bcg winning consumers through downturn apr 2009

Winning Consumers Through the Downturn2009 BCG Global Report on Consumer Sentiment

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The Boston Consulting Group (BCG) is a global manage-ment consulting fi rm 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 in-sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet-itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offi ces in 38 countries. For more infor-mation, please visit www.bcg.com.

This report is a product of The Boston Consulting Group’s Consumer practice and its Center for Consumer Insight (CCI), which provides world-class consumer-insight capa-bilities to the fi rm’s clients. Established by the Consumer practice and the Marketing and Sales practice, the CCI leads BCG’s proprietary research for publications on consumer trends and purchasing patterns.

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4/09


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Catherine Roche

Michael J. Silverstein

Patrick Ducasse

Natalia Charpilo

April 2009

© The Boston Consulting Group, Inc. 2009. All rights reserved.

For information or permission to reprint, please contact BCG at:E-mail: [email protected]: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA

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Contents

Preface 4

Executive Summary 6

No Ordinary Recession for Consumers 8High Anxiety Fuels a Vicious Cycle 8Business Takes It on the Chin 8

Uncertainty Drives New Sentiments and Spending Behaviors 11Trading Down Comes on Strong 11New Ways of Coping 11

What, Where, and Who: De-averaging Required 16Category Differences 16Emerging Markets: A Few Bright Spots, for Now 20Developed Markets: Trading Down Rises as Trading Up Comes Under Pressure 29No Two Segments Are Alike 33

Eight Winning Strategies for Hard Times 37Get Your House in Order 37Think Value, Value, Value 37Leverage Brand Strength 38De-average to Find Pockets of Opportunity 38Innovate for the Rebound as Well as the Downturn 40Customize the Go-to-Market Playbook 40Be a Predator Instead of the Prey 42Rethink the Business Model and Develop Alternative Scenarios 42

Appendix: Methodology and Product Categories Covered in the BCG Consumer Sentiment Survey 43

For Further Reading 45

Note to the Reader 47

T B C G

Preface

For several years, The Boston Consulting Group has been tracking an important phenomenon in consumer sentiment and spending—a pat-tern that we call trading up and trading down. We continue to track this behavior as a van-

tage point for understanding consumers during the cur-rent economic cycle.

There is no doubt that the global recession has radically changed how consumers approach spending, saving, debt, and long-term investing. The great objective is to fi nd the best value at the lowest price. The intensity of this focus on value is reverberating around the world, putting enor-mous pressure on retailers and their suppliers. Yet the shi in consumer behavior has also introduced new op-portunities for smart companies to gain share in both de-veloped and developing markets.

This special report on how consumers are reacting to the economic crisis uses BCG’s own research to capture overall trends around the world as well as in specifi c countries. Our seventh annual consumer survey, which began in October 2008 and extended into February 2009, covered Japan, the United States, and Western Europe—developed economies that we have studied for years—as well as the developing economies of Brazil, China, India, Mexico, and Russia.1 In all, we surveyed some 13,800 consumers on a total of 19 product groups covering 150 to 170 product categories. Then, in March—when the cri-sis was just beginning to spike—we went back to refresh our data with snapshots of the developed markets, in-cluding Canada. This survey yielded an additional data-base of just over 8,000 consumers.

Together, our readings of the pulse of the world’s markets over the past six months provide a dynamic picture of

what consumer sentiment has been like and where it is trending as the downturn marches on. We asked consum-ers to describe their attitudes toward spending, environ-mental issues, and life in general. We also asked them whether, when, and why they might consider trading up in the current economy, how they feel about trading down, and what emotional satisfaction they gain from buying goods and services.

As consumers steel themselves for a potentially lengthy global recession, concerns about their sentiments have taken on a new urgency. How can companies win them over in such turbulent and uncertain times? Our fi ndings will help companies begin to answer some of these criti-cal questions:

How is the economic crisis aff ecting consumer behav-◊ ior around the world?

What impact will it have on consumer product and ◊ service categories in 2009 and beyond?

Is this the end of trading up and the lucrative luxury ◊ and “masstige” sectors?

Are there opportunities for diff erentiated products in ◊ the middle market for consumers who downshi from trading up?

Will consumers continue to buy green products during ◊ the downturn?

1. Our survey in Western Europe included consumers in Denmark, Finland, Norway, and Sweden. In this report, however, survey re-sults from France, Germany, Italy, Spain, and the United Kingdom, weighted by population, are reported as a summary for Europe.

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For how long will emerging markets, such as China ◊ and India, continue to off er opportunities that have disappeared elsewhere?

What will it take to win in a trading-down market? ◊

How can consumers be encouraged to keep spending ◊ in particular categories and to choose one company’s products over another’s?

About the AuthorsCatherine Roche is a partner and managing director in the Düsseldorf office of The Boston Consulting Group; she can be reached at [email protected]. Michael J. Silverstein is a senior partner and manag-ing director in the fi rm’s Chicago offi ce and the former leader of the Consumer practice; he can be reached at [email protected]. Patrick Ducasse is a se-nior partner and managing director in BCG’s Paris offi ce and the leader of the Consumer practice; he can be reached at [email protected]. Natalia Charpilo is a project leader in the fi rm’s Munich offi ce; she can be reached at [email protected].

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Consumers’ increasing anxiety is fueling a vicious cycle, with spending cuts mak-ing a deep recession a self-fulfilling prophecy.

In the past, consumers helped their country’s econo-◊ my by spending their way out of downturns. Today consumers are at the center of a global economy, but so far they have been unwilling (and are o en unable) to spend their way back to good times.

Most consumers are curtailing spending in anticipa-◊ tion of pain to come more than from real hardship, at least for now.

Anxiety about the economy has spread to every mar-◊ ket in the world—even to countries where the key eco-nomic indicators remain fairly positive and consumers have yet to experience signifi cantly negative eff ects from the downturn.

Infl ation has added to consumers’ fears and declining ◊ purchasing power in many markets, especially Brazil, India, Mexico, and Russia.

Stores everywhere are fi lled with crowds of shoppers ◊ who fail to buy. Discounts provide great value for consumers but low margins for both suppliers and retailers.

Uncertainty drives new emotions and behaviors as consumers adopt clever ways to cope.

Consumers are taking refuge from the economic storm ◊ by spending more time at home.

Women have become expert purchasing agents for ◊ their families, working actively to stretch the house-hold budget even further in tough times.

The trading-up and trading-down trends are still very ◊ much in play around the world—but with a massive shi in recent months toward trading down.

Trading down is increasingly the name of the game. ◊ Consumers’ expressed intention to trade down grew slowly from 2004 through 2007 in the United States and Europe, and 2008 saw the largest single-year in-crease across all regions.

The explosion in trading down is mostly at the ex-◊ pense of trading up (rather than at the expense of middle-market off erings), as consumers search out value at reduced prices in everything from tea to travel.

Frugal is the new chic and a back-to-basics sentiment ◊ has taken root—at least among consumers in Europe, Japan, and the United States.

Consumers are still spending in the categories that they love, but they need “permission” to indulge.

Taking care of oneself and one’s family remains an es-◊ pecially powerful emotional hook. For example, even jittery consumers will trade up for high-quality fresh foods.

Marketing messages can assuage buyer’s guilt by em-◊ phasizing superior quality, durability, and long-term savings, as well as the great pleasure that can come from small indulgences.

Executive Summary

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De-averaging is a must, since spending patterns vary by product category, geographic region, and consum-er segment.

Some categories, such as coff ee and tea, are proving to ◊ be relatively robust even in the downturn, whereas many luxury, masstige, and deferrable discretionary products are suff ering.

Although trading down is growing in most of the de-◊ veloped world, trading up is still strong in China and India.

Women in general are expert at hunting down value, ◊ whereas young singles, dual-income couples without kids (DINKs), and income-secure empty nesters are more likely to continue spending without giving as much thought to price.

From the fi ndings of our research and our experience working with companies serving consumers every-where, we’ve developed eight best practices for tap-ping into consumers’ evolving sentiments about spending and addressing their need for superior val-ue. Companies that implement these practices now will succeed through the downturn and come back stronger than ever. We advise companies to do the following.

Get their house in order by taking bold action on cash ◊ and costs in order to fuel consumer-driven invest-ments.

Focus intensively on value by gaining an understand-◊ ing of the ways in which consumers’ current emotions infl uence how they defi ne and shop for value and by getting rid of features that consumers don’t want and overdelivering on what matters to them most.

Leverage brand strength by supporting and refreshing ◊ iconic brands and repositioning others as eff ective val-ue brands.

De-average across categories, markets, and segments ◊ to fi nd pockets of opportunity.

Invest in innovation both in response to the downturn ◊ and in anticipation of the rebound.

Customize the go-to-market playbook by employing in-◊ telligent pricing techniques, reallocating support to sen-sitive brands, and streamlining the product portfolio.

Behave as predators instead of as prey by capturing ◊ talent, real estate, and other opportunities and assets that are freed up by market turbulence.

Rethink the business model and develop scenarios re-◊ garding capabilities that might be required to succeed in an uncertain future.

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In other recent recessions, consumers’ appetite for goods pulled the economy out of the doldrums. In the current recession, many consumers have put the brakes on spending in order to start saving. In the United States, unemployment has grown to

nearly 9 percent, housing prices have fallen approximate-ly 19 percent, and the equity markets have declined sharply. The losses may be mostly on paper so far, but the prospect of an actual loss of income has caused house-holds to cut back on discretionary purchases.

High Anxiety Fuels a Vicious Cycle

Anxiety about the economy has spread to every market in the world—even to countries where the key economic indicators remain fairly positive and consumers have yet to experience significantly negative effects from the downturn. For example, when we asked consumers in March 2009 whether they thought the economy would get even worse in the next 12 months, 56 percent of re-spondents in the United States agreed or strongly agreed—an increase of 24 percentage points from Octo-ber 2008. (See Exhibit 1.) In Europe, 60 percent of con-sumers felt the same way, an increase of 11 percentage points from 2008. The emerging economies presented a more diverse picture, with consumers in China being the least pessimistic about the next 12 months (only 23 per-cent thought things would get worse), while consumers in Russia and Mexico were the most pessimistic (59 percent and 50 percent, respectively).

Confi dence is plummeting worldwide—by some meas-ures to historic lows in Japan, Spain, and the United States. As many as 33 percent of employed respondents in the United States and 26 percent in Europe said they feel insecure about their jobs, and 53 percent of U.S. con-

sumers and 54 percent of Russians are worried about their fi nancial security as well. (See Exhibit 2.) The media plays a critical role in this dynamic by infl uencing con-sumers’ perceptions of the economy. The recent deluge of bad news has tended to drown out the good, but the messages and their intensity vary by country.

Because consumer spending is a function of perceived wealth as well as actual buying power, sharp declines are occurring across all income brackets. The newspapers are full of articles claiming that diff erences between younger consumers, accustomed to spending freely rather than saving, and previous generations shaped by the Second World War and the Great Depression are fading fast. The level of pessimism expressed by consumers in most of the markets we surveyed (China and India being notable ex-ceptions) is unprecedented and is bringing about major changes in the way people shop and in the choices that they make.

The consequences of a more conservative approach to spending are profound. Because consumers are central to a country’s economy, a serious cutback in consumption leads to slower economic growth—which, in turn, rein-forces consumers’ dwindling confi dence in the future.

Business Takes It on the Chin

Current market data show that manufacturers and retail-ers are feeling the pinch everywhere, albeit to varying de-grees. (See Exhibit 3.) The steep discounts that many re-tailers are off ering are providing great value for consumers but little margin for suppliers and retailers. U.S. retail sales fell faster in the fourth quarter of 2008 than in any quarter in the past 30 years, dropping from about −1 per-cent in September 2008 to −9 percent in January 2009.

No Ordinary Recession for Consumers

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“The economic situation is as bad as it will get; things will only get better.”

“The economy will get even worse in the next 12 months.”

“I don’t think the economy will improve, at least not for the next several years.”

Percentage point increase from October 2008 through March 2009

Percentage point decrease from October 2008 through March 2009

20

UnitedStates

Europe Japan Canada Brazil Russia India China Mexico

3211

27 3623

55 5643

56 60 5540 37

5940

23

50

34 3753

20 27 2614

2943

3

24

2 7

11

8

Respondents who agree or strongly agree (%)

Exhibit 1. Pessimistic Consumers Are Bracing for a Slow Recovery

Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009.

Very insecure (%)1 Somewhat insecure (%)1 I am in financial trouble (%) I am not financially secure (%)

Percentage point increase from February or October 2008 through February or March 2009

How secure do you feel yourcurrent job will be in 2009?

Which statement best characterizes yourfeelings about your personal financial situation?

UnitedStates

Europe

Japan

Canada

Brazil

Russia

India

China

Mexico

UnitedStates

Europe

Japan

Canada

Brazil

Russia

India

China

Mexico

19

7

14 33

26

27

14

19

43

6

20

31 47

12

11

54

39

36

46

44

53

6

12

Exhibit 2. Most Consumers Are Worried About Jobs and Finances

Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. 1Percentage of employed respondents only. Retirees, housewives, and the unemployed were excluded.

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Among U.S. retail giants, only major discounters, such as Wal-Mart and Costco, showed slight gains. In 2008, retail sales in parts of China, Europe, and Japan managed to hold up relatively well, but in the fi rst quarter of 2009 they showed signs of weakening in many markets. (For instance, retail sales in Germany in February 2009 were down 5 percent, year on year.)

The drop in consumer spending in the United States caused at least 45 major retailers and restaurant chains there to declare bankruptcy in 2008, including such long-standing companies as Circuit City and Sharper Image. Retailers in many markets are bracing for a much stron-ger impact from the downturn in 2009.

Several key industries, such as automotive, telecommuni-cations, and media, are expected to suff er declines in vol-ume in 2009. In the consumer goods sector, spending as-sociated with vacation travel and deferrable big-ticket items, such as automobiles, has been and continues to be especially hard-hit. However, private-label brands and discounters are gaining market share as consumers begin to see them in a more positive light.

The problems that consumers are facing in the current crisis are unusually severe, even if those problems are an-ticipated rather than actual for many, at least so far. As nervous consumers tighten their purse strings, they inad-vertently tighten their stranglehold on the global econo-my as well. Yet it is in such times that companies can take advantage of the opportunities that arise by innovating, exploring low-cost models, changing design specifi cations to radically lower costs, and achieving growth with prod-ucts that off er higher value.

2008 2009

China

18

Russia

4

Brazil

3

Canada

–5

United States

–6–9

Europe

0

Japan

–20

10

15

20

25

5

–10

–5

Year-on-year change in retail sales (%)

May June July August September October November December January

Mexico

Exhibit 3. The Economic Crisis Has Weakened Retail Sales in Many Markets

Sources: National boards of statistics; Thomson Datastream; BCG analysis.Note: Retail sales for Europe were calculated by averaging the sales indexes of France, Germany, Italy, Spain, and the United Kingdom, weighted by GDP.

