John Gerzema: The post-crisis consumer
August 20, 2009
John Gerzema says there's an upside to the recent financial crisis -- the opportunity for positive change. In this talk, he identifies four major cultural shifts driving new consumer behavior and shows how businesses are evolving to connect with thoughtful spending.John Gerzema
- Marketing whiz
John Gerzema uses data, analysis and decades of experience to identify trends and develop daring new approaches to advertising. Full bio
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Thirteen trillion dollars in wealth
has evaporated over the course of the last two years.
We've questioned the future of capitalism.
We've questioned the financial industry.
We've looked at our government oversight.
We've questioned where we're going.
And yet, at the same time, this very well may be
a seminal moment in American history,
an opportunity for the consumer
to actually take control and guide us
to a new trajectory in America.
I'm calling this The Great Unwind.
And the idea is a simple, simple idea,
which is the fact that the consumer
has moved from a state of anxiety to action.
Consumers who represent 72 percent
of the GDP of America have actually started,
just like banks and just like businesses,
to de-leverage, to unwind their leverage,
in daily life, to remove themselves
from the liability and risk
that presents itself as we move forward.
So, to understand this -- and I'm going to stress this --
it's not about the consumer being in retreat.
The consumer is empowered.
In order to understand this, we're going to step back and look
a little bit at what's happened over the course of the last year and a half.
So, if you've been gone, this is the easy CliffsNotes
on what's happened in the economy. Okay?
Unemployment up. Housing values down. Equity markets down.
Commodity prices are like this.
If you're a mom trying to manage a budget,
and oil was 150 dollars a barrel last summer,
and it's somewhere between 50 and 70,
do you plan vacations? How do you buy?
What is your strategy in your household?
Will the bailout work? We have national debt, Detroit,
currency valuations, healthcare, all these issues facing us.
You put them all together, you mix them up in a bouillabaisse,
and you have consumer confidence that's basically a ticking time-bomb.
In fact, let's go back and look at what caused this crisis,
because the consumer, all of us, in our daily lives,
actually contributed a large part to the problem.
This is something I call the 50-20 paradox.
It took us 50 years
to reach annual savings ratings
of almost 10 percent. 50 years.
Do you know what this was right here?
This was World War II. Do you know why savings was so high?
There was nothing to buy, unless you wanted to buy some rivets. Right?
So, what happened though, over the course of the last 20 years --
we went from a 10 percent savings rate to a negative savings rate.
Because we binged. We bought extra-large cars,
supersized everything, we bought remedies for restless leg syndrome.
All these things together basically created
a factor where the consumer sort of drove us
headlong into the crisis that we face today.
The personal debt-to-income ratio
basically went from 65 percent
to 135 percent in the span of about 15 years.
So consumers got overleveraged.
And of course our banks did as well, as did our federal government.
This is an absolutely staggering chart.
It shows leverage, trended out from 1919 to 2009.
And what you end up seeing is the whole phenomenon
of the fact that we are actually
stepping forth and basically leveraging
future education, future children in our households.
So if you look at this in the context of visualizing the bailout,
what you can see is if you stack up dollar bills,
first of all, 360,000 dollars
is about the size of a five-foot-four guy.
But if you stack it up, you just see this amazing, staggering amount of
dollars that have been put into the system
to fund and bail us out.
So this is the first 315 billion.
But I read this fact the other day, that one trillion seconds
equals 32 thousand years,
so if you think about that, the context, the casualness
with which we talk about trillion-dollar bailout here, and trillion there,
we are stacking ourselves up for long-term leverage.
However, consumers have moved.
They are taking responsibility.
What we're seeing is an uptake in the savings rate.
In fact, 11 straight months of savings have happened
since the beginning of the crisis.
We are working our way back up to that 10 percent.
Also, remarkably, in the fourth quarter,
spending dropped to its lowest level in 62 years,
almost a 3.7 percent decline.
Visa now reports that more people are using debit cards
than they're using credit cards.
