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Feb. 2009 - Issue 15
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In this Issue :
New Product Innovation in a Recession
New Product Innovation in a Recession.
While current economic conditions may be causing consumers
to trim back, marketers need to resist that impulse on new
product development. The key learning is that innovation can
succeed during recessionary times if the fundamentals are
right... READ MORE
Channel Shifting in a Tough Economy
Global Economies Adjust
Transforming China’s Growth Engine
Awards Shows Take Centerstage
Channel Shifting in a Tough Economy.
Battered by the economy, U.S. consumers are shopping less
frequently, demanding value, trading down, buying less, moving
to private label and shifting department purchases across
channels... READ MORE
Global Economies Adjust.
Like a house of cards, one slight move and it all comes tumbling
down. Around the world, the operative word in today’s economic
climate is value. How are manufacturers and retailers coping?
What are the biggest opportunities…and surprises for 2009?...
READ MORE
Trend Index
Transforming China’s Growth Engine.
No longer able to rely on buyers in the rest of the world to drive
its economic growth, China is relying on its own consumers to
help stimulate its economy. But what will it take to get them to
spend?... READ MORE
Movies, TV, Books, Ads, Music, and mo
Top 10 Digitally Downloaded Songs
January 31, 2009
1. Just Dance
2. Gives You Hell
Awards Shows Take Centerstage.
3. Heartless
And the winner is…. the retailer. Turns out there’s a very
practical reason for performers wishing to win a Grammy or
Academy Award—music sales skyrocket!... READ MORE
Complete Trend Index
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Delivering consumer clarity
Feb.2009 - Issue 15
http://www.nielsen.com/consumer_insight/ci_story1.html
New Product Innovation in a Recession:
Resist the impulse to pull back
By: Mike Asche, Vice President of Client Consulting and
Rob Mooth, Vice President of Client Consulting, The Nielsen Company
CI SUMMARY: Consumer habits are slow to change and their purchase interest in everyday
goods is relatively stable over time regardless of macroeconomic conditions. The same
principles that guide new product innovation decisions during normal economic times are
relevant during recessionary times too. However, there are important clues on how to think
differently about innovation when times are tight.
Successfully launching new products is always tricky, but recessionary environments
pose their own set of unique challenges and the margin for error declines.
Investments receive more scrutiny and priorities shift from more “normal” times. The
temptation to view new item innovation as a discretionary expense can be strong.
At the same time, much has been written about new product
successes that have been birthed during hard economic times
and the need to resist the impulse to pull back on new product
development. To be sure, some changes in marketing activity
are necessary when the economy is slumping. But the
rationale for strategic choices during these times should have
more to do with a clear view of the fundamentals than with fear
of failure and uncertainty.
Resist the impulse to
pull back on new
product development...
To test this hypothesis, Nielsen recently mined insights from about 35 new item launches that are
being actively monitored across a variety of packaged goods categories in the U.S. The results
revealed important clues on how to think about innovation in the current economic downturn.
Don’t throw out the playbook
The first observation from studying these launches is that most are proceeding as expected. Of the
initiatives being tracked, about three in four showed no unusual patterns in sales relative to Nielsen
expectations, and little evidence that economic conditions were negatively impacting sales.
Since most consumer packaged goods categories are showing small impacts on category turns from
the economy and only moderate effects in terms of brand shifting, the idea that new products are
largely on track makes good fundamental sense. When it comes to everyday goods, consumer
habits are slow to change. This mirrors Nielsen’s finding over years of testing new products in the
BASES system—consumer purchase intent and value perceptions are relatively stable over time
regardless of macroeconomic conditions.
The mantra for these times is this: Guide the ship with a steady hand, but don’t over-steer. If a
fundamentally sound innovation process has shown results during “normal” times, then the right
principles are likely in place. The same principles that guide innovation decisions during normal
economic times are relevant during recessionary times too.