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Consumers are at the center of the global economy but so far have been unwilling (and are o en unable) to spend their way back to better times. Instead they are devel-oping new behaviors to cope with the eco-

nomic crisis, especially when it comes to how they shop and spend.

Trading Down Comes on Strong

Trading up was a powerful trend in the fi rst half of this decade, and it continued to drive spending in emerging economies through 2008. But trading down has begun to pick up, especially in Europe and the United States. (See Exhibit 4.) It is now the prevailing inclination across all markets as consumers stretch their budgets. Through 2008 and into the fi rst quarter of 2009, year-on-year in-creases in consumers’ intention to trade down (and cor-responding declines in their intention to trade up) were the largest we have seen since we began tracking these trends. Furthermore, trading down is taking on a diff erent meaning than it had in the past.

Until recently, trading down was more about treasure hunting for bargains—the thrill of getting a good deal—than about making compromises out of necessity. And the market responded with a proliferation of products that performed well and were remarkably aff ordable. But over the past year, the desire to trade down has begun to stem from anxiety—anxiety about a deep and lasting re-cession and about future fi nancial constraints, job loss, and the prospect of being unable to care for one’s family.

Consumers are cutting back on spending by deferring nonessential purchases, buying products at promotional prices, and shopping around to fi nd the best deals. (See

Exhibit 5.) Shopping has become an exercise in home-work, focus, patience, and legwork.

That said, some consumers are still interested in trading up—but everywhere they are being much more selective about their choices, and they are trading up in fewer cat-egories overall. The middle market, which until recently had been under pressure in many categories in Europe and the United States, may benefi t in this environment as companies try to attract consumers who want to step down from trading-up brands but not as far down as private-label and value brands.

New Ways of Coping

Besides trading down, consumers are adopting a variety of coping mechanisms to help them deal with the need (real or imaginary) to spend less, consume more modest-ly, and shop smarter. The following are just a few.

Cocooning. Consumers are turning inward as a way of weathering the economic storm. “Cocooning,” as trend spotters are calling the growing tendency to seek comfort and safety by staying close to home, is a natural inclina-tion in stressful times. It happened in the United States a er 9/11, and it is happening now in many markets as family fi nances become increasingly uncertain.

Cocooning has spawned two related trends that signal a sea change in consumer spending: in-sourcing and stay-cations. In-sourcing is the rediscovery of home economics and self-suffi ciency: instead of buying, consumers are making it themselves; and instead of paying others to do things, they are doing it themselves. A staycation is a va-cation spent at home: taking day trips to nearby attrac-tions and festivals, for example, or just puttering in the

Uncertainty Drives New Sentiments and Spending

Behaviors

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United States (2002–2008) Europe (2005–2008)

Percentage of category buyers

Percentagepoint change (2007–2008)

Trade up Neither Trade down

2003 2005 2006 2007 200820042002 2005 2006 2007 2008

37 37 31 27 28 26 20

30 2931

30 32 3332

33 34 38 43 40 4148

22

33

45 42

32

26 20

33

47

13

31

56

–6

7 9

–7

Percentagepoint change (2007–2008)

Exhibit 4. Trading Up Is Losing Ground as Trading Down Accelerates

Sources: BCG Consumer Sentiment Survey, 2002–2008, in the United States; BCG Consumer Sentiment Survey, 2005–2008, in Europe.

Spending tacticUnitedStates


70

71

75

82

81

59

71

80

74

72

70

61

70

69

87

49

61

67

65

57

65

69

82

75

63

36

33

31

71

59

66

68

65

75

82

43

51

48

53

48

71

65

75

65

76

Buy more productson promotion

Top spending tactic

Cut spending on nonessential items

Defer major expenses that can wait

Spend more time in stores to find the best prices

Shop in discount stores more oen

Respondents who agree or strongly agree (%)1

Exhibit 5. Homework, Focus, Patience, and Legwork Are Key to Spending Less

Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009. 1Multiple selections were allowed.

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garden. But cocooning, in-sourcing, and staycations aren’t just about saving money. They also off er emotional re-wards in terms of quality time spent with the family, the rediscovery of lost traditions, and the satisfaction of get-ting back to basics. (See the sidebar “Let’s Stay in To-night.”)

Frugality: The New Chic, for Now. Frugality has become ubiquitous. Most of the consumers we surveyed in Eu-rope and the United States said they have lost consider-able trust in big corporations and institutions—a view that is no doubt fueled by continuing bonus payouts to top executives and the sense that transparency into what is really happening in the fi nancial markets is lacking. Most consumers agree that “spending more doesn’t feel like the right thing to do now” and “basic simple products are all we need.” Although consumers in Europe and the United States believe that their new-found frugality will endure beyond the downturn, that remains to be seen. More likely, a balance will be struck between the free-spending exuberance of the past and today’s tendency toward belt-tightening.

Mom: The Family’s Purchasing Agent. In most house-holds, women are responsible for the bulk of day-to-day

spending. And when times get tight, it is women (espe-cially mothers) who have the task of making the budget stretch as far as possible. It’s a role that they take on will-ingly, but it’s also a stressful one—especially during hard times. In fact, our survey results show that, in Western markets in particular, women are feeling more stressed and underappreciated than men during this downturn. They are also more likely than men to trade down and to make deeper overall reductions in spending. They’ll cut back on products for themselves, especially apparel and accessories, before sacrifi cing products for the family (which can include cherished pets). (See the section “No Two Segments Are Alike” on page 33.)

Trading Up, but Much More Selectively. Some catego-ries (particularly fresh foods, which speak to the need to “take care of me and my family”) are seen as just too im-portant for compromise. Consumers are still open to com-pelling claims about a product’s superior technical, func-tional, and emotional benefi ts and will trade up in those categories that they feel are most important. (See Exhibit 6.) They will also fi nd room in their budgets for smaller “spirit li ers” for themselves and aff ordable indulgences for their loved ones. But in the current climate, guilt is as-sociated with most nonessential purchases. To overcome

The desire to become reacquainted with the simple pleas-ures of home, family, friends, and pets was a constant re-frain in our consumer surveys as well as in personal inter-views. Such statements as “I am happiest when I’m home” and “My home is my castle” resonated with more than 75 percent of consumers—both men and women—across all markets.

Understandable as the cocooning trend is, it is hardly good news for the entertainment and restaurant sectors. Still, if some categories are suff ering, others—such as video and board games, DVD rentals, and video on demand—are benefi ting.

As families rediscover the pleasures of spending time ◊together, the toy industry is enjoying a renewed interest in traditional family games, such as Monopoly and Clue. Between 2007 and 2008, sales of board games in the United States rose 6 percent, while total sales of toys de-creased 3 percent. Home video games are also selling quite well.

Netfl ix, the top U.S. online DVD rental company, sur- ◊prised analysts and company executives (who had been predicting slower growth) when its share price jumped 8 percent in January a er it posted unexpectedly rosy quarterly results propelled by growth in its Internet vid-eo-streaming service and 2 million new subscribers.

Smart companies have found innovative ways to take ad-vantage of the stay-at-home trend and to downplay the dreary side of budgeting. Grocers are off ering prepack-aged ready-to-eat meals, including wine and dessert, that provide customers with an attractive compromise be-tween eating out and preparing meals at home.

Of course, whether customers embrace these trends will depend, to some extent, on the product category and their own age and income bracket. Still, dining in on comfort food and watching the same 1930s musicals that cheered up an earlier generation in hard times sounds like a pretty good way to spend an evening, whether you are rich or poor, young or old.

Let’s Stay in Tonight

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that guilt, consumers need to be reassured that their pur-chases represent smart choices and that they still have “permission” to spend and even to indulge, especially in small, relatively inexpensive daily luxuries. The overall

luxury and masstige sectors have clearly been hurt by the downturn, but the degree of its impact depends on the specifi c segment. (See the sidebar “Luxury: Down but Not Out.”)

Percentage point decrease from February or October 2008 through February or March 2009

Percentage point increase from February or October 2008 through February or March 2009

UnitedStates

Europe Japan Brazil Russia India China Mexico


6775847678456263

Still spending. . .

...selectively

1833241917153535

2

7

8671817473565965

1

487575

3572

324440

17

5

1

2

0

8

9

1

1

5

0

5

“Some productsare too importantto scrimp on.”

“Even when theeconomy is bad, I will spend onaffordable luxuries.”

“I concentrate myspending on the fewcategories thatmatter most.”

“I scrimp, save, andcut back ... to haveenough money forthe things I like tosplurge on.”

5

Exhibit 6. Consumers Are Still Open to Spending—but Selectively

Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009.

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A er a decade of spectacular growth—driven primarily by increasing numbers of wealthy households, particularly in emerging markets—the luxury sector is taking a direct hit. Experts predict that global sales of luxury goods will fall by as much as 7 to 8 percent this year.

Many affl uent consumers have concluded that they no longer have the money for conspicuous consumption, while those who can still aff ord it feel uncomfortable in-dulging themselves when everyone else seems to be tight-ening their belt. It’s even been reported that shoppers in Milan and New York are asking for logo-free bags to carry away their designer purchases. “Flaunting is out and sham-ing is in,” as one observer of the fashion scene put it.

Of course, the luxury segment as a whole usually tracks GDP growth in major markets, yet it has outperformed the general economy in past recessions. And it continues to be an area of relatively attractive margins in many cat-egories. However, in order to understand the dynamics of this sector and approach it strategically, it is essential to de-average.

The recession’s impact on “so luxury” items, such as de-signer handbags and accessories, tends to be less severe than on “hard luxury” products, such as jewelry and high-priced watches. The purchase of many so -luxury prod-ucts has strong seasonal and impulse components, which make them more resilient in a downturn. Furthermore, so -luxury goods are o en sold in their own brand stores, whereas hard-luxury products are usually sold by third-party retailers, over which producers have less infl uence when it comes to marketing the products.

Price tier also plays a role. In past recessions, “super lux-ury” purchases, such as trophy yachts, automobiles, and custom-designed high-end jewelry—which only the very wealthiest can aff ord—tended to be unaff ected because the bank accounts of these consumers escaped relatively

unscathed. (That may not be the case this time around.) In contrast, entry-level luxury products (or masstige items), to which the middle class aspires in normal times, tend to be vulnerable in recessions because middle-class budgets are more exposed.

The luxury sector also varies considerably by region. In re-cent years, most of its growth has occurred in emerging markets such as China and Russia, as well as in the Mid-dle East. As more consumers in these markets begin to feel the impact of the downturn and alter their spending accordingly, this source of potential buoyancy may begin to fl ag.

Yet even when the general economy and the luxury sector as a whole are suff ering, innovative players with well-posi-tioned brands can thrive. The LVMH Group, for example, has managed to outperform world GDP growth by an aver-age of almost 6 percent per year over the past ten years. The group scored a big hit with fashionistas early in 2009 when designer Marc Jacobs’s updated Stephen Sprouse collection hit the stores. The Louis Vuitton handbags, bearing Sprouse’s signature splash of roses and Day-Glo graffi ti, lend a burst of color in dark times—at $175 to $2,555 apiece. Louis Vuitton chairman and CEO Yves Car-celle says the brand is more about desire and emotion than money. He believes that during a recession people discover the real value of luxury brands, such as high-quality materials and manufacturing.

The bottom line is that consumers will continue to desire a little luxury in their lives, even when times are tough. To be sure, middle-income consumers will cut back on some indulgences, buy less o en or in smaller quantities, and downshi to less expensive but still attractive products. High-income consumers will continue to buy fi ne prod-ucts, but they will be more careful to spend their money wisely. More than ever, they will insist on superior design, attention to detail, and lasting value.

Luxury—Down but Not Out

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Whether consumers are trading up, trading down, or looking for a com-promise in the middle, all categories are vulnerable in the downturn.

But spending patterns diff er depending on product cate-gory, geographic region, and consumer segment. That’s why it is critical for companies to de-average the chang-ing needs and spending trends within their own catego-ries and among their own customers by region and demo-graphic group.

Category Differences

Fi y-nine percent of consumers in developed markets and about 43 percent of consumers in developing mar-kets, on average, plan to cut spending this year. (See Ex-hibit 7.) Trading down is strong and gaining ground in categories that consumers view as commoditized or less important to them personally.

Basic services (such as car rental and postal and ship-ping services) and pantry staples (such as household

What, Where, and Who: De-averaging Required

Percentage point increase from February or October 2008through February or March 2009

UnitedStates


Respondents’ discretionary-spending intentions over the next 12 months (%)

17 10 13 1621 32

3637 32

37

5050

43

73 6347 53 55 57

3426

42

6 4 625

15

18 14 12 13 14 9 9 1315

4314 4 21

Average plannedspending

decrease (%)

Decrease About the same Increase

Exhibit 7. Most Consumers—Except Those in China and India—Say They Will Cut Spending

Sources: BCG Consumer Sentiment Survey, 2008–2009; BCG Consumer Sentiment Barometer, March 2009.Note: Some percentages do not add up to 100 because of rounding.

W C T D

cleaners and paper products), as well as home décor and bedding, have long been top trading-down categories in the United States, Europe, and Japan. But now the ner-vous market has triggered gains in trading down in near-ly all of the approximately 150 categories that we sur-veyed in these regions. And some categories, such as bathroom décor, experienced astounding surges in trad-ing down from 2005 to 2008. (See Exhibit 8.) But the situ-ation varies greatly depending on the category, as the fol-lowing examples illustrate.

The Auto Sector: Stuck in Neutral. Automobiles are among the hardest-hit categories in the downturn. Sales of passenger cars in all markets declined sharply from September 2008 to February 2009—down a total of 18

percent worldwide, on a year-on-year basis. The combina-tion of descending volumes and reduced prices is squeez-ing OEM margins, particularly in the United States—and several companies have asked for direct support from their governments.

The sector is not yet out of the woods. More than one-third of the respondents to our survey who had car pur-chasing or leasing plans have either postponed or can-celled them. Approximately 46 percent of the consumers we surveyed in Europe, Japan, and the United States in-tend to cut back on vehicle spending. (See Exhibit 9.) Even among the most affl uent consumers in these mar-kets, about 40 percent said they will reduce their spend-ing on cars.