So we're starting to pay for things with money that we have.
And we're starting to be much more careful
about how we save and how we invest.
But that's not really the whole story.
Because this has also been a dramatic time of transformation.
And you've got to admit, over the course of the last year and a half,
consumers have been doing some pretty weird things.
It's been pretty staggering, what we've lived through.
If you take into account 80 percent of all Americans
were born after World War II,
this is essentially our Depression.
And so, as a result, some crazy things have happened.
I'll give you some examples. Lets talk about dentists,
vasectomies, guns and shark attacks. Okay?
Dentists report molars,
you know, people grinding their teeth, coming in
and reporting the fact that they've had stress.
And so there is an increase in people having to have their fillings replaced.
Guns, gun sales, according to the FBI,
who does background checks, are up almost 25 percent since January.
Vasectomies are up 48 percent,
according to the Cornell institute.
And lastly, but a very good point,
hopefully not related to the former point I just made,
which is that shark attacks are at their lowest level from 2003.
Does anybody know why?
No one is at the beach. So there is a bright side to everything.
But seriously, what we see happening,
and the reason I want to stress that the consumer is not in retreat,
is that this is a tremendous opportunity
for the consumer who drove us into this recession
to lead us right back out.
And what I mean by that is that we can move from mindless consumption
to mindful consumption. Right?
If you think about the last three decades,
the consumer has moved from savvy about marketing in the '90s,
to gathering all these amazing social and search tools in this decade,
but the one thing that has been holding them back is the ability to discriminate.
By restricting their demand, consumers can actually
align their values with their spending,
and drive capitalism and business
to not just be about more, but be about better.
We're going to explain that right now.
Based on Y&R's BrandAsset Valuator,
proprietary tool of VML and Young & Rubicam,
we set out to understand what's been happening in the crisis
with the consumer marketplace.
We found a couple of really interesting things.
We're going to go through four value-shifts that we see
driving new consumer behaviors,
that offer new management principles.
The first cultural value shift that we see is this tendency
toward something we call liquid life.
This is the movement from Americans defining their success
on having things to having liquidity,
because the less excess that you have around you,
the more nimble and fleet of foot you are.
As a result, déclassé consumption is in.
Déclassé consumption is the whole idea that spending money
frivolously makes you look a little bit anti-fashion.
The management principle is dollars and cents.
So let's look at some examples of this déclassé
consumption that falls out of this value.
First things is we see something must be happening when
P. Diddy vows to tone down his bling.
But seriously, we also have this phenomenon
on Madison Avenue and in other places,
where people are actually walking out of luxury boutiques
with ordinary, sort of generic
paper bags to hide the brand purchases.
We see high-end haggling in fashion today.
High-end haggling for luxury and real estate.
We also see just a relaxing of ego,
and sort of a dismantling of artifice.
This is a story on the yacht club
that's all basically blue collar.
Blue-collar yacht club, where you can join the yacht club,
but you've got to work in the boat yard,
as sort of condition of membership.
We also see the trend toward
tourism that's a little bit more low key. Right?
Agritourism, going to vineyards and going to farms.
And then we also see this movement forward from dollars and cents.
What businesses can do to connect
with these new mindsets is really interesting.
A couple things that are kind of cool.
One is that Frito-Lay figured out this liquidity thing
with their consumer.
They found their consumer had more money at the beginning of the month,
less at the end of the month. So what they did
is they started to change their packaging.
Larger packs at the beginning of the month, smaller packaging
at the end of the month.
Really interestingly, too, was the San Francisco Giants.
They've just instituted dynamic pricing.
So it takes into account everything from the pitcher match-ups,
to the weather, to the team records,
in setting prices for the consumer.
Another quick example of these types of movements is
the rise of Zynga.
Zynga has risen on the consumer's desire
to not want to be locked in to fixed-cost.
Again, this theme is about variable cost, variable living.
So micropayments have become huge.