Premium items are not dead
Many would be surprised to learn how many premium-priced
initiatives are active in-market right now—over half of the items
that Nielsen is tracking are priced at a premium to their parent
brand and/or their respective category. Perhaps even more
surprisingly, many of these items are also performing as
expected. The key learning is that even higher-priced items
can succeed during recessionary times if the fundamentals are
right. While purchases of expensive “intermittent” luxuries like
vacations or cars might be delayed or cut altogether, everyday
affordable indulgences can still play a role in consumers’ lives.
Even higher-priced
items can succeed
during recessionary
times if the
fundamentals are
right...
An emerging pattern, however, is revealing that some premium items are more vulnerable during this
downturn than others.
Stretching into premium territory could be risky
A number of brands that are currently underperforming are attempting to stretch into pricing territory
that is outside their historical comfort zone with consumers. If the base brand is parity- or valuepriced and doesn’t have a clear differentiating element, this may not be the time to attempt an
extension into a more premium space. Brands that are more price-driven may experience better
return on investment behind fortifying the base equity rather than attempting to commercialize
extensions into higher price tiers.
Know your brand’s limits
Winning innovation strategies always start with an objective
understanding of the competitive landscape and the strength of
key brands’ assets. Using new products as a way to mask or
overcome brand positioning or equity issues is a risky play
under any circumstances. Current new product performance
suggests that this principle may be especially relevant during
tighter times, particularly as it relates to a brand’s value
equation.
Clearly state the “why to buy”
For premium-priced products, the unique benefits must be
clearly positioned with consumers. One of the pitfalls Nielsen is
observing with premium products currently struggling in the
marketplace is unclear differentiation and a lack of clear
consumer rationale for why to buy. When premium initiatives
lack a clear reason for their higher price, they struggle to make
it off the shelf and into a basket. Marketers can avoid shortfalls
in the market by spotting the early warning signals with two key
indicators:
Using new products as
a way to mask or
overcome brand
positioning is risky...
One of the pitfalls is a
lack of clear consumer
rationale for why to
buy...
Key indicator #1: Understand consumer “attraction”
Nielsen measures consumer interest in new items using an idea called “Attraction” in its consumer
adoption framework. Generating strong consumer attraction depends on both an initiative’s
perceived consumer relevance and also its competitive differentiation. For premium products, setting
the brand apart with high relevance and clear perceived advantages vs. the category are critical
factors for success. And in a soft economic climate, this is even more important, as those brands not
meeting expectations had clear problems in generating attraction prior to launch.
Key indicator #2: Learn about value perceptions relative to experience .
Even for premium initiatives, Nielsen typically advises targeting at least “average” perceived value as
the consumer success criteria in the BASES system. This is quite evident in current new product
launches, as some of the weakest performers demonstrated very low value ratings in testing.
Occasionally, a marketer will rationalize why it might be acceptable for a premium item to generate
relatively weak value ratings. However, Nielsen advises an extra degree of caution if an initiative is
weak on value during these economic conditions. An initiative with this profile should have its
positioning, target, and/or price point explored further to see if the value perception can be improved.
If not, strong consideration should be given to abandoning the product launch altogether and
focusing resources on better opportunities.
Proceed with caution
Armed with a clear understanding of the competitive landscape and a robust assessment of a new
product’s position, marketers can make an educated decision about whether to stay the course or
modify a launch. Even during recessionary times, if the fundamental principles are in place,
marketers can grow via innovation—being mindful of the warning signals.
Nielsen Consumer Insight, February 2008
Delivering consumer clarity
Feb.2009 - Issue 15
http://www.nielsen.com/consumer_insight/ci_story2.html
Channel Shifting in a Tough Economy:
Two major trends unfold: shifting and
contraction/expansion
By Todd Hale, Senior Vice President, Consumer & Shopper Insights
James Russo, Vice President of Marketing
Laura Marro, Client Director, The Nielsen Company
CI SUMMARY: What do Spam and Ramen noodle sales have in common? Both are leading
indicators that it’s crunch time in the aisles of America’s retailers as consumers tighten belts and
budgets in response to investment losses and economic uncertainty.