5

10

15

–5

0

30 35 40 45 50 55 60 65 70

Exercise equipment/home gym

Health clubs/personal trainers

Sporting equipmentSSSSp

Toys and games

Bath and body products

FFacial skin care and cosmeticsFFFF

Oral care services

Spas and spa services

Manicure/Pedicure

Cosmetic surgery/procedures

Hair-care services

Hair-care products

Pet-care productsp

Voluntary/optional medical care and services (nutritionis

Cars

Kitchen appliances

Washer/Dryery

Home entertainment productsPersonal computers

Personal information appliances

Mobile phone

Financial planning/Investment management servicesLife insuranceCar insurance

Personal education

HHome furnishingsHHHH

Kitchen decor and/or remodeling

Bathroom decor and/or remodeling

other home remodeling projects

Entertainment

Internet service provider

Fragrances, perfume

Pay TV

Lotteries and gambling

Postal/Shipping services

Mobile phone contract and services

LodgingCar rental

Fresh produce fruits and vegetables

Accessories

Frozen foods

Canned foods

Cereal

Bakery and pastry products

Other dry goods

Juices

So drinks

Bottled waterttled wate

Cheese Ice creamSnack foods

Conddiments and dressingsddddHousehold cleaners

Laundry detergent

Paper products Paper products

Over the counter remedies

Oral care products

Women’nns hygiene productsyg p’

Baby careShaving products

Dairy products

Fish and sea food

Prepared meals

Chilled products

Pet food

Energy drinks

Sport drinks

Jam and other spreads

Soup

Cake mixes

Desserts

Ethnic foods

Coffee/Tea

Chocolate/CandyCaaCaa

Gourmet foods

Organic foodsg

Takeout foodSit-down restaurants

Fast-service restaurantsWine

Beer

LLiquorLLLL

Pet food

Personal clothingootootKid’dds clothing’’

ShoesShoes

Athletic shoes

Dress watch

Jewelry

Lingerie

Cookware

Furniture

My home or appartment itself

MeattBath linensh h sSalads

Processed meatBiscuitsscuB HaH

Vitamins and supplements

EggsFrozen ready to eatrozen ready to e

Frozen meatttFrozen bread

Men’nns hygiene prodductsdddd’

Butter and margarinrrrr

Percentage of category buyerswho are trading down, 2008

Change in percentage of category buyerswho are trading down, 2005–2008

Bedding

Home cleaning services

Travel/Vacations

A 48Average: 48Average: 48Average: 48

Ø 5%1

Average increase in trading down:6 percentage points

Sharpest increase in trading down:13 percentage points(exercise equipment and home gyms, and bathroom décor)

Average percentage of category buyers who are trading down: 48

8

10

12

14

6

4

2

048 50 52 54 56 58 60 62 64 6866 70

Fragrances and perfumesTakeout food

Dress watches

Paper products Mobile phones

Frozen ready to eat

Toys and games

Over-the-counter health remedies

So drinks

Other dry goods

Hair-care servicesBath and body products

Household cleaners

Biscuits

Hair-care products

Energy drinks

Snack foods

Mobile phone contracts and services

Lingerie

Manicures and pedicures

Frozen breadSports drinks

Cake mixes

Postal and shipping services

Health clubs and personal trainers

Fast-food restaurants

Spas and spa services

Bottled water

Exercise equipment and home gyms

Fashion accessories

Lotteries and gambling

Car rental

Kitchen décor and remodeling

Laundry detergent

Percentage of category buyerswho are trading down, 2008

Change in percentage of category buyerswho are trading down, 2005–2008

Chilled products

Cereal

Lodging

Frozen foods

Desserts

Skin care and cosmetics

Bathroom décor and remodeling

Prepared meals


Frozen meat

Jewelry

Sporting equipmentJam and other spreads

Chocolate and candy

Personal clothing

Home furnishings and décor

Bath linens

Condiments and dressings

Entertainment

Shaving productsBaby care

Men’s hygiene productsChildren’s clothing

GroceryNongrocery

Exhibit 8. In the United States, Trading Down Is Rising in Most Categories

Source: BCG Consumer Sentiment Survey, 2005–2008.Note: U.S. adults with household incomes greater than $35,000.

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So who will continue to buy cars? We found in Europe that about 50 percent of young, single men in our survey and about 47 percent of DINKs will either continue their normal spending on cars or spend more.

In some European countries, the government has imple-mented measures to support new-car sales, such as off er-ing bonuses to consumers who buy green vehicles. Ger-many’s scrapping scheme has been particularly successful. Consumers who trade in their old gas guzzlers for scrap receive €2,500 toward the purchase of a new car in 2009.

To compete in such a challenging market, OEMs need to be more sensitive to consumers’ needs. For example, among consumers who still plan to purchase a car in the next 12 months, a large majority in Europe, Japan, and the United States say they are interested in green cars, primarily for reasons of fuel effi ciency.

A few companies have already come up with some inter-esting strategies to address consumers’ concerns during the downturn, such as “altruism marketing.” Hyundai, for example, plans to address its U.S. customers’ uncertainty regarding employment by covering three months of new-

car payments for buyers who lose their job—and by allowing returns if the loss of income persists. In Italy, Volvo off ers consumers incentives, on top of government subsidies, to purchase low-emission vehicles.

Beauty and the (Recession) Beast. Fragrances, skin-care products and cosmetics, hair-care products, and bath and body products have enjoyed solid growth in recent years but are now suff ering from falling sales, with no growth predicted in many segments. Forecasts from Eu-romonitor International indicate that demand is stagnat-ing worldwide. This was confi rmed by our survey, which suggests that consumers plan to cut back in these catego-ries in particular in the coming months.

Although spending has decreased across most markets, more consumers in the United States than in Europe or Japan have either cut spending on personal-care products or intend to do so. Fragrances and perfumes have taken the biggest hit: 70 percent of U.S. consumers say they have cut back on what they perceive to be a highly discre-tionary purchase. As for skin- and hair-care products, con-sumers have become very price sensitive and say they are actively searching out sales and promotions. Private la-

UnitedStates

Europe Japan

8

44

23

20

5

35

12

11

38

4

Have not cut but will cut

Have increased or will increase

36

12

18

29

5

49 47 43

Percentage of respondents

Have not cut and don’t expect to

Have already cut and will cut further

Have already cut but will not cut further

Recent spending andintentions to spend on cars

Exhibit 9. Nearly Half of Consumers Plan to Cut Spending on Cars in the Coming Months

Source: BCG Consumer Sentiment Barometer, March 2009.

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bels are expected to make considerable gains in several beauty segments, but this is less likely in fragrances, where brand image and loyalty remain powerful.

Families and divorced women are cutting back on per-sonal-care products more than other segments. Young, single men and empty nesters are least willing to de-crease their spending in these categories. Of the various ways to spend less, not purchasing at all or purchasing less o en wins out for fragrances, whereas purchasing less o en and buying on promotion are popular tactics for skin care and cosmetics and for hair-care and body products. (See Exhibit 10.) The downturn is also driving a shi in favor of lower-price channels, particularly in hair-care and body products.

Some beauty segments may actually benefi t from the downturn. For example, some budget-conscious consum-ers who used to go to a professional salon for hair color or other treatments are now planning to do it themselves in their own homes, using “salon quality” products pur-chased off the shelf. Many retailers and manufacturers are catching on to this trend by off ering more trading-up and professional-quality hair-care products.

Downturn Pick-Me-Up: A Good Cup of Coff ee or Tea. Among the most robust products in our study, coff ee and tea have enjoyed steady growth in recent years. Despite the downturn, industry experts expect that growth to con-tinue, especially in developing markets.

When we asked in which categories consumers in devel-oped countries intend to cut spending, only about one-third of our respondents said they would spend less on coff ee and tea. (See Exhibit 11.) Coff ee and tea may even benefi t from consumers who consider them to be a less expensive alternative to other nonalcoholic beverages, such as so drinks and juices.

Most consumers view coff ee and tea as necessary sta-ples—although certainly not as commodities, since peo-ple are particular about the brands they consume. Conse-quently, there is a strong affi nity for national brands in this category, although private-label sales of coff ee in some markets are relatively high (28 percent in Germany, for instance).

If they feel they must reduce spending on coff ee and tea, consumers are more likely to drink these beverages less

UnitedStates

Europe

Japan

Fragrancesand perfumes

Skin careand cosmetics

Hair-care andbody products

102

137

3043

Buying less oenBuying in smaller quantities

Buying on promotion onlySwitching to private labels

Shopping at places offeringbetter prices

Not buying at all

159

2112

4120

2016

2714

376

Price

Quantity

Price

Quantity

Price

Quantity

105

158

4225



Not buying at all

129

2112

3716

1516

2913

328

101

1010

3834



Not buying at all

1812

2414

384

2612

3414

303

Percentage of respondents1 Top two spending tactics



Exhibit 10. Budget-Stretching Strategies Vary Across the Beauty Category

Source: BCG Consumer Sentiment Barometer, March 2009. 1Multiple selections were allowed.

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frequently, seek out promotions, or avoid expensive brands away from home in favor of high-quality but less expensive brands at home. Some makers of coff ee presses and noncommercial espresso machines claim that users can save more than $1,000 per year drinking premium coff ee at home. Indeed, retail coff ee giants are facing stiff -er competition from coff ee and espresso makers made for the home, as well as from fast-food outlets off ering bet-ter-quality coff ee drinks (such as McDonald’s McCafé).

Since most coff ee and tea drinkers are unwilling to sacri-fi ce quantity or quality but still want good value, compa-nies in this sector should avoid deep and lasting price cuts and focus instead on promotions that encourage con-sumers to sample their products. They should also in-crease package sizes to encourage stocking up while con-tinuing to deliver value through quantity discounts. Finally, they can play to consumers’ cocooning inclination by pointing out that even gourmet blends are much less expensive when prepared at home than coff ee or tea pur-chased at a shop. These days, enjoying a really good cup of coff ee or tea with a friend may be one of the few af-fordable luxuries still available to most consumers—any-where in the world.

There are still some bright spots for a few other catego-ries in which consumers’ desire to trade up or maintain their current spending levels has remained fairly stable. The most resilient categories are family related and in-clude high-quality foods (particularly fresh foods) and green products—especially those that off er energy cost savings or health and safety benefi ts. Another category in which consumers are reluctant to trade down is health care (when it is not publicly funded).

Emerging Markets: A Few Bright Spots, for Now

Emerging markets present a mixed picture, which is not surprising considering their varied economic, demograph-ic, and cultural profi les. Some, like China, have yet to feel the full brunt of the global downturn, and consumers there are still eager to trade up. Others, like Mexico, are deeply concerned that the recession may bring disaster to their economies. Still, across most emerging markets, trading down is on the rise. (See Exhibit 12.)

China and India: Cautious Optimism. China and India remain comparatively optimistic despite the troubles in

UnitedStates

Europe Japan Canada

65

10

10

13Have already cut and will cut further


Have already cut but will not cut further


69

9

12

7

6

65

7

13

9

6772 71

Recent spending and intentionsto spend on coffee and tea

332

78

7

81


Have not cut and don’t expect to

66

Exhibit 11. Two-Thirds of Consumers Will Maintain Their Spending on Coffee and Tea


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the rest of the world. A sizable segment of consumers in both countries continue to trade up for products that off er higher quality or a sense of achievement and social status, and a better brand name is still an important incentive. (See Exhibit 13.) Chinese and Indians are willing to spend, but in a more focused and price-sensitive manner.

The question on everyone’s mind is how long China and India will remain bright spots. The government in both countries, and especially in China, is working on stimulus measures to boost domestic spending and protect em-ployment. Employment in both markets is under pres-sure as exports to struggling Western markets continue to slump. Domestic spending, particularly in China, would have to pick up a great deal of slack to fully cushion the blow to exports. Therefore a note of cautious optimism is warranted for these two important markets.

China. Although the Chinese are generally more opti-mistic about their economy than Westerners are, some parts of the country are more optimistic than others. A de-averaged analysis of consumers, diff erentiated by in-come and city tier, shows four distinct segments emerg-ing. (See Exhibit 14.)

The two groups with the highest degree of security (that is, at least 90 percent report feeling “somewhat” or “very” fi nancially secure) either live in the largest cities and have the highest incomes or live in the smallest cities and have relatively lower incomes. The former group consists mainly of white-collar workers, many in international companies; although they have healthy savings accounts, these people would be highly exposed in a downturn. We label them “secure but anxious.” Consumers in the latter group have been benefi ting from the relocation of busi-nesses to the inner provinces; they enjoy the highest rate of expected income growth and are typically purchasing their fi rst home appliances. The phrase we apply to this group is “Downturn? What downturn?”

Consumers who are wary but still hopeful (their attitude can be expressed as “life goes on”) mainly have middling incomes and live in China’s midtier cities. Although these people have heard of the global crisis, they feel fairly se-cure about their jobs and savings.

Consumers who are most worried about their future—the “insecure”—live mainly in second- and third-tier cit-ies and have the lowest incomes. They are aware of the

Percentage of category buyers

UnitedStates1

Europe1 Japan2 Brazil Russia2 India China3 Mexico

20

32

4856

31

13 5

42

5350

33

17 20

46

34 38

30

32 37

31

32

89

8

3

6

7 9 11 8

7 3

1

8 10

Trade up Neither Trade down

Exhibit 12. Trading Down Is Rising in Emerging Markets, Including China

Source: BCG Consumer Sentiment Survey, 2008-2009. 1Arrows denote percentage point increases and decreases from October 2007 through October 2008.2Arrows denote percentage point increases and decreases from February 2008 through February 2009.3Arrows denote percentage point increase and decrease from summer 2007 through January 2009.

T B C G

Tier 1 citiesTop three cities Tier 3 citiesTier 2 cities Tier 4 cities

5,000–8,000

3,000–5,000

2,000–3,000

<2,000

>8,000

Less than 80 percent 80 to 89 percent

“Downturn?What downturn?”

low-incomeconsumers

“Secure but anxious,”high-income consumers

“Insecure,”low-incomeconsumers

“Life goes on,”middle-income

consumers

Percentage of consumers who feel “somewhat” or “very” financially secure

90 percent or more

Household income(RMB/month)

Exhibit 14. Confidence Is Not Spread Evenly Among Segments of Chinese Consumers

Sources: BCG Consumer Sentiment Survey, 2009; BCG analysis.Note: The cities surveyed were as follows: top three cities = Beijing and Shanghai; tier 1 = Chengdu, Jinan, and Xiamen; tier 2 = Changchun, Xi’an, and Nanchang ; tier 3 = Jingzhou and Zhongshan; tier 4 = Chenzhou.

UnitedStates

Europe Japan Brazil Russia India ChinaReasons for trading up

Top two reasons

20

27

27

32

38

60

65

73

Meaningful technicaldifferences

Categories are moreimportant to me

I enjoy the feeling ofusing these products

I can afford to

I deserve it

Better brand name

I enjoy the feeling ofbuying these products

Products give better results

24

17

27

25

34

39

45

44

16

15

19

16

24

58

65

47

55

52

64

50

60

57

57

60

41

33

53

43

54

60

62

62

74

79

72

73

73

71

73

78

46

71

48

55

53

57

71

70


Exhibit 13. Brand Is a Key Reason for Chinese and Indian Consumers to Trade Up

Source: BCG Consumer Sentiment Survey, 2008–2009.

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worldwide economic troubles because they have seen factories close and jobs disappear. This group also has the highest proportion of retired people, who are among the most vulnerable in a downturn.

