Reading between the Numbers February-April 2014

Consumer Confidence from the Consumer’s Point of View

Each month, the media erupts with headlines trumpeting the latest Consumer Confidence

numbers. And while we love a good statistic as much as the next person, we keep asking

ourselves the same question: what does that number really say about the economy?

At the end of the day, what does it mean in terms of how real people act in

real life?

That’s right. Real people. It’s easy to forget that the Consumer Confidence Index is

comprised of real people’s perceptions of the economy. For those of us trying to reach

the American consumer on a daily basis, a number is not enough to get the full

picture of what’s happening in the marketplace. By reducing human behavior to a

100-point scale, it dehumanizes the very real people who drive our economy with their

individual decisions to gas up the car, stop at Starbucks, or buy a new refrigerator.

We’re a curious bunch and have never met a question we didn’t try to answer, so we’ve

spent the past 3 months striving to uncover the heartbeat that lurks behind Consumer

Confidence. We’re developing a barometer for why people feel the way they do about

the economy, their personal finances and their future, so that we can read between the

numbers to understand the consumer on a deeper, more intimate level than what the data

and percentages have to say.

Stick with us. Because what’s happening below the surface tells a different story than what you see on TV.

Where Did All the People Go?

2

Consumers are worse off in today’s economy than they have been in the recent past.

In 1990, median annual household income was $56,000. Today, it’s down to $51,000. Despite

a growing 1%, the vast majority of US families are no better than they were in 1990 – or

they are even worse off.

To reach today’s customer, brands need to either move up or down market to achieve

growth. The overall spending power of the market is decreasing, which means growth

must come from taking share of wallet.

Create a Sense of Belonging

• Premium brands need to consider strategies for moving down market, to grow their

share of lower income and younger segments. This could involve as little as new

marketing strategies, or as much as a new brand under their umbrella.

• For economical brands, consider focusing on better quality, functionality, and aesthetic

design to appeal to a larger range of consumers. When their wallets are thin,

consumers will appreciate good value from a less expensive brand; it connects them

to the benefits typically afforded by more affluent shoppers.

Speak to Them Where They Live

• Mass market companies will increase their appeal by partnering with local brands,

or developing specialty products that feel personalized for smaller regions and

communities. Even in product categories as mundane as household cleaners, foods,

beverages, and apparel, this strengthens the bond a brand has with its consumers,

and their community.

• Service provider brands that develop service packages based on local usage patterns

will attract consumers who want to feel like companies are catering to their needs.

• For any brand, marketing with a unique local focus that applies to regions, states,

cities, or smaller communities will go a long way in the eyes of the consumer.

Connecting with Consumers

3

I may not have much to spend, but I am willing to spend what I have if a brand connects with me in the right way.

Tracking Consumer Concerns

4

FEBRUARY

MARCH

APRIL

DisheartenedPeople don’t believe that

unemployment numbers tell the true story of our nation’s employment

conditions. Because of that, they are wary of the “recovery.”

Cautiously OptimisticAn increase in the minimum wage tells people that employers are investing in their employees who will, in turn, be able to put that money back into the

economy with their purchasing.

Holding SteadyPeople are still struggling and remain somewhat fearful. They buy what they need, but distinguish between wants

and needs and try to spend as little as possible for the must-haves.

Consumer Confidence:≈1.3 points to 78.1* • Anticipation of jobs≈

Consumer Confidence:Ω4 points to 82.3* • Positivity about current situation≈ • Optimism about future situationΩ

Consumer Confidence:≈1.6 points to 82.3* • Anticipation of drop in personal incomeΩ

Jobs added fall short of estimate

Average hourly wage rises: 2.2% more/hour than 2013

Minimum wage increase blocked by Senate

Northeast is region most concerned with unemployment

Low income consumers are most concerned with the issue of minimum wage

Consumers tone down their non-essentials spending; focus on necessities

Males 55+ is the demographic most concerned with unemployment

Effects of Obama’s SOTU remarks on minimum wage begin to bubble up

Tax season reminds consumers of their budgets

News and current events From our conversations

*Change represents the difference between the previous month’s revised number and the current month’s original number