The economic signposts are everywhere—an increase in cheap “staycations”, a surge
in filling low-cost foods like bulk rice, macaroni & cheese and dry pasta; an uptick in
the misery index which hit 7.7% by year-end; a boost in price comparison web site
visits; a 30% bump in TV viewing and a decline of 2.5% in all-outlet shopping trip
frequency in 2008. Consumers are hunkering down for the long haul, marshalling their
resources and using time-proven tactics for stretching their budgets.
In good times and bad, American consumers enjoy a rich and
diverse portfolio of retail options, and these days, they are
making full use of them. An analysis of Nielsen data detected
two major trends impacting 2008 unit sales: shifting (shoppers
shifting department purchases across channels) and
contraction (shoppers buying less in the latest year versus the
prior year).
An analysis of Nielsen
data detected two
major trends impacting
2008 unit sales...
Winners, losers
According to Nielsen, only one channel—supercenters—posted overall unit sales growth, which was
a very modest 1% at that. While four channels recorded shifting gains (2.7% drug stores, 4.7%
supercenters, 3.3% club stores and 1.7% dollar stores), these gains were more than offset by market
contraction, for an overall net loss in unit sales.
Grocery gave up sales in the majority of its departments to supercenters, although fresh produce
department losses often transferred into warehouse club gains. There were also some bright spots
for grocery, which benefited from shifting patterns in the general merchandise, drug and gas
departments, where gas promotions linked with in-store spending yielded incremental dollars.
Other channel shifting relationships included: drug stores capturing disproportionate shifting gains in
dry grocery and non-food departments from grocery and gains from general merchandise, health &
beauty and non-food from mass merchandisers, while forfeiting prescription drug sales to both of
these retail channels; mass merchandisers forfeiting sales to supercenters; supercenters gaining
across the board with the exception of gas sales, which fueled some convenience/gas channel
growth; warehouse club stores attracting unit purchases from all channels with edible department
shifts originating primarily at grocery; and dollar stores reporting mixed results, pulling from grocery
and losing general merchandise and health & beauty aid sales to supercenters.
Hunger pains
With high gas prices impacting consumer spending patterns for Edible departments
the first eight months of the year and the financial crisis in midtook a bite out of the
September, consumers switched gears into conservation
mode, opting to meet basic vs. discretionary needs. As a
competition...
result, edible departments took a bite out of the competition,
driving the total 4.1% 2008 food/drug/mass merchandiser
dollar sales growth. Because of inflationary pricing, however, as not all edible departments recorded
unit sales gains.
Also telling was the fact that as non-food sales faltered, basic food categories and traditional
“coping” categories like canning supplies, wine, vitamins and liquor made the list of the top 15
fastest-growing categories on a unit basis.
Global impact
A Nielsen analysis across 52 countries determined that eight in ten consumers believe they are in
the midst of a recession. Retail fallout from bear market concerns included store closures for
banners like Foot Locker, Home Depot, Ann Taylor, Disney Stores, Zales, Pier 1 Imports and Linens
‘N Things. Across the pond, vulnerable businesses like the U.K.’s Woolworths, Zavvi (music), MFI
(furniture) and Whittard (tea and coffee) also succumbed to the pressure.
Traditionally, grocery has been viewed as recession-resistant, but the channel is not recession-proof.
Chains with flawed business models or severe capital constraints may find themselves targets for
acquisition-hungry competitors looking to expand their footprint in key markets.
Frequency failure
The single most important factor in declining U.S. retail sales
has been the marked decrease in the number of shopping
trips, not transaction size. Trip frequency declined by 1.5% on
average in 2008, most notably in apparel, do-it-yourself, toy,
office supply and department stores.
The single most
important factor in
declining U.S. retail
Instead of driving from store to store, consumers let their
fingers do the walking at the keyboard. Nielsen determined
from online discussions that 20% of shoppers are proactively
managing grocery budgets, which has sparked increased
traffic to price comparison web sites. But it’s all about value,
not necessarily the absolute lowest price. In a separate
Nielsen survey, almost half of all consumers said they
preferred larger sizes with lower price per serving over
downsized products.
sales has been the
marked decrease in the
number of shopping
trips...