Half of our Chinese respondents said they expect their discretionary spending to remain the same, with the re-mainder split between those who expect it to increase and those who expect it to decrease. Even wealthy con-sumers are watching their budgets. When cutting back, the wealthy reduce spending on vacations and fashion apparel. But they continue to spend on fresh and high-quality food.

Trading up remains very strong in China, yet it dropped 10 percentage points between the summer of 2007 and

January 2009, whereas trading down increased 8 percent-age points. On average, consumers are trading down most o en in basic services (mobile phone and land-line con-tracts, Internet service providers, and pay TV), out-of-home entertainment (including fast-food restaurants), and vacation travel. (See the vignette “China’s Emerging Middle Class.”)

India. With its low levels of household and corporate debt and limited reliance on international trade (approximate-ly 20 percent of GDP), India’s economy is relatively healthy. Yet the eff ects of the global downturn can be seen in rising unemployment that is expected to exceed 7 percent in 2009. Indians are also concerned about such potentially destabilizing factors as the country’s relations with Pakistan.

33 years old

Married with no children; he and his wife both work

Owns an apartment in Shanghai

Senior manager at an IT company

China’s Emerging Middle Class: Kelvin Is Financially Secure but Wary About the Economy

Kelvin’s story “When I married the woman I love, I paid cash for a small ◊ apartment for us and furnished it. Although I like our place, I would like to trade up to a bigger one someday.”“I’m not too particular about my wardrobe. The most expen-◊ sive item I ever bought was a slim-cut designer suit for my wedding.”“I think of myself as ‘progressive’ rather than ‘aggressive’ in ◊ my career. I believe in working hard and climbing the career ladder. My wife and I o en bring work home from the offi ce, and then we don’t have time to prepare meals.”“We have a lot of interests in common—badminton, travel-◊ ing, and, of course, our puppy.”

His dreams Having a baby

“I’d love to have a boy I could play with.”◊ A higher standard of living

“I would like a bigger house.”◊ “My wife seems to have an unlimited de-◊ sire for premium clothes and jewelry.”

Traveling the world“We would love to go on vacation more ◊ o en.”

His fears Not living up to his personal standards

“I fear making careless mistakes at work.”◊ Missing out on a bargain

“I bought an LCD TV for $900. But then my friend bought ◊ one with a bigger screen at a lower price. I think I pur-chased too quickly.”

Boredom“It makes me sad when I have nothing to do—life should ◊ be lived to the fullest.”

Views on the downturnDoes not feel that the downturn has ◊ had a big impact in China, and hasn’t changed his spending habitsIs confi dent of the government’s abil-◊ ity to support the economy Believes it will be some time before ◊ the world economy revives

How he copesPlans to shi from stocks to more sta-◊ ble investments Is deferring large expenses, such as a ◊ bigger apartmentTakes time to consider purchase op-◊ tions and seeks advice from friendsArranges group discounts for large ◊ purchases

Reasons to trade up and downTrades up for food because freshness ◊ is importantTrades up for home furnishings be-◊ cause he prefers a “modern” lookTrades up to international brands in ◊ consumer electronicsTrades down for apparel because fi t is ◊ more important than brand name

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For all of these reasons, consumer confi dence in January 2009 dropped 20 percentage points from January 2008, while GDP growth is forecast to fall from 9 percent in 2007 to 6 percent in 2009. About 62 percent of Indian consumers feel anxious about the future in general, and 40 percent expect the economy to get even worse in 2009. However, only 14 percent think the economy will take several years to recover. While they are working hard and clearly feeling anxious, 83 percent of our survey partici-pants reported being happy with their lives, particularly in their homes and communities.

Although two-thirds of Indians are not ready to cut back on spending, almost all claim to be very selective in their purchases and sensitive to prices. Approximately 80 per-cent of our respondents said they will concentrate their spending on a few categories that matter most. Their pri-mary motivation is to save more, and many consumers told us that savings on discretionary items would be ap-plied mainly to their children’s education and their own retirement. (See Exhibit 15.)

Indian consumers trade up and down very actively across the 89 categories we asked about (32 percent trade up

and 38 percent trade down). But even in a downturn, In-dians will not compromise on fresh foods or name brands. They are most likely to trade down for out-of-home enter-tainment, vacations, and cars. Sixty-nine percent of Indi-ans who trade down—a higher percentage than in Eu-rope or the United States—told us that they particularly enjoy the feeling that they are saving money. (See the vi-gnette “India’s Urban Middle Class.”)

Brazil: Wait and See. Brazil has enjoyed moderate growth in GDP of about 3 percent per year since 2000. Private consumption rates among the emerging middle class have been rising steadily, driven primarily by falling interest rates and easy access to consumer credit. Infl a-tion was stabilized in 2002, and the government has been improving its support programs for the poor. Consequent-ly, consumer confi dence rose 45 percentage points be-tween 2003 and 2008.

Now, with the downturn settling in, GDP growth is ex-pected to hover around 1 percent in 2009, and consump-tion is not expected to increase. Brazilians anticipate higher unemployment and reduced wages. Consequently, consumer confi dence has fallen 15 percentage points

UnitedStates


Top two reasons

6

14

4

15

72

27

28

30

31

46Expect to

be saving more

Expect to be earningless in salary

Worried about job loss

Expect to be earningless in dividendsand capital gains

Expect to have lessaccess to credit 17

18

27

27

42

8

13

24

51

44

18

10

21

11

44

4

2

37

37

40

19

43

33

40

35

4

8

38

16

41

15

18

17

20

43

Reasons fordecreasingspending

Percentage of respondentswith intentions to decrease

their discretionary spending

Exhibit 15. Saving More Is the Main Reason Indian Consumers Spend Less

Sources: BCG Consumer Sentiment Survey, 2009; BCG Consumer Sentiment Barometer, March 2009.

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since September 2008. As many as 45 percent of Brazil-ians now say they are anxious about the future. One out of every two Brazilian consumers in our survey said they plan to decrease their spending by an average of 13 per-cent, especially in discretionary categories, although the amount varied depending on the demographic segment. While this number is high, it is actually lower than in most of the other markets we surveyed (except China). Retail sales have already been aff ected in big-ticket categories, such as automobiles, furniture, and appliances.

Brazilians have also become much more price sensitive, with 50 percent of respondents saying they plan to trade

down—to balance their budgets, save money, and fi nd good deals. That percentage is about the same as in the United States, but it is higher than in any other develop-ing country except Mexico. Consumers in Brazil are most likely to trade down in out-of-home entertainment, travel, consumer electronics, home décor, appliances, and appar-el and shoes. Although some consumers intend to con-tinue trading up, they will focus on a few select catego-ries, such as high-quality foods and products that off er personal gratifi cation.

Despite all the economic gloom, 75 percent of our Brazil-ian respondents said they are generally happy with their

34 years old (Narender) and 32 years old (Neetu)

Married with a daughter and a son

Live in New Delhi

Narender is a manager in a private insurance company

Neetu is a housewife

India’s Urban Middle Class: Narender and Neetu Are Moving Up in Life Despite the Downturn

Narender and Neetu’s story“We are quite proud of India’s recent achievements—and op-◊ timistic about its future.”“One of our favorite activities as a family is shopping. We ◊ look for quality fi rst in just about everything we purchase.”“We shop for groceries about once a month, mostly at More ◊ supermarket, where we can fi nd everything under one roof. It’s not the cheapest store, but its prices are reasonable.”“We usually buy brands, although we’re not particularly loyal, ◊ except in personal-care products. Brands provide good quali-ty, a er-sales service, and a guarantee of performance.”“Our family is healthy, and we are enjoying this stage of our ◊ lives.”

Their dreamsOwning a big, beautiful home in a posh location

“In Delhi, having a home matters very ◊ much. We have purchased a fl at in Farida-bad and are planning to move into it in November 2009.”

Buying social-status symbols“In our new fl at, we will buy all new things. ◊ We will buy an LCD TV and a computer, and I will upgrade my car to a Honda City or a Hyundai Accent to refl ect my status.”

Their fears and concernsBecoming ill

“Only if our health is okay will life be bright.”◊ “Initially there was not much money. But now we have ◊ enough. Now life is comfortable.”“We have health-related worries. Health and wealth go ◊ hand in hand.”

Views on the downturnAre aware of the downturn but are ◊ not currently aff ected by itExpress concern that friends and rela-◊ tives with their own businesses al-ready feel the pinchAre confi dent about doubling their ◊ wealth in the next ten years, despite the downturn

How they copeFeel no need to change their shopping ◊ habits, but plan to take some precau-tionary measures, such as cutting down on home entertainment expensesDefi nitely won’t cut back on health-◊ related expenses, such as food and personal care

Reasons to trade up and downTrade up for long-lasting value, health-◊ related purchases, electronics, food, and personal-care productsTrade down in products with imper-◊ ceptible quality diff erences among brandsResearch products before buying but ◊ are also persuaded by dealersDon’t like bargaining and prefer prod-◊ ucts with fi xed prices

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lives, despite high levels of stress. They are starting to get worried about the economy but are not quite as negative as people in other countries. (See the vignette “Brazil’s Next-Billion Consumers.”)

Russia: An Unexpected Blow. A er several years of sig-nifi cant growth in real wealth and GDP growth in excess of 5 percent per year, as well as increasing employment and rising export prices for natural resources, Russia is taking a beating in growth and consumer confi dence. Most Russians did not expect the global downturn to sig-

nifi cantly aff ect their lives, so when it arrived at the end of 2008 its impact was particularly severe. GDP in 2009 is expected to shrink—with negative growth of about 2 per-cent—infl ation is rising, the value of the ruble against the dollar and the euro has fallen drastically, and consumer credit is scarce. Consumers are wondering whether growth and confi dence will return as quickly as they did a er the 1998 crisis.

When we asked Russian consumers whether they felt anxious about the future, 71 percent said yes (up 10 per-

31 years old

Married with two children

Earns less than the minimum wage

Lives in a favela in São Paulo

Brazil’s Next-Billion Consumers: Rosana Manages Despite a Severely Restricted Budget

Rosana’s story“My parents used to work in the countryside before they ◊ moved to São Paulo to earn more money. But the money nev-er appeared.”“I work as a coordinator of a community association in the ◊ slums, where I help youngsters stay out of trouble through sports and cultural activities. People praise me for my work, although I also encounter a lot of envy.”“My friends live far from the city, so instead I spend time ◊ with colleagues. My work takes up a lot of time, and I don’t go out o en, except to church once a week.”“My home is my refuge—where I can feel safe with my hus-◊ band and kids.”“I have faith in Obama’s ability to solve the world’s problems.”◊

Her dreamsEscaping the favela

“My greatest dream is to see all my family ◊ out of the favela, owning their own houses.”

Being able to aff ord more and better products

“If I had more money, I would buy more ◊ things and better quality.”

Her fears and concernsGrowing criminality

“My family suff ered a lot; the criminality has infi ltrated my ◊ family.”“All the youngsters on the streets are smoking pot.”◊

Seeks shelter at home“I love my house...it’s important to love it.”◊ “My house is my refuge—where I can rest and where I feel ◊ safe with my family.”“I have just painted the walls and the ceiling.”◊

Views on the downturnDoesn’t understand the reason for the ◊ crisis, but is alert to itBelieves the downturn will last at ◊ least a yearFears that she and her husband will ◊ lose their jobs as businesses cut backWorries about government pressure ◊ on informal marketsIs not able to save because most of ◊ their money goes for groceries

How she copesCanceled her credit cards as a way to ◊ control spendingLooks for sales in supermarkets◊ Occasionally switches to discount ◊ brandsBuys apparel at secondhand stores◊ Carefully balances the tradeoff be-◊ tween quality and price

Reasons to trade up and downSplurges on perfume and hair-care ◊ products once in a whileWon’t buy cheap pasta or rice be-◊ cause they don’t taste as goodGoes to barbecue restaurants once or ◊ twice a monthTrades up for products that last long-◊ er or are more eff ectiveTrades down when there is little dif-◊ ference among productsAvoids green products because of the ◊ price, but believes in the cause

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centage points from 2008) and 59 percent said they do not believe the economy will recover in 2009. Fully 43 percent of employed Russians now feel insecure about their jobs, and 50 percent are worried about their person-al fi nances.

Most Russians plan to spend less in 2009, with the num-ber who expressed this intention up a staggering 43 per-centage points from just 12 months ago. (See the vignette “Russia’s New Frugality.”) These consumers are focusing spending on those categories that are most important to

them. Of the many ways to spend less, deferring expenses that can wait is preferred by 71 percent of the Russians we surveyed, while 59 percent said they will cut spending on nonessential items, such as vacation travel and fashion accessories. As in other countries, however, fresh foods will be spared. Seeking out promotions is for Russians the least popular money-saving tactic.

Russian consumers cited several reasons for tightening their budgets but appear to be motivated primarily by the need to save more in the face of lower salaries and

25 years old

Married with one child

Works part-time as a nurse and psychologist

Lives with her husband’s parents in a three-bedroom apartment in Moscow

Russia’s New Frugality: Maria Hopes to Survive the Crisis by Careful Budgeting

Maria’s story“I care more about my family than my career, and taking care ◊ of them is fulfi lling.”“Living with my in-laws isn’t bad.”◊ “My husband and I would like to have our own apartment. ◊ But if we moved out, we would have other problems.” “We spend time together at home in the mornings and eve-◊ nings.” “It is also important to spend time with friends. They can ◊ make you miss home, but when you return, your good mood is infectious.”

Her dreamsA new car

“We cannot aff ord to buy a new car, al-◊ though we need one.”

Her own apartment“We share our apartment with my in-◊ laws—fi ve of us living in a three-bedroom apartment.”“We would love to have our own housing.”◊

Her fears and concernsUnemployment

“If one of us loses our job, it will be even more diffi cult for ◊ us to survive.”

Money shortage“Money is defi nitely not a source of joy for me—I’m unhap-◊ py when I want something and can’t aff ord it.”“It would be better not to have to care about the price ◊ when we go shopping.”

Views on the downturnIs fairly confi dent about job security ◊ for now, but worries about the ruble’s devaluationIs anxious about what she hears re-◊ garding the downturn in the media and from friends Feels she is “just surviving” and can ◊ aff ord only necessities

How she copesPurchases only essentials◊ Avoids credit cards◊ Is deferring expensive travel and ◊ a new car Hunts for bargains and discounts◊ Buys clothes for herself only when ◊ really neededLooks for cosmetics deals from ◊ catalogsWon’t buy online because of per-◊ ceived poorer quality

Reasons to trade up and downStill trades up when the product of-◊ fers superior qualityIf paying full price, chooses name ◊ brands for prestige as well as functionWon’t trade down for medicine or ◊ doctorsWon’t cut food expenses because she ◊ is a nursing mother—but is open to private labels in some categories, such as yogurt

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job loss. Still, many respondents noted that with rising in-fl ation and a devalued ruble, they might just as well “spend it while they have it.”

