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Consumers Get Serious Amid Fears That the Global Economy Is Set to Worsen, but China Offers a Glimmer of Hope to the Companies in Weak Consumption Says a New Report by The Boston Consulting Group

BCG Suggests Eight Winning Strategies to Help Companies Win Cautious and Rational Consumers Through the Downturn

BEIJING, June 3, 2009—A massive slump in the confidence of consumers in the United States, Europe, and Japan is sparking a new type of constrained, self-conscious spending that is poised to have a transformational impact on high streets and main streets, according to a new report published today by The Boston Consulting Group (BCG).

In Winning Consumers Through the Downturn: 2009 BCG Global Report on Consumer Sentiment, which features a survey of 21,800 consumers around the world, BCG found that the proportion of U.S. consumers who said the economy would get worse over the next 12 months more than doubled in the period between October 2008 and March 2009—from 24 percent to 56 percent. An even higher proportion of European consumers—some 60 percent—said they feared the economy would worsen over the next 12 months.

The follow-on effect of this plummeting confidence—which by some measures has reached historic lows in the United States, Spain, and Japan—is a discernible change in consumer behavior: the frivolous impulse purchase is out, belt-tightening frugality is in. "Shopping has become an exercise in homework, focus, patience, and legwork," said Michael J. Silverstein, a Chicago-based senior partner and coauthor of the report. "Consumers are cutting back on spending by deferring nonessential purchases, buying products at promotional prices, and shopping around to find the best prices."

It is not all doom and gloom, however. While China is not immune to the global economic downturn, it remains as a bright spot. Chinese consumers remain comparatively optimistic, and they are confident overall about the economy in mid/long term. Only 23 percent of Chinese consumers said they think the economy will worsen over the next 12 months. 75 percent of Chinese consumers plan to maintain or increase spending during next year; nearly double or triple US and EU rates. Among all the surveyed countries, China is the only one where trading up still beats trading down. However, trading down is on the rise, and increased 8 percentage points between March 2007 and January 2009, whereas trading up dropped 10 percentage points. Chinese consumers will be more cautious, "bargain hunting" is on the rise and “search for value” is real.

In the current market, consumer sentiments and trade up patterns vary across consumer segments and product categories. Therefore, companies need to de-average market segments and target consumers, and profitably target bright spots of demand. Demand for brands is high in Chinese market and power of brand is far more pronounced in China than in most other countries. Those people who can afford upscale offerings are not decreasing significantly. They just become more cautious in spending, and most people will observe which products would be worth paying. Chinese consumers tend to be more rational. Those consumer companies that can give consumers reasonable causes will win consumers, even in the downturn. As the head of The Boston Consulting Group's Centre fro Consumer Insight in Asia, the firm's partner and coauthor Ms. Carol Liao said, "The truth is that some consumer segments are still spending and willing to trade up in the categories they value most—the key is to offer consumers stronger worthwhile reasons."

BCG Suggests Eight Winning Strategies to Help Companies Win Cautious and Rational Consumers Through the Downturn

BCG has concluded a number of best practices and advises companies to take actions from eight aspects, in order to fight back against sluggish sales and win consumers through the downturn.

Get your house in order. Inaction is the riskiest response to the uncertainties of an economic crisis. But before going after the recession’s opportunities, you must minimize your vulnerabilities. That means taking bold action on cash and costs. Deeper actions are required to free up resources and fund consumer-driven investments.

Think value, value, value. Understand how consumers are feeling today and how your brands can give them what they really want (and are willing to pay for). They are becoming more discerning and increasingly intolerant of nonessential add-on features. Hyundai, the South Korea-based automaker, plans to promise U.S. customers that it will cover three months of new-car payments if they lose their job—a strategy known as "altruism marketing."

Leverage brand strength. Brands are assets, and they can be anchors in a chaotic world. Consider refreshing an iconic brand. Wal-Mart, the U.S. retailer, is relaunching its already successful Great Value private-label in a bid to help customers save money and live better.

De-average to find pockets of opportunity. There are still bright spots of demand: seek them out.

Innovate for the rebound as well as the downturn. It is tempting to stop developing new products until the recession is over. But if you do not continue to invest in product development, you risk missing opportunities when the economy recovers.

Customize the go-to-market playbook. Companies must tailor their marketing strategies to defend high margin businesses against private label; reallocate marketing to most sensitive brands; streamline product portfolios; and think multichannel.

Be a predator instead of the prey. Seize opportunities to capitalize on market turmoil and win share while competitors are stumbling.

Rethink the business model and develop alternative scenarios. Smart companies looking to prepare for a highly uncertain future should start thinking now about the various scenarios that could play out in their sectors and anticipate the skills and assets that will be required to win in different circumstances.

Methodology

The BCG Consumer Sentiment Survey that underpins this report took place between October 2008 and February 2009. The countries surveyed were Brazil, China, India, Japan, Mexico, Russia, the United States, and five countries in Western Europe—France, Germany, Italy, Spain, and the United Kingdom. For global comparison, all data were income adjusted on the basis of country-specific real-income distribution. After income adjustments, approximately 13,800 consumers were surveyed. In March 2009, the BCG Consumer Sentiment Barometer surveyed approximately 8,000 additional consumers in Canada, Japan, the United States, and the five European countries. Consumers were asked about a total of 19 product groups covering more than 150 product categories.

To receive a copy of the report or arrange an interview with one of the authors, please contact Ms. Gu Li at +86 21 2306 4000 or gu.li@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more information, please visit www.bcg.com.