for decent profitability for 2010. After the first two weeks of the month, the falloff in business is worse than in any previous year, so extreme values are needed for the remaining two weeks to keep anyone coming through the door. After this healthcare vote, many of the small businesses I talk to are not hiring for the foreseeable future. It is going to be a long while before anything positive shakes out in our area.