And lastly, some people are using Hulu
actually as a device to get rid of their cable bill.
So, really clever ideas there
that are kind of being taken ahold and marketers are starting to understand.
The second of the four values
is this movement toward ethics and fair play.
We see that play itself out with empathy and respect.
The consumer is demanding it.
And, as a result, businesses must provide
not only value, but values.
Increasingly, consumers are looking at the culture of the company,
looking for their conduct in the marketplace.
So, what we see with empathy and respect, lots of really hopeful things
that have come out of this recession.
And I'll give you a few examples.
One is the rise toward communities and neighborhoods,
and increased emphasis on your neighbors as your support system.
Also a wonderful byproduct of sort of a really lousy thing,
which has been unemployment, is a rise in
volunteerism that's been noted in our country.
We also see the phenomenon --
some of you may have "boomerang kids" --
these are "boomerang alumni,"
where universities are actually reconnecting with alumni
in helping them with jobs, sharing skills and retraining.
We also talked about character and professionalism.
We had this miracle on the Hudson in New York City, you know, in January,
and suddenly Sully has become a key name on Babycenter.
So, from a value and values standpoint,
what companies can do is connect in lots of different ways.
Microsoft is doing something wonderful.
They are actually vowing to retrain two million Americans with I.T. training,
using their existing infrastructure to do something good.
Also a really interesting company is Gore-Tex.
Gore-Tex is all about personal accountability
of their management and their employees,
to the point where they really kind of shun the idea of bosses.
But they also talk about the fact that
their executives, all of their expense reports
are put onto their company intranet for everyone to see.
Think twice before you have that bottle of wine.
The third of the four laws of post-crisis consumerism
is about durable living.
We're seeing on our data that consumers are realizing
this is a marathon, not a sprint.
They are digging in. And they're looking for ways to extract value
out of every purchase that they make.
Witness the fact that Americans are holding on to their cars
longer than ever before,
9.4 years on average, in March. A record.
We also see the fact that libraries have become
a huge resource for America.
Did you know that 68 percent of Americans
now carry a library card?
The highest percentage ever in our nation's history.
So what you see in this trend is also
the accumulation of knowledge.
Continuing education is up.
Everything is focused on betterment, and training,
and development and moving forward.
We also see a big DIY movement.
I was fascinated to learn that 30 percent
of all homes in America are actually built by owners.
That includes cottages and the like. But 30 percent.
So, people are getting their hands dirty. They are rolling up their sleeves.
They want these skills.
We see that with the phenomenon of raising backyard
hens and chickens and ducks. And when you work out the math,
they say it doesn't work, but the principle is there
that it's about being sustainable and taking care of yourself.
And then we look at the High Line in New York City,
an excellent use of reimagining
existing infrastructure for something good, which is
a brand new park in New York City.
So, what brands can do, and companies,
is pay dividends to consumers,
be a brand that lasts,
offer transparency, promise you're going to be there beyond today's sale.
Perfect example of that is Patagonia.
Patagonia's Footprint Chronicles basically
goes through and tracks every product that they make,
and gives you social responsibility,
and helps you understand the ethics
that are behind the product that they make.
Another great example is Fidelity.
Rather than instant cash-back rewards on your credit or debit purchases,
this is about 529 rewards
for your student education.
Or the interesting company SunRun.
I love this company. They've created a consumer collective
where they put solar panels on households
and create a consumer-based utility,
where the electricity that they generate is basically
pumped back out into the marketplace.
So, it's a consumer driven co-op.
So, the fourth sort of post-crisis consumerism that we see
is this movement about return to the fold.
It's incredibly important right now.
Trust is not parceled out, as we all know.
It's now about connecting to your communities,
connecting to your social networks.
In my book I talked about the fact that 72 percent
of people trust what other people say
about a brand or a company, versus 15 percent on advertising.
So, in that respect,
cooperative consumerism has really taken off.
This is about consumers working together
to get what they want out of the marketplace.