Russian consumers actively seek opportunities to trade up and down across categories. In terms of trading down, they intend to do so in as many as 87 out of 99 product categories. Levels of trading up remain high when com-pared with several other markets we surveyed (including Brazil, Europe, and Japan), but there are signals that Rus-sians will be more selective in response to the crisis. First-quarter results for 2009 showed a signifi cant so ening in the intention to trade up, with the willingness to splurge down 17 percentage points from 2008. Still, 60 percent of Russians said they expect to trade up in fi ve or more categories.

Mexico: An Outlier. A er a period of relative stability and economic development, Mexico is facing a recession that many in the media are billing as a potential setback for the country’s economic future. Consumers are react-ing with extreme anxiety and pessimism—the intention to trade down is higher there than in any other country in our survey.

Heightening these emotions is a sense of inevitability as consumers look back to the country’s volatile political and economic history. Indeed, the economy has suff ered considerably over the past year—a signifi cant devalua-tion of the peso and considerable price volatility have generated expectations of higher infl ation. (See Exhibit 16.) There has also been a signifi cant drop in exports and a strong outfl ow of foreign capital. As a result, consumer confi dence has declined 20 percentage points since the spring of 2008.

Half of the Mexican consumers in our survey reported feeling insecure about their jobs and fi nancial future. Plans to trade down far exceed plans to trade up. Howev-er, it is important not to take these extreme responses at face value. When confronting a potentially serious down-turn, consumers o en resolve to forgo spending out of a sense of urgency and a need to assuage feelings of help-lessness. But they don’t always follow through on these resolutions. Furthermore, when we asked in which catego-ries consumers were most likely to trade up and down, ev-ery single category was chosen as an area for trading down by nearly 90 percent of respondents—suggesting that the responses were more emotional than reasoned.

A crisis mentality: “It’s 1994 all over again. I’m scared.”

Struggling middle class: “I save on everyday purchases so that I can upgrade and access new categories.”

High relative prices across nonfood categories: “Cars and clothes will get more expensive again.”

Increased violence and insecurity: “The government’s war on drugs has backfired. The situation is out of control.”

An imported crisis: “All this is coming from the United States, of all places.”

Price increases: “I already adjusted my budget last year. Will I need to do it again?”

The devaluation of the peso: “We are already at 15, and Banco de México cannot stop it. Will it get to 20?”

Intense media coverage: “Every single day is crisis, crisis, crisis.”

An aggressive government response: “Something must really be wrong for them to do all this.”

Situational factorsin trading down

Structural and historicalfactors in trading down

Exhibit 16. Mexico Is at the Extreme End of Trading Down

Source: BCG analysis.

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We also found that while more affl uent Mexican consum-ers tended to claim frugal shopping behaviors on camera, they admitted off camera that they continue to trade up in their most cherished categories. When trading up, high-income consumers in Mexico tend to favor such catego-ries as gourmet foods, luxury apparel, out-of-home enter-tainment, and consumer electronics.

Low-income consumers in Mexico tend to trade up for ev-eryday goods, such as a favorite brand of cooking oil or cereal. When they do trade up in big-ticket items, these consumers typically use some form of credit payment.

Despite the strong inclination to trade down across all in-come segments, Mexican consumers are not among the most parsimonious consumers in our surveys. Rather, like most consumers around they world, they are inclined to spend selectively rather than stop spending altogether. (See the vignette “Mexico’s Self-Sacrifi cing Mom.”)

Developed Markets: Trading Down Rises as Trading Up Comes Under Pressure

Trading down continues to surge in Japan, the United States, and Western Europe, fueled by mounting anxiety

46 years old

Married with two sons—one still at home—and a granddaughter

Stays home to care for her son

Lives in Mexico City

Mexico’s Self-Sacrificing Mom: Doña Vero Believes Above All That Family and Loved Ones Come First

Doña Vero’s story“I’ve been married for 18 years. I became pregnant with my ◊ fi rst son when I was 15 and had to drop out of school. Since then, my life has centered on my family.”“I worked for six years to help support the family, but stopped ◊ to take care of my youngest because he wasn’t doing well in nursery school. A er that I tried part-time work, but health complications forced me to quit.”“I live in the same apartment complex in which I was born, ◊ and my mother lives below me. My two brothers have stable jobs—one is a civil engineer and works in construction in the United States, and the other is a mechanical engineer with graduate degrees from Germany, where he lives.”“I am very proud of my family—especially my granddaughter, ◊ Frida, who is the center of my life.”

Her dreamsA better life for her children

“I see my older son staying close by; he’s ◊ never wanted to leave even when he’s had the chance. I see my younger son pursuing big things, maybe abroad.”

A new car and vacations“If I had 200,000 pesos, the fi rst thing I ◊ would buy is a new car, and then we would take family holidays.”

Her fears and concernsPoverty

“My biggest worries are my kids and their well-being in this ◊ crisis. It’s a diffi cult situation, and I tell them to prepare themselves.”

Illness“My sister had a tumor and my father died—it was awful.”◊

Views on the downturnIs grateful that her husband’s job is ◊ secure but worries about how others will survive the crisisPlans to support her sons if necessary◊ Is confi dent that her siblings abroad ◊ will provide help if she needs it

How she copesStretches the budget for cleaning, ◊ shopping, and preparing mealsPurchases basic foods in bulk with ◊ her husband’s company discountTracks prices carefully◊ Buys fresh fruits and vegetables in ◊ season

Reasons to trade up and downTrades up for Internet services for her ◊ children and to communicate with family outside MexicoPurchased an Apple computer for ◊ her sonLoyal to brands in hand creams and ◊ coff ee because they have proved superior over the yearsTrades down for dishwashing soap ◊ and bleach because no one notices the diff erence

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about the economy. Worries about employment are up 6 percentage points in Europe and 14 percentage points in the United States. In Japan, consumers are even more anxious about the economic outlook than their U.S. and European counterparts, and levels of trading down there are even higher. Japanese consumers remember recent recessions and are pessimistic about the future, despite relatively healthy savings.

Our surveys in Canada, Europe, Japan, and the United States show large reversals in spending intentions among consumers not yet directly aff ected by the downturn. More than 50 percent of consumers in all four regions believe that the crisis will continue to worsen in 2009. Everyone is saving up for what may be an extended pe-riod of rainy days ahead. Approximately 73 percent of U.S. consumers, 63 percent of Europeans, 53 percent of Canadians, and 47 percent of Japanese consumers said that they plan to cut back on spending in the com-ing year.

Many categories are already hurting and many will suf-fer even more, including out-of-home entertainment, fashion accessories, and home-related items. Indeed, there is a rising backlash in developed markets against the more conspicuous forms of consumption that con-sumers associate with the corporate excess that many feel contributed directly to the economic troubles they are now enduring.

The United States: At the Center of the Storm. The U.S. economy is reeling from what most economists are predicting will be the fi rst year of negative personal-in-come growth since 1949. In 2008, the country suff ered the worst retail sales in 30 years. Other key industries, such as oil and gas, banking, and construction, were also hard-hit. Although unemployment has crept up in recent months, by far the biggest eff ect on consumer spending was the sudden spike, in late 2008, in consumer savings, the eff ect of which was three times larger than the reduc-tion in disposable income in the fourth quarter of 2008.

Fi y-three percent of U.S. consumers now report feeling fi nancially insecure, up 19 percentage points from Octo-ber 2008, a level matched in our survey only in Russia. And with 73 percent of U.S. survey respondents now look-ing to cut their spending, trading down in the United States has accelerated in nearly all categories since Octo-ber 2007. The sharpest increases have been in exercise

equipment and home gyms and in home-related catego-ries, such as bathroom and kitchen décor and remodel-ing, and home furnishings and décor.

Despite all the bad news, U.S. consumers still feel positive about trading down: 63 percent say that they trade down in some categories in order to fi nance trading up in oth-ers. Only 32 percent expect to trade down because of fi -nancial constraints.

Trading up is still alive but is becoming much more selec-tive. About two-thirds of U.S. consumers are willing to trade up in fi ve or more product categories (down from 78 percent in 2007). (See the vignette “A Busy Mom in the United States.”)

Canada: A Lower Dose of Anxiety. Canadians register lower anxiety levels about the economy than respon-dents anywhere else in the developed world. Only about 14 percent of employed Canadian respondents with household incomes of more than $35,000 per year said that they worry about losing their jobs, whereas 33 per-cent of employed U.S. respondents at that income level said they are worried. Canadians also believe that they are better positioned than U.S. consumers to weather the eff ects of the downturn, and their lower levels of house-hold indebtedness and exposure to falling property val-ues reinforce that view. As many as two-thirds of Cana-dian respondents reported that they are happy with their lives despite the turmoil, and 44 percent feel that the cur-rent environment is “part of an economic cycle that is likely to improve.” Still, Canadians are watching their largest trading partner to the south with trepidation, and they are spending more cautiously and embracing the back-to-basics trend.

The European Big Five: A Varied Picture. Like consum-ers everywhere, Europeans are worried about their na-tions’ economies and uneasy about their personal fi nanc-es. But among the Big Five markets, unease is particularly strong in Spain, where in March 2009, 84 percent of our survey participants said they were anxious about the fu-ture—up 45 percentage points from October 2008 and in marked contrast to an overall European average of 60 per-cent. Worry about job loss and personal fi nances is great-est in Germany, where as many as 55 percent of consum-ers feel fi nancially insecure (up 10 percentage points from October 2008), compared with 44 percent of Europeans overall. Thirty percent of the employed Germans in our

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survey said they feel insecure about their jobs, whereas only 20 percent of Italians feel that way.

When asked about the economic outlook for 2009 and the prospects for a recovery, Spanish and German con-sumers were the most pessimistic. As many as 68 percent of Spaniards and 64 percent of Germans—much larger percentages than in 2008—believe that the economy will get even worse in the next 12 months.

Consumers’ plans to decrease discretionary spending are similar across Europe. On average, 63 percent intend to spend less in the next 12 months, up 4 percentage points from October 2008. The use of budget-stretching tech-niques, such as buying more products on promotion, de-ferring major purchases, and cutting out nonessentials, grew in recent months in all European markets. Fi y-nine percent of Europeans (and 71 percent of Germans) said they would shop more frequently at discount stores. Eu-

33 years old

Married to her second husband

Has a 14-year-old boy and a 3-year-old girl

Works with her husband for a service equipment company

Owns a condo in a suburb of Chicago

A Busy Mom in the United States: Donna Wants More Time for Family and Friends

Donna’s story“I have fi ve friends who understand that I don’t have a lot of ◊ time to socialize—it’s hard to fi nd friends like that. I love weekends. Being home, relaxing and spending time with the kids, is my idea of heaven. The TV is on morning to night, but I don’t mind—even if it’s just background.”“I like to go dancing with my husband—also bowling, to the ◊ movies, and to the casino. But we don’t do a lot by our-selves—maybe just once a month.”“If I had a lot of money, I’d buy a big house, pay some hospital ◊ bills, and put the rest in savings.”

Her dreamsBuying a house with a yard

“I really want a house—with a big yard for ◊ the kids.”

Spending more time with her family and friends

“I don’t want to be a stay-at-home mom, ◊ but I’d like to reduce my work hours.”“I wish I had more free time. That’s when ◊ I’m happiest. I want to spend as much time with the family as I can.”“I’d love a nice romantic vacation in Jamai-◊ ca—just the two of us.”

Her fears and concernsUnemployment

“My husband hasn’t worked at the company as long as I ◊ have, and I worry that he might get laid off .”“If we both lost our jobs, we would not be able to pay the ◊ mortgage a er three months.”

Financial insecurity“I worry about our fi nances—we have always lived mainly ◊ paycheck to paycheck.”“It’s not good that we don’t have anything to fall back on—◊ what have we been doing?”

Views on the downturnRecognizes that when the economy ◊ got bad, so did morale at work—it used to be a fun offi ce, but now it’s somberUsed to love work, but lately it’s been ◊ very stressfulWorries about losing money on their ◊ condo and not being able to build their dream houseWorries about her husband’s ◊ health—he started smoking because of the stressIs not very optimistic—doesn’t think ◊ anything is going to make the econo-my better for a long time

How she copesChooses not to have credit cards: “If ◊ you can’t pay cash, you shouldn’t buy it”Tries to budget, but it’s hard◊ Drinks at home before going out for ◊ the evening to save moneySpends money on home entertain-◊ ment—such as video games—be-cause it’s cheaper than going outUses coupons as much as possible◊ Is skipping a vacation this year and ◊ taking day trips insteadWaits for sales and markdowns◊ Has just one debit card and controls it ◊ carefully

Reasons to trade up and downShops mostly at the supermarket be-◊ cause it is close, but goes to a dis-counter for cheese, other dairy prod-ucts, and staplesAvoids buying online◊ Feels guilty when she buys things for ◊ herselfAlmost never buys generic products—◊ believes in brandsBuys the cheapest gas◊ Sticks with basic cable and forgoes ◊ HBO, but trades up on game consoles for the kids

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ropeans also told us that they intend to shop less at con-venience stores and supermarkets for their groceries.

Many categories that have already been hard-hit by spending cuts, such as fashion accessories, restaurants, and home furnishings, are at risk of further losses as Eu-ropeans pare back in the months to come. (See Exhibit 17 and the vignette “France’s Active Empty Nesters.”)

Japan: Increasingly Selective Spending. Japanese con-sumers are more pessimistic about the prospects for an early economic recovery than any other group in our sur-vey. Only 11 percent think the situation is as bad as it will get, and 53 percent expect the recovery to take more than several years. Worries about job and fi nancial security are high, yet only 47 percent of Japanese consumers say they intend to cut spending in the coming 12 months (fewer than in any other developed market).

Compared with their U.S. and European counterparts, Japanese consumers are more selective and trade up in a much smaller number of categories. For example, only 3 percent of Japanese consumers claim to trade up in 15 or more categories, compared with 17 percent of Europeans and 43 percent of U.S. consumers.

So how is it that Japan remains one of the world’s largest markets for luxury goods overall? The answer lies in the diff erence between the total amount that the Japanese spend on luxury goods and the number of luxury catego-ries in which they participate. Japanese consumers pur-chase products in only a few of these categories, but they are very willing to “rocket” their spending in the catego-ries that matter to them the most. Winning luxury categories to date have been consumer electronics, fresh foods, and vacation travel. (See the vignette “Japan’s ‘Six Pockets’.”)