Private label was also the beneficiary of financial worries, with both unit and dollar sales hitting an
all-time high in 2008. Toward year-end, private label dollar sales jumped by about 10% over five
consecutive four-week periods, averaging out to 4% dollar and 5% unit sales growth for the year. In
the same period, branded offerings underperformed, realizing a 3% dollar sales increase and a 3%
decline in unit sales.
Silver lining
Optimists believe that by the second half of 2009 the recovery
will begin—credit markets will loosen, labor markets will
strengthen and gas prices will hold at levels 50% off the
record-setting July 2008 highs. Perhaps the first glimmer of
hope was seen at the 2009 Consumer Electronics Show
(CES), where flagging attendance was balanced by a nearly
tenfold increase in online buzz.
Optimists believe that
by the second half of
2009 the recovery will
begin...
Headline-making categories included super-thin and bendable TV screens, digital cameras and
camcorders, supersmart smartphones and tiny yet powerful computers. The whole concept of
“convergence” dominated CES. It’s the idea that electronic products are converging to multi-task in
multiple areas—phones as music players, handhelds that display TV content and cameras with GPS
functionality.
Bullet-proof strategies
Here are some ideas for weathering the turbulent financial
seas. Home-based opportunities abound for sharp marketers
with products that appeal or facilitate consumer nesting. Social
network sites represent an under-utilized resource for
leveraging brand loyalty and word-of-mouth.
Ideas for weathering
the turbulent financial
seas...
Consumer trading-down behavior can prompt new product, packaging and promotion ideas. Organic
and fair trade products may open the window again for more traditionally-sourced offerings based on
a recession-driven value equation. An effort to reduce avoidable losses should enhance the
attractiveness of frozen foods, single-serve prepared meals and smaller portions in food service.
And a word to those who may be tempted to reduce marketing spending in tough times. Although
counterintuitive, now is actually the time to investment spend. During the 1980s, companies that
maintained or increased advertising and marketing budgets generated higher revenue gains during
the recovery period than companies that cut spending. Perhaps this proves the saying, “pennywise
and pound foolish”.
Nielsen Consumer Insight, February 2008
Delivering consumer clarity
Feb.2009 - Issue 15
http://www.nielsen.com/consumer_insight/ci_story3.html
Global Economies Adjust:
Interview with Nielsen’s top industry thought leaders
By: Todd Hale, Senior Vice President, Consumer & Shopper Insights, Nielsen U.S.
Jonathan Banks, Director Retail Insights, Nielsen Europe
James Russo, Vice President of Marketing, Nielsen U.S.
Jean-Jacques Vandenheede, Director Retail Insights, Nielsen Europe
CI SUMMARY: A shift from nice-to-have to need-to-have assortment and retailing is a common
thread across the U.S. and abroad. An interview with Nielsen’s top industry thought leaders
reveals how shopping patterns across the world have been affected by the economic downturn,
how consumer packaged goods manufacturers and retailers are coping and what lies ahead for
the rest of 2009 and beyond.
In what areas of the world, have you seen the most significant changes?
Jonathan Banks (JB): We have already seen a big reduction in shopping trips in European
countries since the first quarter of 2008. In Australia, the convenience channel heavily depends on
travel to gas stations and there is a strong correlation between gas prices and their store
performance. Also Australia saw a faster than expected growth in the discounter channel due to the
expansion of ALDI. They succeeded in marketing an offering that consumers perceive to be
competitive with the supermarkets on both quality and price. Around the globe, discounter growth
was highly correlated with the growth in store numbers, though we now see in some countries (e.g.,
United Kingdom, Germany and Netherlands) like-for-like growth moving ahead.