Let's look at a couple of quick examples.
The artisanal movement is huge.
Everything about locally derived products and services,
supporting your local neighborhoods,
whether it's cheeses, wines and other products.
Also this rise of local currencies.
Realizing that it's difficult to get loans in this environment,
you're doing business with people you trust,
in your local markets.
So, this rise of this sort of local currency
is another really interesting phenomenon.
And then they did a recent report
I thought was fascinating.
They actually started, in certain communities in the United States,
start to publish people's electricity usage.
And what they found out is when that was available for public record,
the people's electricity usage in those communities dropped.
Then we also look at the idea of cow-pooling,
which is the whole phenomenon of consumers
to buy meat from organic farms
that they know is safe and controlled in the way that they want it to be controlled.
And then there is this other really interesting movement
that's happened in California, which is about carrot mobs.
The traditional thing would be to boycott right?
Have a stick? Well why not have a carrot?
So these are consumers organizing, pooling their resources
to incentify companies to do good.
And then we look at what companies can do.
This is all the opportunity about being a community organizer.
You have to realize that you can't fight and control this.
You actually need to organize it.
You need to harness it. You need to give it meaning.
And there is lots of really interesting examples here
that we see.
First is just the rise of the fact that
Zagat's has actually moved out of
and diversified from rating restaurants,
into actually rating healthcare.
So what credentials does Zagat's have?
Well, they have a lot, because it's their network of people. Right?
So that becomes a very powerful force for them
to make their brand more elastic.
Then you look at the phenomenon of Kogi.
This Kogi doesn't exist. It's a moving truck. Right?
It's a moving truck through L.A., and the only way you can find it
is through Twitter.
Or you look at Johnson & Johnson's Momversations.
A phenomenal blog that's been built up.
Where J&J basically is tapping into
the power of mommy bloggers,
allowing them to basically create a forum
where they can communicate and they can connect.
And it's also become a very, very valuable
sort of advertising revenue for J&J as well.
This plus the fact that you've got
phenomenal work from CEOs
from Ford to Zappos, connecting on Twitter,
creating an open environment,
allowing their employees to be part of the process,
rather than hidden behind walls.
You see this rising force in sort of
total transparency and openness that companies are starting to adopt,
all because the consumer is demanding it.
So, when we look at this and we step back,
what I believe is that the crisis that exists today
is definitely real.
It's been tremendously powerful for consumers.
But, at the same time, this is also a tremendous opportunity.
And the Chinese character for crisis
is actually the same side of the same coin.
Crisis equals opportunity.
What we're seeing with consumers right now
is the ability for them to actually
lead us forward out of this recession.
So, we believe that values-driven spending
will force capitalism to be better.
It will drive innovation.
It will make longer-lasting products. It will
create better, more intuitive customer service.
It will give us the opportunity to connect with companies
that share the values that we share.
So, when we look back and step out at this
and see the beginning of these trends
that we're seeing in our data,
we see a very hopeful picture for the future of America.
Thank you very much.
- Marketing whiz
John Gerzema uses data, analysis and decades of experience to identify trends and develop daring new approaches to advertising. Why you should listen
John Gerzema has spent his career creating and guiding the brand strategies of many of our household names: McDonald's, BMW, Coca-Cola, United Airlines, Holiday Inn and more. Today, as Chief Insights Officer for marketing giant Young & Rubicam, he combines his expertise with the information reaped from Y&R's Brand Asset Valuator (an enormous database of brands) to understand and anticipate change in the intricate world of commerce.
Gerzema is co-author of The Brand Bubble, a new book that advocates change as the best strategy for brand management in today's market. This is not his first avant-garde move either -- he was one of the early adopters of account planning in American advertising, a method that places the consumer front and center in the branding process. After speaking at TEDxKC, Gerzema penned a second book called Spend Shift based on the premises of his talk on the changing habits of the post-crisis consumer.
The original video is available on TED.com