February 4thDow Jones falls 326 points, worst one-day plunge since June 2013

March 29th Senate votes to restore federal

jobless benefits

February 18th-23rd Ukrainian Revolution

February 7th-23rdOlympics

February 13thGM recalls begin

March 8th Malaysian Airlines Flight goes missing

April 3rd Heartbleed Bug discovered

April 15thTax Day

April 17th Obamacare enrollment hits 8 million

February 26thRussian troops

begin to takecontrol of Crimea

March 31st Obamacare enrollment

deadline

April 30thSenate blocks minimum

wage increase

1 1 128 31 30

≈ to 78.1 Revised to

78.3

Ω to 82.3Revised to

83.9

≈ to 82.3Revised to

81.7

Tracking External Factors

5

Americans feel increasingly disenfranchised by the employment market. They struggle

to find jobs that pay a living wage, offer reliable hours, or come with benefits. They feel

pushed to the margins despite their sincere desire to work hard and provide for their

families. Consumers who previously identified with their careers are faltering now that

they’re unable to find jobs that provide the quality of life they hope for.

This sense of disenfranchisement is reflected in the wide range of people who identify as

middle class. Middle class has ceased to be purely an indicator of household income.

Instead, people think of it in terms of values and aspirations. If they believe in hard work

and family, then they consider themselves middle class even if their income doesn’t put

them there. This gives them an identity and sense of belonging that would otherwise have

been provided by their jobs.

This creation of a self-identity based on deeply personal values and dreams rather than

income level reflects the increasingly human outlook consumers have on the economy.

Macro factors like unemployment numbers and the minimum wage all inform their

perspective, but their true confidence in the economy and their willingness to spend

stems from what they see in their personal life, in their neighborhood, in their town.

The Evolving American Consumer

6

WHAT THIS MEANS FOR BRANDS

Regardless of their underlying finances, Americans who self-identify as middle class want

to reflect that status. And although they may have no choice but to seek out bargains and

savings, they still crave the brands and items that reflect their self-defined middle

class status. Here’s how brands can—and are—responding to this.

The identity of brands like J. Crew and American Express relies on an aura of exclusivity

and status, yet both have recently expanded their offerings to be within reach of

less affluent customers. American Express, long synonymous with a certain prestige, has

launched a reloadable, pre-paid debit card called Serve, aimed as the less well-to-do. The

Wall Street Journal recently reported on rumors that J. Crew, a retailer that orients itself

around more upscale items and shoppers, is introducing a lower-priced store format aimed

at budget conscious consumers.

In some cases, downshifting like this can result in erosion of a brand’s core identity. But

when viewed in the context of consumers’ desire for belonging, these decisions seem more

like sound strategy. Brands like American Express and J. Crew aren’t caving, or catering

to the lowest common denominator. Sure, they need to capture revenue. But they also

recognize that it can have a powerful impact on a person’s psyche to know that,

despite their reduced income, they can still feel like they belong. This shift exists

in mirror image at many mid-market and mainstream brands. Take Target’s evolution to a

fashion destination – people have begun to turn away from high-end brands, gravitating

towards high-end options at mid-market brands. Among the consumers we spoke with,

very few self-identify as upper class, regardless of household income. There’s something

unseemly about it, given the state of affairs. Instead of luxury, they are seeking quality,

function, value. They’re shopping at Walmart, Target, Amazon – all known for their price

and convenience. This practical, no-nonsense shopping fits in with the middle class

mentality and escapes any semblance of luxury.

Create a Sense of Belonging

8

In many ways, consumers’ desire for belonging, authenticity, and quality are addressed in

the everyday world around them. They value their friends, families, neighborhoods, and

communities. They trust their ideas, opinions, and recommendations, which in many ways

contribute to the success of farmer’s markets and locally sourced goods.

While big brands like Walmart will never have a mom-and-pop feel, some national brands

have demonstrated that it is possible to appeal to consumers’ desire for the local.

One successful example of this is Smashburger – this national chain serves “localized

burgers” crafted to appeal to that market’s regional taste. The Buckeye burger, with fried

pepper rings and haystack onions, is available only in Ohio locations, while the Colorado

burger, with green chilies on a spicy bun, can only be found in—you guessed it—Colorado.

When brands introduce locally based marketing and products, they are inserting

themselves into a consumer’s sense of community, which in turn affects their

confidence as a purchaser.

As high-end retailers reach down to the mid-market, and as high-income shoppers eschew

ostentation, we observe a tremendous opportunity for brands to embrace a new type

of customer. Now is the time for companies to expand their offerings, tweak their

concepts, and repackage their house brands to appeal at a local level.