Grocery Nongrocery

Organic food products Shoes

Skin care and cosmeticsWine and beer

All-natural cosmetics Cars

Home or apartment Snack foodsHome appliances Vacation travel

Consumer electronics

Fragrances and perfumes

Spirits and otheralcoholic beverages

Toys and games Restaurants andfast food

Home furnishings and décor

Fashion accessories

010

Juices

Fish and seafoodFood seasoning, ketchup, and sauces

Hair-care and body products

Eggs

Environment-friendly home-cleaning products Energy-efficient appliances Chocolate

and candy

Fresh fruits and vegetablesDairy products

Percentage of category buyers whocut spending in the last six months


Percentage of category buyers whoplan to cut or cut further in the future


Coffee and tea

Pet food Meat

Dry and canned foods

Cereal Bottled water

Frozen foodsHome-cleaning products Bakery and

pastry products

So drinks

Hardest hit

Hardest hitWatch out

Maybe overMore resilient

More resilient

Children’s clothingBaby and children’s food

20

30

40

15 20 25 30 35

6050403020Average:

32 percent

Average: 38 percent

100

20

40

60

80

65

70

60

55

50

45

4030 35 40 45 50 55

Women’s and men’s clothing



Exhibit 17. Many Weakened Categories in Europe Will Suffer Further in the Coming Months


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No Two Segments Are Alike

Consumers in general are curtailing their spending in an-ticipation of pain to come more than from real present hardship. But these anxieties do not aff ect all segments equally—and some continue to spend. The following are a few segments that are demonstrating unique reactions to the downturn and call for special attention.

The Worried Affl uent. Even the affl uent are cutting back, as their dividends and (on-paper) equity dwindle.

Experts estimate that U.S. millionaires have lost an aver-age 28 percent of their net worth since September 2008. The affl uent in the United States are more likely than their counterparts elsewhere to decrease spending in the next 12 months—67 percent told us they would do so, compared with 58 percent in Europe and 44 percent in Ja-pan. But they are also more optimistic about the economy over the long term than middle-income consumers.

For this segment especially, the impact of the downturn so far has been more psychological than fi nancial—an as-

59 years old (Michel) and 56 years old (Elisabeth)

Married with three children and two grandchildren

CEO (Michel) and retired CEO (Elisabeth) at public-sector organizations

Own a home in a suburb near Paris

France’s Active Empty Nesters: Elisabeth and Michel Say That the Good Life Is Their Life

Elisabeth and Michel’s story“We have a formula for a balanced life: one-third of our time ◊ is for the two of us, one-third is for our children, and one-third is for our professional lives.”“We’ve attained that balance and are happy for having done ◊ it. We don’t consciously budget and we don’t have to, but we think it’s fun to search out bargains and save coupons. It’s one of the things we enjoy doing together.” “We have had 35 good years together, and we have an active ◊ social life, traveling with old friends and getting together with business associates.”

Their dreamsSatisfi ed with their current situation; not many needs or aspirations; diffi culty iden-tifying an unfulfi lled wish

Michel: “I don’t have any wishes and ◊ dreams. We are very happy with the lives we have.”

Staying in good shape and health, and also looking for new challenges

Elisabeth: “If I had to name one wish, I ◊ would say that it is fi nding what to do now that I’m retired. I cannot imagine myself staying at home doing nothing.”

Their fears and concernsUncertainty over their pensions

“When we are very old and ill, there will be no one to pay ◊ for us.”

Health issuesMichel recently suff ered some illnesses◊ Both fear the end of their active lives◊

Views on the downturnAre not aff ected by the downturn or ◊ particularly worried about it, although friends who own businesses have been greatly aff ectedGot out of stocks last September◊ Michel has never seen such a low ◊ level of activity at workBelieve that the downturn may be ◊ more severe than past recessions but that it will passWorry about their pensions and who ◊ will pay for their needs in their old age

How they copeChose public-sector jobs in the 1970s ◊ because of job securityShop at factory outlets and purchase ◊ good brands on sale Search out bargains for travel on the ◊ InternetNever purchase on impulse◊

Reasons to trade up and downTrade up for good furniture for the liv-◊ ing roomTrade down at Ikea for furnishing oth-◊ er roomsFeel that quality is more important ◊ than quantity for food purchasesPurchased a Cartier wedding ring for ◊ their thirty-fi h wedding anniversaryLike dining at high-end restaurants◊ Like high-end appliances◊

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sault on the psyche. As one CEO put it, “I can’t buy a new Bentley right now—I just laid off a bunch of employees.”

The categories most aff ected by the desire not to show off one’s wealth are luxury apparel and fashion accessories, restaurants, toys and games, and vacation travel. But some categories continue to withstand the pressure to cut back. Compared with middle-income consumers, the af-fl uent in the United States continue to spend on fragranc-es, while affl uent European and Japanese consumers are still spending on all-natural cosmetics. When it comes to spending less, the affl uent in all three regions prefer to spend less frequently rather than switch to another

brand, shop around for lower prices, or give up a product entirely. Still, affl uent consumers are much more likely than middle-income consumers to resume their former levels of spending once the recession is over, especially in the United States.

Women Weathering the Downturn. Women drive all consumer economies, and in 2008, they were responsible for more than two-thirds of total discretionary spending. But when the economy goes into a tailspin, women trans-form themselves into expert purchasing agents for their households, fulfi lling their families’ needs on a limited budget. Therefore it is crucial for companies to under-

33 years old

Stay-at-home mom with banker husband and two children

Lives in her in-laws’ duplex outside Tokyo

Doesn’t think she needs to follow a strict budget

Japan’s “Six Pockets”: Sayuri Benefits from Six Pockets by Living with Her In-Laws1

Sayuri’s story“I feel that I’m very lucky to be living with my husband’s par-◊ ents because they pay for so many things, from gi s to every-day expenses. Practically all of my children’s toys were sup-plied by them, and my mother recently bought the children passports to Disneyland. The only problem is that we are run-ning out of space for all the things.”“Because the grandparents are so generous with the children, ◊ my husband and I can spend money on good brands, which are much better in quality and last a long time.”“In addition to Louis Vuitton, we like Max Mara and Burberry, ◊ and I love Le Creuset kitchenware. Any money that is le over goes to saving for our children’s education.”

Her dreamsChildren’s success in life

“I want our children to attend a premium ◊ school so that they will be able to fi nd well-paid jobs.”“My children will have every opportunity to ◊ live their dreams.”

Renovating the houseVisiting Disneyland with her family regu-larly

Her fears and concernsThe bad habit of sometimes spending too much money

“I am the only person who spends a lot in my family.”◊ “If I submit my wish list to my husband, he will make it ◊ happen—but sometimes I fear I’m too demanding.”

Views on the downturnFirst noticed the downturn in January ◊ 2009 when the interest income from her mutual funds began to declineDoesn’t spend time thinking about ◊ the crisis

How she copesSaves money on housing and chil-◊ dren’s expenses by living with her in-lawsFavors long-lasting quality over low ◊ pricesEncourages her children to save mon-◊ ey for their educationShops on weekends at shopping malls ◊ for basic goods

Reasons to trade up and downHas cut back on dining out at restau-◊ rants from once a week to twice a monthContinues to purchase luxury brands ◊ because they last longer: “Louis Vuit-ton products are much better than the Uniqlo brand”Sees no reason to delay purchases or ◊ to shop less o en

1. Japanese couples who receive monetary as well as physical support from their parents are called “six pockets.”

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stand how women, in particular, are being aff ected by the downturn.

As noted above, in the West, women now report feeling even more stressed, overworked, and pressed for time than men, yet they feel less appreciated for what they do. Particularly in Europe and the United States, women are more worried about personal fi nances than men. And al-though women and men are about equally pessimistic regarding the economy, women in the United States and Brazil are markedly more negative than men. It’s hardly surprising, then, that women are leading the trend toward cocooning. Across most countries, women more than men say that their home is their castle and that they are hap-piest at home.

Yet despite the downturn and the added stress it is caus-ing for many, women say they are happy with their lives overall and are managing to meet the economic challeng-es that lie ahead. That means a lot more homework, fo-cus, patience, and legwork go into hunting for values. Women everywhere employ a number of tactics as cost busters for their family. For instance, women generally are more likely than men to cut spending (by a larger per-

centage), buy less, defer purchases, trade down, or search out better prices (except in Russia and China). Women are also more likely than men to purchase products on promotion, go without sweets, seek out private-label and value products, and shop at discount stores. Although women still like to pamper themselves (once the family’s needs have been met), in most markets, they are reluc-tant to admit that they splurge. In developed markets, however, women will not cut back on fresh food for the family (or on pet food), and they are not willing to go downscale on tea and coff ee.

Still Spending. As the gloom settles in over high streets, main streets, and shopping malls, one wonders if anyone is spending on anything beyond the basic necessities. The truth is that some consumer segments are still spending and willing to trade up in the categories they value most—including luxury apparel, fashion accessories, and out-of-home entertainment. But they have to be con-vinced of a product’s value to make a splurge worthwhile.

We identifi ed three life-stage groups that are more likely to spend: young singles (especially men), DINKs, and empty nesters with secure incomes. (See Exhibit 18.)

Recent spending andintentions to spend

13

19

7

53

8

21

17

8

51

16

17

14

46

7

21

15

11

48

5

DINKs

25

16

12

44

3

Marriedwith kids

28

13

12

43

34

Emptynesters

Have cut and will cut further


Have cut but will not cut further

Have not cut and will not cut


61 53 53 47 47 54


Young,singlemen

Young,single

women

Divorced orseparated

women

Exhibit 18. Most Single Men in Europe Say They Will Keep Spending


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Most young singles, it seems, would prefer not to be sin-gle, especially during hard times. As one young woman told us, “No one likes to be lonely in a crisis.” So they spend on things that they think will strengthen their con-nections with others: apparel, electronic gadgets, enter-tainment, and gi s for friends and loved ones. Products and services that cleverly target this need are still proving successful, even in the downturn. Buckle, a specialty re-tailer that off ers fashion-conscious young people advice on style, along with famous (and o en pricey) brands and its own exclusive labels, is among the few U.S. retailers that have seen sales increase over the past months, thanks to a strong service orientation and savvy targeting of young consumers through online marketing.

DINKs are more fl ush with cash than most other seg-ments. They don’t have the fi nancial responsibilities that come with having children, and they are o en unencum-bered with mortgage payments because they rent. That makes their attitude toward spending more buoyant. Still, they are not unaffected by the downturn. Although DINKs have less of a real need to cut back, many of them told us that they are beginning to be more cautious in their spending—everyone else seems to be cutting back, and they would feel guilty not doing the same.

Empty nesters are a diverse group, but those who have secure incomes also seem willing to continue spending during the downturn. Most of their fi nancial goals have already been realized, which leaves more room for fl exi-bility now.

How can companies appeal to these more resilient seg-ments? Perhaps more than other consumers, these groups are “buying” emotions rather than products when they spend. So marketers need to home in on the right emo-tional cues and fi nd the best ways to respond. By catering to these consumers’ specifi c needs, marketers can create that “gotta have it” dynamic even in the gloomiest of times.

For companies looking to do more than just survive the downturn, the point is not that most consum-ers are spending less and trading down. Instead,

what’s important is whether a company’s potential cus-tomers are buying its products and, if they are not, how they can be encouraged to do so in various categories and regions. The key to profi tability and market share during the downturn will be knowing how open diff erent seg-ments are to spending, understanding the specifi c cues that can entice them to buy particular products (by giving them permission to spend, for instance), and de-averag-ing across categories, regions, and segments so as not to miss out on attractive pockets of demand.

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It will take time and a string of good news for the anxiety of today’s consumers to ease and their purse strings to loosen. But for companies and brands with the right approach, the crisis can have an upside. Strong players can gain an advantage

over weaker competitors with thoughtful and agile re-sponses. We’ve looked across the consumer industry and identifi ed eight best practices to help recession-stressed companies fi ght back against sluggish sales and lay the groundwork for a rapid advance once the economy turns around.

Get Your House in Order

Inaction is the riskiest response to the uncertainties of an economic crisis. But before going a er the recession’s op-portunities, you must minimize your vulnerabilities. That means taking bold action on cash and costs.

Cash. As credit sources began drying up at the end of 2008, companies received a harsh reminder that cash is king—and it needs to be more closely managed through the downturn. To increase liquidity, manage the top line by fi nding better ways to retain your most valuable cus-tomers, identify consumer and market segments that are still spending, realign sales force initiatives to increase short-term revenues, improve working capital by acceler-ating receivables and inventory turns, and consider di-vesting any noncore assets.

Costs. Most companies have already acted to reduce costs in recent months, but many have focused on the low-hanging fruit, such as reducing spending on advertising and cutting back on employees and corporate travel. Al-though necessary, such moves are insuffi cient to with-stand sustained pricing pressure in the months ahead.

Deeper actions are required to free up resources and fund consumer-driven investments, such as pruning underper-forming businesses and developing supply chain partner-ships to optimize overall costs and service levels for the end customer.

Think Value, Value, Value

Enhance the benefi ts of your products to consumers and ensure that their value can stand up to pressure from pri-vate labels and other discount alternatives.

Understand how consumers are feeling today and how your brands can give them what they really want (and are willing to pay for). Consumers are becoming more discerning and increasingly intolerant of add-on features that they don’t want and don’t want to pay for. So what are consumers saying that conveys what they’re looking for these days?

“My home is my castle.” ◊ Cocooning consumers want products that make the home a more comfortable and entertaining place. As a result, everything from aff ord-able appliances to take-home meals to board games is increasingly popular.

“I am making a smart choice.”◊ Consumers need a good reason to part with their money. Companies can help by linking the need to be practical to a product’s func-tional benefi ts. French retailer E. Leclerc, for example, launched an advertising campaign that positions it as the champion of consumer purchasing power—a mes-sage that is resonating well.

“I deserve a little treat.”◊ Coax consumers back to the market by off ering small indulgences and everyday

Eight Winning Strategies for Hard Times

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luxuries, such as video-game products that make an at-home workout a compelling alternative to a pricey gym membership.

“I appreciate knowing that you understand my stress and ◊ can help me out a little.” While mistrust of big business is high in the West, consumers can still react favorably to credible altruism marketing from companies off er-ing to share some of the downturn risk—for example, by promising to accept returns from customers who lose their job within a specifi ed period a er buying a product.

Fit consumers’ pockets. A good way to protect margins, deal with pricing pressures, and deliver savings to cus-tomers is to eliminate features that they don’t value, such as excess packaging or product size. In Russia, the Rosin-ter restaurant chain introduced a menu that allows cus-tomers to choose between two options: a less expensive meal made with local ingredients and a more expensive version made with imported ingredients. Another exam-ple is Nestlé’s “popularly positioned products,” smaller sizes of existing brands marketed fi rst in developing coun-tries and now expanding into developed markets.

Overdeliver on what matters most. In a recession, con-sumers are inclined to think in terms of less: “What can I cut back on to save money?” But savvy marketers under-stand that downturns should also be a time to think more. By shi ing the focus away from price to the quality of the product or service experience, companies can make sure their customers will still be there when good times re-turn. That’s one reason why some retailers and restau-rant chains have started off ering free Wi-Fi access to their most loyal customers, thereby enhancing their “total ex-perience.”

