Growing in a slow-growth marketplace

J Walker Smith writes:

It’s dangerous to take the news of late at face value.  While a Greek deal appears to be in place and the Council of Economic Advisors, headed by Alan Krueger, is opining that the US recovery is stronger and faster than expected, there is some way to go.

To put it bluntly, the developed West is in for a long slog. Slow growth is the new normal for Western developed economies.

The implications of this slow-growth West for brand marketers and business strategists are explored in our latest Future Perspective, Quickening the Pace.  For most business leaders, it’s a new situation. They came of age during the ‘Great Moderation’, a period of relative stability, greater predictability and virtually uninterrupted growth.  What marketers and strategists learned as they began their careers offers little guidance for the marketplace they face today.

The Great Recession has left the marketplace smaller and more polarized than ever.  Consumer confidence has reset at a lower baseline and frustration and anger have boiled over into the street.  Every corner of the world is on edge about the trade implications of weak, stagnant demand in the developed West.

There are still growth opportunities for smart companies. But only the smart companies will grow, for there is no longer a rising tide to lift all boats.  Quickening the Pace reviews seven ways in which brands can revive their value propositions for economically challenged consumers.  Three are worth special mention.

First, consumer reference points have changed from high to low.  Aspiration now seems risky, even out of reach. Worse, the prospect of losing it all seems closer than ever. As a result, consumers no longer compare themselves to those with more; instead, they worry about winding up like those with less.

Surrounded by so many who have hit the bottom, consumers are worried that they might wind up there themselves.  So rather than being attracted by those with more, consumers now live in fear over those with less.  While this is different for brands, it is not impossible for brands able to take the risk out of buying.

Second, debt has become a more important marker of financial well-being than income.  It is a better targeting criterion.  It is a more predictive of spending.  It is more strongly correlated with confidence.  The overhang of debt is keeping consumer spending in check, so contrary to conventional wisdom, growth opportunities are to be found by analyzing what people owe, not what they earn.

Finally, lifestage assumptions are being turned on their head.  The traditional focus of marketers on young people and their lifestage transitions has been undercut.  A suffocating job market has kept younger consumers from even getting started.

But the same economy that has made young people less attractive to marketers has made older consumers more attractive.  Battered by economic losses, many older consumers have changed their retirement plans and are planning now to work longer, which will extend their peak consumption years.  Marketers will have to change, too.

The brands which lrearn these new rules – and adapt to them – could have breakout success.  Not every ship is grounded by an ebbing tide. Some brands will find the enduring pockets of dynamic spending potential.  There is less spending to go around, and not all brands will succeed. The battle for share will go to the savviest, those best able to take advantage of the principles for success in a slow-growth West discussed in Quickening the Pace.

The image at the top of the post is from 123RF.com, and is used with thanks. Quickening the pace, and another economics report, The future of the eurozone, also published this week, can be downloaded from our website.

Beyond the eurozone crisis

Andrew Curry and Matthew Lynn write:

As the Greek financial crisis plays out on the streets and in the council chambers of Europe, it’s hard to look beyond the day-to-day drama to the longer term. But that’s what we’ve tried to do in our new Future Perspectives report, which we have published this week. And the results are surprising. The crisis will end, because ecomnomies don’t continue is a state of permanent crisis. To do that, Germany will have to export less, and the peripheral economies will have to export more – and there’s a lot of opportunity in that economic re-balancing.

The report has developed five scenarios for the future of the eurozone, ranging from its survival in its present form to a return to national currencies. From this it forecasts three big changes, looking out to 2020.

One: New powerhouses will emerge. Italy will be one of the big winners of the pos-euro crisis economy, just as it was in the ‘dolce vita’ economy of post-war Europe. If it leaves the euro, it will renege on its debts, and massively devalue. That will massively boost the economy, enabling it to rapidly catch-up with its more prosperous Northern neighbours. Meanwhile, countries such as Poland – with big populations, low debts, and strong growth – will emerge as the powerhouses of Europe.

Two: Germany will have become a consumer society – and rely less on exports. That will mean boosting retail and leisure spending, property development, and industries such as financial services, where it has not been very innovative. Paradoxically, while the UK is trying to re-balance its economy to become more like Germany, Germany will need to become more like the UK.

Three: There will be huge opportunities for companies that read these trends right. New markets will open up in Germany as retail, leisure and property grow – all areas where domestic German companies are not very strong. In Spain, youth unemployment will come down dramatically, meaning that young people will start spending. In Italy, a growing economy will see a huge rise in female participation in the workforce – changing the shape of consumer demand. We’ve done some analysis of the impact of that change on the Italian economy, and reckon that it’s worth around €48 billion a year – or 3% of Italian GDP.

Four: Europe’s banks will be the big losers. Debt will be written off, sooner or later, and as a result, most will end up in public control.

In short, businesses will have to redraw their mental maps of what the European economies look like, and where the opportunities will be found.

Andrew Curry is a Director of the Futures Company in London, Matthew Lynn runs Strategy Economics. The report, The future of the eurozone, is published as part of The Futures Company’s thought leadership programme, Future Perspectives. We are also publishing this week a report on doing business in slow-growth economies, called Quickening the pace, which will also be available from the website.  The picture at the top of tjhis post is published by Wikimedia Commons.

The case against austerity

J. Walker Smith writes:

We’ve been having something of an economics-themed month at The Futures Company, with client presentations about recession hit consumers in the UK and the US, and Future Perspectives reports on doing business in slow-growth economies and the business opportunities in Europe after the eurozone crisis.

So it was useful when I was in London recently to catch Will Hutton, recently installed as Principal of Hertford College, Oxford, give his take on the economic prospects for the UK in 2012 at an event hosted by the HMRC.