Speak to Them Where They Live

9

FEBRUARY UP CLOSE

coupons budgetObamacaredebt

downturn

foreclosures uncertainty

unemployedpoliticians

unemployment rate

food stamps finances

As the Conference Board’s February Consumer Confidence Index reported, jobs remain a

key concern for Americans – those anticipating more jobs fell to a low 13.1% in February.

And in our conversations with consumers, we learned more about why. Across the board,

consumers are frustrated by the realities of the job market: low pay, poor benefits, limited

hours, erratic schedules. Finding a full-time job with benefits, that matches their skill and

experience, feels like a pipe dream. Regardless of age, gender and income, these consumers

told us time and again that job polarization is real and impacting their daily lives. Because

really, they want to be able to do more than just find “a” job. They want to find a job that

feels in line with how they see themselves and who they want to be.

I feel that the only jobs available to me are temporary or sales positions. There are no benefits.

The only jobs I’ve been offered are lower paying, temporary jobs through temp agencies.

I have a 4 year degree in Chemistry but I’ve never been able to get a job in my field. So, yeah,

I feel that we are still in a recession.

Female, $25,000-$50,000, 25-34

There are no real jobs in the area… If you want to go through a temp service to try and find

work but even then they aren’t sure to find you a job that will last for any period of time.

Male, $50,000-$75,000, 45-54

Only seasonal and low pay jobs are available.

Female, $150,000-$200,000, 45-54

Job polarization

11

Despite Jane’s degree in chemistry, she is among the chronically unemployed, struggling

to find a place for herself in the workforce. While she holds out hope of finding a job in her

field, Jane explains that for nearly 6 years she has only been hired for low paying positions

that offer no benefits, security, or opportunity.

Jane was disheartened when she learned earlier this year that leading pharmaceutical

brand Merck would shed 8,500 positions from its R&D and commercial operations as part

of a global restructuring. The news hit her hard and diminished her already dwindling hope

of being able to land even an entry-level job in chemistry.

Jane has been fighting this battle since 2008, and it has had quite a price. Jane’s sense

of self has been weakened by unemployment. As she has floundered professionally,

her identity has weakened, and with it her self-esteem and adaptability. Without having

a clear vision of who you are in the world, even simple changes can feel chaotic or

overwhelming. And for Jane and so many people like her, that vision hasn’t existed in a very

long time.

“ I feel that the only jobs available to me are temporary or

sales positions. There are no benefits. The only jobs I’ve been

offered are lower paying, temporary jobs through

temp agencies.”

A Glimpse Behind the Numbers: The Disenfranchised Chemist

12

Jane, 29

MARCH UP CLOSE

retail

comfortable

minimum wageappliances

purchasestable

hiringextra money

splurgeimproving

secure

The mainstream media is full of headlines telling us that, by the numbers, the middle

class is shrinking. But what the data doesn’t talk about is how people’s perceptions and

self-identification factor into socioeconomic status. When given the opportunity to self-

classify, more than half of the consumers we spoke to defined themselves as middle class,

even with household incomes ranging from $25,000 to $200,000. We heard often that in

this day and age, they’d rather identify as middle class than upper class, or even upper

middle class.

In listening to these Americans, we heard a clear message that class isn’t just a reflection

of financial wherewithal or household income, but of personal values and aspirations. For

most, middle class means hardworking, happy and financially responsible. It’s been said

that the “American dream” is dying, but that’s not the case based on our conversations

with consumers. The dream has evolved, like everything else.

Middle class is a state of mind

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[Middle class is] hard working, pays most of the country’s debt, have gone to war, never shirk from

responsibility. All the right things.

Female, less than $25,000, 65+

I am not rich enough to be a part of the upper class; I am better off than the lower class. Everyday

people trying to do the best they can, making a difference in improving society, making a difference

in others’ lives. Not just existing.

Male, $25,000-$50,000, 55-64

Middle class is a state of mind. I know folks with wealth and they are not happy and I know folks with

little that are very happy. I don’t play the class game.

Male, $75,000-$100,000, 65+

I may be upper class, but I have always identified with middle class.

Female, $150,000-$200,000, 35-44

Jim, 40Katie, 31

Although Katie and her husband live on six figures with no kids to support, she still considers

herself a member of the middle class. She believes her household is “comfortable enough,”

but does not consider herself wealthy. Some may classify her as upper class, but Katie doesn’t

see it that way – she still has to work for a living. Her next purchase? High-end appliances for a

kitchen remodel.