Communicate and redefi ne value. Make sure consum-ers know your value story and why your brands are worth a bit more. Many leading consumer-goods compa-nies have already turned up the dial on their value mes-sages, so it is critical to ensure that your message has both the credibility and the volume to be heard amidst all the noise.

Leverage Brand Strength

Brands are assets, and they can be anchors in a chaotic world. In a recession, companies should resist the tempta-

tion to cut marketing support too deeply. Instead, they should focus on marketing eff orts that respond to con-sumers’ current situation and feelings about the econo-my, as described above. (See the sidebar “Brands Still Matter.”)

One strategy is to refresh an iconic brand with an updat-ed position. For example, retail giant Wal-Mart is re-launching its already successful Great Value private-label brand into the eye of the downturn. The company changed more than 750 product formulas a er extensive value testing, and more than 80 new products have been introduced to the line so far. Wal-Mart’s goal is to help its customers save money and live better by off ering high-quality products at prices below those of national brands. And the timing appears to be right. Our research indi-cates that consumers are increasingly open to experi-menting with private labels to save on grocery bills in the downturn. The Great Value strategy is further proof that Wal-Mart won’t settle for being just a passive benefi ciary of the economic crisis.

De-average to Find Pockets of Opportunity

Consumers, categories, and markets vary greatly. There are bright spots of demand that companies can profi t-ably target even in today’s market. Trading up is still very active in China and India, for instance, and demand for brands is high in both markets. Some consumer seg-ments, such as young singles, DINKs, and income-secure empty nesters are still spending. And consumers are still interested in—and, in some cases, willing to pay a little more for—ecofriendly products that off er savings and health benefi ts. How can your company benefi t from all of this?

De-average pricing to tap price-resilient segments. Some companies are retaining full prices on products with features that consumers are willing to keep paying for and lowering prices on other items to attract the bud-get conscious.

One leading grocer recently introduced a “discounter” lineup as part of its overall private-label off erings. That helped it fi ght back against discounters without having to compromise the price position of its traditional and highly successful private-label products. The new range covers ten categories and 350 product lines.

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Brands are clearly suff ering in the downturn, as consum-ers in many markets and categories turn to private labels and other value options to stretch their budgets. Only 27 percent of our U.S. respondents, 17 percent of Europeans, and 15 percent of Japanese consumers were willing to ad-mit that they would trade up to a better brand name. In sharp contrast, 79 percent of survey respondents in India, 71 percent in China, and 52 percent in Brazil still cited brand name as a reason for trading up.

In discretionary categories, even powerful brands are fail-ing to shield products from spending cuts, including prod-ucts in those categories that usually command high brand loyalty, such as so drinks, cosmetics, fragrances, and cars. (See the exhibit below.) Value brands are faring much better in many of these categories.

Yet not all consumers are avoiding branded products. In our recent surveys, we found that attitudes toward brands can diff er signifi cantly depending on the product category, the market, and the consumer’s income and age. For in-

stance, respondents in the United States and Europe ex-pressed greater loyalty to brands of so drinks and frozen foods than respondents in Japan. But Japanese consum-ers are much more brand loyal when it comes to fashion accessories and fragrances.

Chinese consumers place a much higher value on well-known and trusted brands than Western and Japanese consumers do. Indeed, brands are one of the main rea-sons that Chinese consumers give for trading up. Howev-er, Chinese respondents to our survey claimed that brand appeal has less to do with status than with the belief that these products are of higher quality (especially in terms of durability and reliability)—although emotion does play a role in the apparel and shoe, travel, and entertain-ment categories. At the moment, many Chinese consum-ers tend to believe that local products off er better value and better meet their needs, so brands perceived as local are still o en preferred to those perceived as foreign. But this trend is starting to change among all but the oldest consumers.

Brands Still Matter

Vacation travel

Cars

Home or apartment

Home furnishingsand décor

Consumer electronics

Home appliances

Toys and games Energy-efficientappliances

All-natural cosmetics

Environment-friendly home-cleaning products

Skin care and cosmetics

Hair-care and body products

Home-cleaning products

Grocery Nongrocery

Brand loyalty1

Dairy products

Eggs

Fresh fruits and vegetables

Fish and seafood

Meat

Frozen foodsDry and canned foods

Food seasoning, ketchup, and sauces

Chocolateand candy

Snack foods

Cereals


Bottled water

Juices

So drinks

Wine and beer

Spirits and other alcoholic beverages

Restaurantsand fast food

Coffee and tea

Pet food

Organic food

Fashion accessories

Fragrancesand perfumes

Shoes

Brand loyalty is a shieldfor “must-haves”Deferrable indulgences

are not as protected

Average

Low

Low

High

High

Women’s and men’s clothing

AverageSpending cut2

Children’s clothing

Baby and children’s food

In the United States, Brand Loyalty Is Not a Universal Shield Against Spending Cuts

Source: BCG Consumer Sentiment Barometer, March 2009. 1Percentage of respondents in a range from high to low who claim brand loyalty as a reason not to cut spending in a given category.2Percentage of respondents in a range from high to low who have already cut spending in a given category.

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Create a renaissance in the middle. The fact that con-sumers are becoming more selective about where they trade up can be a plus for brands with middle-market po-sitions. When it comes to categories that they care about, consumers who regularly purchase upscale off erings rare-ly descend all the way down to private-label or value brands. They are more likely to consider a strongly posi-tioned brand in the middle that allows them to save on price without compromising too much. Emphasizing pre-mium benefi ts at an aff ordable price can be a way to cap-ture such consumers as they downshi .

Innovate for the Rebound as Well as the Downturn

Consumers remain open to convincing claims about a product’s technical, functional, and emotional benefi ts, and such benefi ts can provide an incentive to buy. Off er-ing price discounts alone is not enough to catch their at-tention during a downturn. Innovation, however, can be a powerful lever in protecting margins.

Since many of today’s investments in product develop-ment will bear fruit only a er the recession is past, it is also critical to have a view of the postrecession landscape and what consumers will be looking for then. Delaying investments until the recovery could compromise your ability to capitalize on future opportunities.

Move consumers up a ladder of benefi ts to accelerate out of the cycle. Although they may not always be con-scious of their value calculations, consumers everywhere determine how much they are willing to pay for a partic-ular product or service according to a ladder of increasing benefi ts. (See Exhibit 19.)

To move them up the ladder, companies must uncover latent dissatisfactions and introduce technical, functional, and emotional benefi ts that address them. For example, Apple has created many successful products (the iPhone, iPod, and MacBook, to name just a few) by thinking deep-ly about how consumers want to use their products, de-signing them for style and function, and appealing to con-sumers’ affi liations, sense of fun, and on-the-go lifestyle.

Fine-tune your product portfolio to include credible value off erings. Consumers’ buying behavior is chang-ing fast. What might have seemed like a great value a year ago may no longer be so compelling. Aligning your portfolio with the mood of the market will ensure that you have suffi cient off erings with clear value messages to carry your business through the downturn.

Customize the Go-to-Market Playbook

As consumers change, so do their perceptions of price. Yet all recessions have a turning point. Companies must tailor

Despite the challenging environment in many markets, a downturn can be a good time to strengthen brands. Some of the most successful brand campaigns have begun dur-ing recessions. For example, BMW launched its “ultimate driving machine” campaign in the middle of the recession of the 1970s. With their spare interior and superior engi-neering, these sleek automobiles helped defi ne cool for young, urban professionals. In the downturn of the early 1980s, Brooke Shields’s famous confession on billboards around the world that nothing came between her and her Calvins introduced the radical idea that blue jeans could be sexy. Since then, they have become the attire of choice for the young and not-so-young everywhere.

In our interviews with consumers, we were impressed by how o en references to favorite brands came up. Here is a sample:

“How can Uniqlo be so simple and yet so fashion- ◊able?”

“We take care of ourselves, and so we use trusted brands ◊like Colgate.”

“Clinique products really moisturize, and they don’t ◊make my skin dry.”

So how do you create opportunities for your brand in a downturn? The secret is to reinforce the reasons for con-sumers to bypass cheaper alternatives and spend a bit more by off ering features that respond to their current needs and developing marketing messages that are sensi-tive to the challenges they face.

Brands Still Matter (continued)

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The price of the cheapest alternative

Value from integrated retail—control of the point of sale

Intangibles (brand benefit of doubt, recognition awareness, and peer influence)

2

3

4

5

Merchandising at the moment of purchase—stimulation that drives excitement,

conviction, and energy

Implied brand value for guaranteeing reliability, consistency, and aersale service

Estimate of value for better raw materials, design, manufacturing quality, convenience,

and easier-to-use packaging

1

10

20

30

40

50

90

100

80

70

60

Exhibit 19. The Consumer Value Calculus Is Subtle and Often Unconscious

Source: Michael J. Silverstein, Treasure Hunt: Inside the Mind of the New Consumer (New York: Portfolio Books, 2006).

their marketing strategies to refl ect the current environ-ment without losing sight of long-term sustainability.

Defend high-margin businesses against private labels. Playing the discount game without fully aligning your cost structure is a recipe for disaster. Companies must actively manage the price-value relationship against cheaper alter-natives and private labels. Make sure your products stack up favorably and keep a constant eye on market trends because the stakes are high and players are moving fast.

Apply intelligent pricing techniques to avoid the discount spiral. Consumers are looking for deals, promo-tions, discounts, and bargains. Most companies will lower prices, which makes sense. But before you follow suit, consider reducing the perceived price point of your prod-ucts to avoid cutting into margins. You should also limit the risk that your competitors will reduce their actual prices, thereby starting a price war. New pricing models, which o en emerge during moments of crisis, will help. Consider taking one or more of the following steps:

Lower your cost to serve and share some of the savings ◊ with customers

Reduce the perceived price point of your products by ◊ off ering smaller package sizes or volume discounts

Adopt a discounting strategy by increasing both list ◊ prices and discounts in anticipation of more frequent promotion

Avoid price wars by picking your battles and changing ◊ pricing mechanisms

Optimize trade spending to align with current market ◊ and brand positioning, and preserve performance in-centives

Unbundle product and service off erings and price ◊ them separately to help communicate and extract the value inherent in both

Monitor your relative price position more o en as the ◊ landscape changes

Reallocate marketing spending to the most sensitive brands and channels. Take a scalpel to investments in advertising and promotions. Many companies are discov-

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ering that they can cut marketing costs by as much as 30 percent—without compromising their business goals—through smarter targeting of messages and channels. Nontraditional media (such as Internet-based community sites) are proving to be a more precise and cost-eff ective way of reaching specifi c segments of consumers. Closer scrutiny of marketing activities can help companies iden-tify which vehicles off er the greatest returns. But main-tain a balance. Don’t ignore the broadcast media, since they are vital for building and sustaining mass-market consumer brands.

Streamline product portfolios by cutting off the tail. Downturns can be an opportunity to clean house by elim-inating unprofi table product lines, SKUs, and even cus-tomers from a company’s portfolio. These “tails” gener-ally contribute only a small portion of revenues, but they are o en a drag on total profi ts because they fail to pay back the resources they consume. Refocusing those re-sources on the more profi table parts of the portfolio can help improve long-term growth and profi t performance.

Think multichannel. Consumers are visiting more chan-nels in the downturn, including low-cost channels such as online discounters. Marketers need to reassess their own channel mix in light of these shi s. Although channel confl icts remain a concern, the degree of shakeup in the marketplace creates a unique opportunity to put new op-tions on the table.

Be a Predator Instead of the Prey

Seize opportunities to capitalize on market turmoil and win share while competitors are stumbling.

Acquire talent and other assets previously not in play. Downturns tend to put a lot of attractive talent back on the market as companies downsize or employees lose confi dence in their employers. Now could be a good time to upgrade your management teams. Competition for top people will be less fi erce and the cost lower. Other kinds of assets may also look attractive during the downturn. For example, some leading retailers are taking advantage of more aff ordable real estate to expand.

Explore transformative mergers and acquisitions. His-tory shows that many of the best deals have occurred in downturns, generating about 15 percent more value as measured by total shareholder return.

Rethink the Business Model and Develop Alternative Scenarios

Most industries and sectors will look diff erent in fi ve years. As a result of cyclical and structural changes, in-cluding government interventions, companies in many industries need to fi nd fundamentally new ways to com-pete. Forces such as increasing globalization, protection-ism, and environmental concerns simultaneously create challenges for incumbents and opportunities for those companies that can seize them. Companies need to con-sider how (and how fast) their business models and strat-egies need to change if they are to win in the long term. Is evolution or transformation required?

Smart companies looking to prepare for a highly uncer-tain future should start thinking now about the various scenarios that could play out in their sectors and antici-pate the skills and assets that will be required to win in diff erent circumstances. We recommend developing at least three scenarios for the postdownturn marketplace, according to the recession’s likely severity and how long it will take the economy to recover. Consider including at least one scenario that seems improbably pessimistic in order to stimulate out-of-the-box thinking on how to re-spond. Quantify the impact on your business and your balance sheet. Then decide how you will position your products for possible long-term shi s in consumers’ val-ues, attitudes, and purchasing behaviors, and allocate your budgets for the long term.

It has been a long, hard winter, and consumers are ea-ger to see the fi rst green shoots of recovery—even if they may not appear as early as this spring. The

smartest players will adapt to the current situation while continuing to invest in innovation for the future, when consumers’ appetite for spending will certainly revive. Companies that seize the opportunity to off er consumers better value—in design and ingredients, functional im-provements, and especially emotional benefi ts—will ac-celerate out of this deep downturn far ahead of the rest.

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The BCG Consumer Sentiment Survey that underpins this report took place from October 2008 through Febru-ary 2009. The countries surveyed were Brazil, China, In-dia, Japan, Mexico, Russia, the United States, and fi ve countries in Western Europe—France, Germany, Italy, Spain, and the United Kingdom. Consumers in Denmark, Finland, Norway, and Sweden were also surveyed, but for the purposes of this report, survey results for the Euro-pean Big Five, weighted by population, served as a sum-mary for Europe. For global comparison, all data were in-come adjusted on the basis of country-specifi c real-income distribution—consumers in the bottom quartile of in-come in each country were eliminated and the sample reweighted to represent real-income distribution in each country. A er income adjustments, approximately 13,800 consumers were surveyed for this report. Sample sizes were as follows: Brazil = 825; China = 1,931; Europe =

4,028; India = 1,822; Japan = 820, Mexico = 888; Russia = 1,309; United States = 2,175.

In March 2009, in a survey we call the BCG Consumer Sentiment Barometer, we surveyed consumers in Canada, Japan, the United States, and the fi ve countries in West-ern Europe. The income-adjusted sample sizes were as follows: Canada = 1,114; Europe = 5,014; Japan = 1,071; United States = 818, for a total of 8,017 respondents.