It’s hard to summarize quite a rich talk, but some points shone through:

• The UK is living through a once-in-80-year economic event, but this isn’t reflected in the scale or urgency of the political or policy response.
• UK GDP is still 4% below where it was in 2008, and won’t regain that until 2014, on government figures. But this is a problem of demand deficiency, not a systemic market problem. (The importance of this idea is all about political narrative. If demand is the problem, the wisdom of austerity is in doubt.)
• The level of private debt is enormous (320% of GDP), but debt service levels are low, by any historic standards. But cutting the debt aggressively (the current policy preoccupation) risks creating a Japan-style lost decade and a half.

If that’s the bad news, what should be done?

Hutton has quite a long list of suggestions, but two caught my particular attention. The first is the reinvention of fairness. This involves bringing down the ratio of top pay to median pay, and making sure that bonuses aren’t a one-way bet, as they are present. He’s proposed an ‘earnback’ scheme, under which executives put some of their salary at risk in case of under-performance. Unsurprisingly, not one single FTSE-100 is in favor. Hutton had an earnback clause written into his contract when he joined Hertford College.

The other big story is about innovation. Governments can’t pick winners, but they can create ecologies that help particular sectors to evolve. The catch is that these innovation ecologies need public investment – especially in research institutes and skills development. The German network of Fraunhofer Institutes is the benchmark, and, of course, they’ve spent billions developing them over decades. But that doesn’t mean that it’s too late to start. The wide range of emerging ‘general purpose technologies‘ means that there is quite a lot of competitive space to play for. But it does need some political will.

The Future Perspectives reports on the eurozone and slow-growth economies were published this week. They’re available, free, for download from the website. The picture of Will Hutton is from Wikimedia Commons, and is used with thanks.

Library futures

Andrew Curry and Victoria Ward write:

Last week Francine Houben of Mecanoo Architecten talked about their design of Birmingham’s future library as a “living room for the city”. More than just storage, a dynamic space for movement, openness and exchange. In a blog she calls libraries “the cathedrals of our millennia”, which seemed a useful precursor to Saturday’s National Libraries Day

The future of the library is, in some ways, a paradox. So many long term trends are running against it that it is easy to assume that is an anachronism of the 19th and 20th centuries. Such trends include the rise of digital technologies, and the accompanying rise of audio-visual culture; the long wave of individualism since the late 1960s; the shift from public provision to personal provision; the pressures on public expenditure; the emergence of the e-book and the digitisation of books generally. It seems only a matter of time before the library withers away.

But look again, and some other, emerging, trends come into focus. Rising oil prices and greater work flexibility increase the value of the local; the rise of digital rights management fuels campaigns around openness; the number of books published every year continues to rise; issues of access and equity – and affordability – come into sharper focus as one austere year rolls into another; the relationship between the tangible and the digital object becomes increasingly complex; new attitudes to ownership (using, not having) make the library appear as a pioneer.

Look again, and you can start to think that if libraries did not exist, it would be necessary to invent them. But what sort of library would we invent?

The new 5Ps of marketing

Fran Walton writes:

Earlier this week, we presented our latest research on the post-recessiom UK consumer, Feeling The Pinch 6, to clients in London. The overall message is one of gloom: 43% of consumers think the UK economy will get worse in 2012, and 46% plan to spend less. But that doesn’t mean that there’s nothing that brands can do.

So here are our new 5Ps for marketers:

1. Protection. How can you reduce the risks of purchase, or  help consumers manage risk in other parts of their lives? 63% of consumers now agree, ‘ I find myself thinking twice before making even the smallest purchase’. An interesting example is the German peer-to-peer insurance company, Friendsurance, which reduces insurance costs (and fraudulent claims) by letting people create groups of 15 people to help cover an insurance claim.
2. Practical. How can you empower people and help them to be self-reliant? 58% of UK consumers agree that ‘Since the recession I feel a greater need to be as self-sufficient as possible’. One response, from the Spanish food company Gallina Blanca: if you send them a a list of the ingredients you happen to have at home, they’ll suggest a recipe.
3. Purpose. How can you help consumers make new connections or make living with less a positive experience? 53% of UK consumers now agree that ‘since the recession I have learnt how many things I can do without and still be happy’. Sainsbury’s ‘living well for less’ campaign captures this well. It’s not just about the food. It also means making the most of the good things in life, sharing moments or maybe cooking memorable meals together. And without paying the earth.
4. Permission. How can you help consumers feel like they are achieving something worthwhile? Perhaps depressingly, 53% agree that ‘some of the goals I had before the recession are now probably out of reach’. Say it ain’t so! The French business Onefeat has a model where you set some goals, or ‘missions’, and get support from your friends to help you achieve them.
5. Pride. How can you help people take pride in small things or help people to be proud to be part of their community? In our qual research for Feeling The Pinch 6, one of our respondents observed that ‘the value of working with your hands seems to have been forgotten about’, also a theme of Matthew Crawford’s surprise best-seller. Transform Your Patch, launched in January. in which Pepsico and Britvic have teamed up with the charity Groundwork, is an ambitious scheme to create new parks and playgrounds and football pitches from waste land across the UK.

Of course, a lot of these are small things, but one of the lessons of the recession is that small things matter. The other lesson is that it’s more important than ever to be able to stand in the shoes of your customers and see the world through their eyes.

The picture at the top of this post is from the Swedish co-operative Lantmannen, which has a scheme which pairs singles to share leftover food. It is used with thanks. To find out more about Feeling The Pinch, and our research on consumer attitudes to the economy in Britain and Ireland, please contact Fran Walton.