A Glimpse Behind the Numbers: Two Sides of the Middle Class

15

Jim has two degrees, 11 years experience in his field, and has applied for 88 jobs without

success. His wife Jenna makes a decent living. However, it didn’t feel like enough to support

a family, so they chose not to have children. He too identifies with the middle class: he is

not rich, and not poor. What has he cut to make ends meet during his unemployment? High

end grocery stores, cable TV, and his upcoming vacation.

Jim is 40, unemployed,

and his wife makes less than

$45,000. He identifies as

middle class.

Katie is 31. Her and her

husband live on a comfortable

$130,000. She identifies

as middle class.

“ I’m not rich, not poor, my wife makes above 40 thousand so we are straight. I see myself as just at the bottom coming up with the recovery, I believe that everything is getting better, I’m out of a job but it is not that bad.”

“ I consider myself to be average regarding income – certainly not wealthy (and not poor either). I feel very lucky to be in the middle class.”

APRIL UP CLOSE

healthcare salary

groceriesbudget locally

neighborhoodgas prices

minimum wage student loansrefund

The Consumer Confidence Index is an important “big picture” view of the economy, but for

those looking to connect with consumers, it’s critical to understand the sentiment behind

the data. The real consumer confidence is a reflection of what’s happening on a person’s

block, in their neighborhood, and with the prices they pay for gas and milk. Retailers are

struggling with economic recovery and that’s because consumers are still uncertain about

their economic present and future. As reported by Reuters, retail sales barely rose in April,

far below expectations, which is not surprising considering what we heard from consumers

these past months.

Food prices, gas prices, durable goods. You name it prices are on a slow but steady rise.

Male, $50,000-$75,000, 45-54

We see family less often because of the gas it takes to get there. We are going through a lot of

extra trouble to put cords on power strips and turn everything off when we’re not using them.

We wear thicker clothes and turn our heat down lower. We went to $80 per year Tracfone

instead of $90 per month Verizon.

Female, $25,000-$50,000, 35-44

Americans “Feel” the Economy at a Local Level

Consumers look to different micro

factors to help them understand

how the economy

is doing.

17

Homelessness Jobs

ConstructionShopping

Gas and Milk Prices

NEIGHBORHOOD

Shelley’s story is a familiar one. Like many college students, she lives on campus and is

struggling to make ends meet. Her parents have limited means to help her, and despite a

part time job and subsidized student loans, she told us “the expenses are overwhelming

at times.” Shelley pays attention to every dollar she spends but it just isn’t enough. To

afford necessities like food and medicine, she says she simply needs more hours at work

– hours that just aren’t available.

Shelley is painfully aware of her student loan debt and the impact it will have on her

future. But for now, it’s the day-to-day struggles that occupy most of her thoughts.

Finding a cheap gallon of milk is more important in this moment than the thousands of

dollars of student loan debt she’s accumulating. Shelley’s personal hardships cloud her

outlook for the future. After all, how can she and her fellow students contribute to the

economy if they are dealt the double whammy of being underemployed and struggling

under mountains of student loan debt?

“ I look at how hard I have to work with my part-time, minimum

wage job in order to pay for necessities while I’m in school. Minimum

wage is at under $8.00, so one hour of work only pays for about 2 gallons

of gas which is around $4 a gallon . I have to work long hours on top of

school work in order to pay for gas, food, etc. to live. As a student living

on campus, I would say that the economy can be described as people

needing to go into huge debt in order to start a career

and pay off that debt.”

A Glimpse Behind the Numbers: The Minimum Wage Student

18

Shelley, 21

Despite a plethora of points of contact, 80% of marketers don’t believe they truly

know their customers. This can and should change. By taking the time to engage their

customers in real conversation, marketers can gain important details and rich color

that will place data and information into better context. Details make the difference in

understanding consumers in the abstract or on an intimate level. When we get past the

numbers, this qualitative look at consumer confidence gives marketers the insights they

need so they can truly “know” their customer.

Background and Methodology

iModerate conducted one-on-one conversations with 425 American consumers between

February 1 and April 30, 2014. For details on our methodology, or for more information on

our Qualitative Tracker services, please click here.

Details Matter