Consumers were asked about a total of 19 product groups covering 150 to 170 product categories. (Some categories in the list below overlap.) Not all categories were covered in all countries. For an itemized list of categories included in the surveys of specifi c countries, please contact one of the authors.

AppendixMethodology and Product Categories Covered

in the BCG Consumer Sentiment Survey

Apparel and FootwearAthletic shoes ◊Branded luxury accessories (such as ◊handbags, wallets, and sunglasses)Branded luxury apparel (such as dress- ◊es and suits) Branded luxury jewelry ◊Branded luxury shoes ◊Branded luxury watches ◊Children’s clothing ◊Dress watches ◊Fashion accessories (such as handbags, ◊wallets, and sunglasses)Jewelry ◊Lingerie ◊Shoes, not including athletic shoes ◊Women’s and men’s clothing ◊

Automotive VehiclesCars ◊Motorcycles ◊Tires ◊

BeveragesBaijiu (a Chinese liquor) ◊Beer ◊Bitters ◊Bottled water ◊Coff ee and tea ◊Energy drinks ◊Grappa ◊Japanese tea ◊Juices ◊Liqueur ◊Ready-to-drink tea ◊So drinks ◊

Sports drinks ◊Vodka, gin, rum, and whiskey ◊Wine ◊

Communication Services and Television

Broadband Internet ◊Fixed-phone contracts and services ◊GEZ (German central radio and televi- ◊son toll) Internet service providers ◊Mobile-phone contracts and services ◊Pay TV ◊

Consumer ElectronicsDigital entertainment devices (such as ◊MP3 players, digital cameras, and game

Product Categories Covered in the BCG Consumer Sentiment Survey

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consoles)DVD players ◊Home entertainment products ◊Mobile phones ◊Personal computers ◊Personal-information appliances ◊Stereo equipment ◊Televisions ◊

Financial ServicesCar insurance ◊Credit cards ◊Financial-planning and investment- ◊management servicesHousing, car, and personal loans ◊Life insurance ◊Mutual funds ◊

Fresh and Organic FoodsBread ◊Cheese ◊Dairy products (excluding cheese ◊and eggs) Eggs ◊Fish and seafood ◊Fresh fruits and vegetables ◊Gourmet foods ◊Meat ◊Organic foods ◊Salads ◊

Health and Beauty ServicesCosmetic surgery and procedures ◊Glasses and contact lenses ◊Hair-care services ◊Health clubs and personal trainers ◊Manicures and pedicures ◊Optional medical care and services ◊Oral-care services ◊Spas and spa services ◊

Health Care and Nutritional ProductsOver-the-counter drugs ◊Over-the-counter health remedies ◊Prescription drugs ◊Vitamins and supplements ◊

Home AppliancesAir conditioners, fi ltration, and ◊humidifi ersCookware ◊Electric fans ◊Energy-effi cient appliances ◊Exercise equipment and home gyms ◊Food processors ◊Geysers ◊Inverters/generators ◊Kitchen appliances ◊

Lighting ◊Microwave ovens ◊Mixers and grinders ◊Refrigerators ◊Washers and dryers ◊

Home-Related ProductsBath linens ◊Bathroom décor and remodeling ◊Bedding ◊Cupboards and wardrobes ◊Floor coverings ◊Furniture ◊Home furnishings and décor ◊Home or apartment ◊Kitchen décor and remodeling ◊Other home-remodeling projects ◊Painting and wallpaper ◊

Household ProductsEnvironment-friendly home-cleaning ◊productsHome-cleaning products ◊Household cleaners ◊Laundry detergent ◊Paper products (such as facial tissues ◊and toilet paper)

Other ProductsHeating fuel ◊Other dry goods ◊Pet-care products ◊Pet food ◊Sporting equipment ◊

Other ServicesCar rental ◊Domestic help ◊Funerary services ◊Home-cleaning services ◊Personal education ◊Postal and shipping services ◊

Out-of-Home EntertainmentEntertainment ◊Fast-food restaurants ◊Lotteries and gambling ◊Sit-down restaurants ◊

Personal Care and Skin Care and Cosmetics

All-natural cosmetics and body-care ◊productsBaby care ◊Baby and children’s food ◊Baby education (such as play groups) ◊Bath and body products ◊Diapers and wipes ◊

Fragrances and perfumes ◊Hair-care products ◊Men’s hygiene products (such as shav- ◊ing products)Oral care products ◊Skin-care products and cosmetics ◊Women’s hygiene products ◊

Processed and Frozen FoodBakery and pastry products ◊Biscuits ◊Butter and margarine ◊Cake mixes ◊Canned fruits and vegetables ◊Canned foods ◊Cereal ◊Chilled products ◊Chocolate and candy ◊Condiments and dressings ◊Cooking oil ◊Desserts ◊Ethnic foods ◊Frozen bread ◊Frozen foods ◊Frozen meat ◊Ham ◊Hamburger ◊Hot dog sausage ◊Ice cream ◊Jam and other spreads ◊Meat spreads ◊Mortadella ◊Prepared meals ◊Processed meat ◊Ready-to-eat main courses ◊Ready-to-eat starters ◊Salami ◊Sauces ◊Sausage ◊Snack foods ◊Soup (including dry) ◊Spices and masalas ◊Staples (such as rice and noodles) ◊Takeout food ◊Yogurt ◊

Toys and GamesToys and games ◊

Vacation TravelDomestic vacation travel ◊Lodging (such as hotels) ◊Low-cost air carriers ◊Overseas vacation travel ◊

Product Categories Covered in the BCG Consumer Sentiment Survey (continued)

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For Further Reading

The Boston Consulting Group publishes other reports and articles on the economy and consumer sentiment that may be of interest to senior executives. Recent examples include:

Collateral Damage, Part 6: Under-estimating the Crisis A White Paper by The Boston Consulting Group, April 2009

Collateral Damage, Part 5: Confronting the New Realities of a World in CrisisA White Paper by The Boston Consulting Group, March 2009

Collateral Damage, Part 4: Preparing for a Tough Year Ahead: The Outlook, the Crisis in Perspective, and Lessons from the Early MoversA White Paper by The Boston Consulting Group, December 2008

Collateral Damage, Part 3: Asia, Advantage, and Action A White Paper by The Boston Consulting Group, November 2008

Collateral Damage, Part 2: Taking Robust Action in the Face of the Growing CrisisA White Paper by The Boston Consulting Group, October 2008

Collateral Damage, Part 1: What the Crisis in the Credit Markets Means for Everyone Else A White Paper by The Boston Consulting Group, October 2008

Collateral Damage: Function Focus—Responses for Marketing and Sales in the Global Downturn A White Paper by The Boston Consulting Group, February 2009

Winning in a Downturn: Rapid Cash GenerationOpportunities for Action in Operations, April 2009

Capturing the Green Advantage for Consumer CompaniesA report by The Boston Consulting Group, January 2009

Upend the Downturn with Strategic PricingOpportunities for Action in Consumer Markets and Marketing and Sales, December 2008

Coping with the Commodities CrisisOpportunities for Action in Consumer Markets, November 2008

The Multichannel ImperativeOpportunities for Action in Consumer Markets, September 2008

Trading Up and Down Around the WorldA report by The Boston Consulting Group, September 2008

Consumer Segmentation: A Call to ActionA Focus by The Boston Consulting Group, July 2008

Foreign or Local Brands in China? Rationalism Trumps NationalismA Focus by The Boston Consulting Group, June 2008

Trading Up, UpdatedOpportunities for Action in Consumer Markets, March 2008

Decoding the Next Billion ConsumersOpportunities for Action in Consumer Markets, November 2007

Winning the Hearts and Minds of China’s ConsumersA Focus by The Boston Consulting Group, September 2007

Looking for PatternsOpportunities for Action in Consumer Markets, November 2006

What Women Want (in Financial Services)Opportunities for Action in Financial Services, November 2006

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Cheap Is Good (Geiz Ist Geil)Opportunities for Action in Consumer Markets, May 2006

Treasure HuntBCG Perspectives, May 2006

Three Faces of Eve: Women Seeking Harmony, Value, and ConnectionOpportunities for Action in Consumer Markets, April 2006

Trading Down: Living Large on $150 a DayOpportunities for Action in Consumer Markets, May 2005

New Luxury Creators and the Forces That Support ThemOpportunities for Action in Consumer Markets, April 2004

Trading Up: An Open Space in Financial ServicesOpportunities for Action in Financial Services, December 2003

Trading Up to New LuxuryOpportunities for Action in Consumer Markets, October 2003

The New Luxury: Trading Up and Trading DownOpportunities for Action in Consumer Markets, December 2002

Trading Up: The New Luxury and Why We Need ItOpportunities for Action in Consumer Markets, April 2002

Books by Michael J. Silverstein

Women Want More: How You Can Better Serve the Needs and Desires of the World’s Most Demanding CustomersKate Sayre, coauthor(New York: HarperCollins Publishers,available September 2009)

Treasure Hunt: Inside the Mind of the New Consumer(New York: Portfolio, 2006)

Trading Up: Why Consumers Want New Luxury Goods—and How Companies Create ThemNeil Fiske, coauthor(New York: Portfolio, 2003, 2005; paperback, 2008)

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Note to the Reader

This report is a product of The Bos-ton Consulting Group’s Consumer practice and its Center for Consumer Insight (CCI), which provides world-class consumer-insight capabilities to the fi rm’s clients. Established by the Consumer practice and the Market-ing and Sales practice, the CCI leads BCG’s proprietary research for publi-cations on consumer trends and pur-chasing patterns. As an advisor to companies in many industries, BCG has long recognized the fundamental value of identifying and leveraging insights into consumer behavior, both for strategy development and as a key source of sustainable com-petitive advantage.

AcknowledgmentsThe authors would like to acknowl-edge the contributions of their col-leagues:

Jean-Marc Bellaiche, a partner and managing director in the fi rm’s Paris offi ce and the leader of the Consum-er practice’s luxury sector

Olavo Cunha, a partner and manag-ing director in BCG’s São Paulo offi ce and a core member of the Consumer practice and the Technology, Media & Telecommunications practice

Jésus de Juan, a senior partner and managing director in the fi rm’s Mon-terrey offi ce

Stephan Dertnig, a senior partner and managing director in BCG’s Mos-

cow offi ce and a member of the Con-sumer practice and the Financial In-stitutions practice

Patrick Ducasse, a senior partner and managing director in the fi rm’s Paris offi ce and the global leader of the Consumer practice

Cliff Grevler, a partner and manag-ing director in BCG’s Toronto offi ce

Hubert Hsu, a senior partner and managing director in the fi rm’s Hong Kong offi ce and the Asia-Pacifi c node for the Consumer practice

Emmanuel Huet, a senior manager in BCG’s Paris offi ce and the leader of the CCI

Kim Wee Koh, the global manager for the Global Advantage Initiative in the fi rm’s Singapore offi ce

Carol Liao, a partner and managing director in BCG’s Hong Kong offi ce and a core member of the Consumer practice

Kentaro Mori, a partner and manag-ing director in the fi rm’s Nagoya of-fi ce and a core member of the Con-sumer practice

Joel Muñiz, a principal in BCG’s Mexico City offi ce and a core mem-ber of the Consumer practice and the Marketing and Sales practice

Anand Raghuraman, a partner and managing director in the fi rm’s

Mumbai offi ce and a core member of the Consumer practice

Abheek Singhi, a partner and man-aging director in BCG’s Mumbai offi ce and a core member of the Consumer practice

Miki Tsusaka, a senior partner and managing director in the fi rm’s Tokyo offi ce and the global leader of the Marketing and Sales practice

Bernd Waltermann, a senior part-ner and managing director in BCG’s Singapore offi ce and a core member of the Marketing and Sales practice

Karin Zimmermann, the global manager for the Consumer practice in the fi rm’s Paris offi ce

The authors would also like to thank Samantha Albuquerque, Alexander Bashmakov, Patrick Bauer, Tim Bercio, Olga Bezrukova, Isabelle Börgel, Yogesh Budhiraja, Gregor Dillenius, Sergio Fonseca, Maya Gavrilova, Mark Harris, Bettina Hoenen, Rieko Izumina, Nimisha Jain, Kiyofumi Kaneshiro, Boris Khvostichenko, Michelle Kluz, Jennifer Lam, Vincent Lui, Olga Narvskaia, Federica Padilla, Sergei Plykine, Maria Prüß, Max Pulido, Siddhartha Rajagopalan, Sergio Rentéria, Ulla Rinkes, Christoph Rothballer, Gulnara Sagatova, Toshifumi Sashihara, Lena Sprenger, Ayano Uehara, Jeff Walters, Vero-nique Yang, Yin Yin, and Danny Yip.

T B C G

Finally, the authors would like to ac-knowledge Sally Seymour for helping to write this report and Barry Adler, Katherine Andrews, Gary Callahan, Kim Friedman, Gina Goldstein, Sharon Slodki, Sara Strassenreiter, and Janice Willett for contributions to its editing, design, and production.

For Further ContactFor more information, please contact one of the following leaders of the practice:

BrazilOlavo CunhaBCG São Paulo+55 11 3046 [email protected]

CanadaCliff GrevlerBCG Toronto+1 416 955 4200grevler.cliff @bcg.bom

FrancePatrick DucasseBCG Paris+33 1 40 17 10 [email protected]

GermanyIvan BascleBCG Munich+49 89 23 17 [email protected]

Catherine RocheBCG Düsseldorf+49 2 11 30 11 [email protected]

Greater ChinaCarol LiaoBCG Hong Kong+852 2506 [email protected]

IndiaAnand RaghuramanBCG Mumbai+91 22 6749 [email protected]

Abheek SinghiBCG Mumbai+91 22 6749 [email protected]

ItalyMarco AiroldiBCG Milan+39 02 65 59 [email protected]

JapanMiki TsusakaBCG Tokyo+81 3 5211 [email protected]

MexicoJésus de JuanBCG Monterrey+52 55 5258 [email protected]

RussiaStephan DertnigBCG Moscow+7 495 258 34 [email protected]

SpainCarlos CostaBCG Barcelona+34 93 363 [email protected]

United KingdomMarcus BokkerinkBCG London+44 207 753 [email protected]

United StatesChristine BartonBCG Dallas+1 214 849 [email protected]

Mary EganBCG New York+1 212 446 [email protected]

Michael J. SilversteinBCG Chicago+1 312 993 [email protected]

The Boston Consulting Group (BCG) is a global manage-ment consulting fi rm 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 in-sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet-itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offi ces in 38 countries. For more infor-mation, please visit www.bcg.com.

This report is a product of The Boston Consulting Group’s Consumer practice and its Center for Consumer Insight (CCI), which provides world-class consumer-insight capa-bilities to the fi rm’s clients. Established by the Consumer practice and the Marketing and Sales practice, the CCI leads BCG’s proprietary research for publications on consumer trends and purchasing patterns.

For a complete list of BCG publications and information about how to obtain copies, please visit our Web site at www.bcg.com/publications.

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