Jean-Jacques Vandenheede (JJV): While the surrounding
conditions in each market are different, everything today has to Everything today has
do with value. Consumers are flocking to good deals and they
to do with value...
are taking advantage of the aggressive sales being offered.
However, we have noticed a four to six month delay between
the media hype and the resulting consumer behavior. Meaning this: it could get worse before it gets
better. Since food is relatively recession resistant, consumers are mainly saving money by cutting
back on non-essentials, such as perhaps only taking one holiday instead of two.
James Russo (JR): In the U.S., consumers have been preparing for a recession since the fourth
quarter of 2007, according to a Nielsen Global Consumer Confidence survey. However, the most
dramatic change in behavior aligns with the severe drop in economic and financial conditions that
took place in September 2008. While there are areas of the U.S that are more affected than others,
this recession—unlike some others in the past—is broad-based across all income groups. Lowerincome households are feeling the pressure of the labor market, housing and credit restraints, and
upper-income households are watching their net worth decline, which is most visible in their
retirement pensions and housing.
Todd Hale (TH): In the U.S. retailing market, the big surprise
has been the severity of shifts from nice-to-have to need-to“If you can’t eat it, you
have assortment and retailing. In 2008, sales results for
don’t need it”...
discretionary retailers (those serving both high- and low-end
consumers) saw their shopping trips and dollar sales plummet
in 2008, and sales results for many food categories and food retailers were obviously much better.
As a colleague succinctly put it, “if you can’t eat it, you don’t need it”.
What are retailers doing to cope in difficult economies?
JJV: Interestingly, retailers are grasping at basic block-and-tackling methods that place emphasis on
resisting price increases, making concessions towards quality, focusing on promotion, investing in
private label and negotiating with suppliers on margin increases.
JB: One of the most newsworthy events in the United Kingdom
was the closure of the British icon Woolworths. While the
economic pressures are affecting a spectrum of retailers, those
poor-performing retailers—before the recession—are the ones
struggling most. A development to watch is the utilization of
Information Technology (IT). As IT continues to get less
expensive and more effective, there will be opportunities for
increased collaborative buying and sourcing. There is an
A development to
watch is the utilization
of Information
Technology...
opportunity to increase savings in times like this, and getting
more with what you have is a good investment. Expect to see private label’s share advance more
quickly in some categories, in some countries.
JR: Retailers are taking steps to address consumers’ strong desire for value, through their
merchandising, marketing and advertising programs. There is a renewed focus on driving return on
investment, getting more out of what they have and understanding opportunities (consumers,
categories) at an increasingly granular level.
TH: U.S. retailers are placing a strong emphasis on value and their private label programs. In the
past year, Kroger has gone head-to-head with Walmart with matching prices on food basics such as
bread, milk, eggs, and bananas. On the heels of Save-A-Lot’s successful “Fuel your family for less”
program, other grocers have implemented their own “Feed a family of four for $8.00/$10.00 per
meal” programs. With a decline in commodity prices, grocers like Wegmans and Giant Eagle
(Pittsburgh) have advertised price cuts across their stores.
From the consumer packaged goods executives you have spoken to, what is
their level of optimism?
JJV: Caution and uncertainty are the operable words to use. Executives are planning for the worst
and hoping for the best. Rather than over-reacting to the conditions, they are looking for segments of
opportunity wherever they can be found. All the market indicators we are tracking show that the
markets are holding. The majority of the categories are showing positive volume growth in Q4 of
2008.
JB: Now is not the time to slow down and pull back from brand
development. Think about how long it takes to get a new
product through the pipeline. From a new product development
point of view, marketers should have reduced their efforts two
years ago if they wanted to be less dynamic through the
downturn. History tells us that really great brands have been
launched in the middle of recessions where advertising can
cost less.
Now is not the time to
slow down and pull
back from brand
development...
JR: As we speak to hundreds of manufacturer and retail executives, 2008 was clearly a year of
uncertainty. Questions such as; how bad is the recession going to be, how long will it last, and what
do we need to know were on the minds of every executive. In 2009, the discussions are starting to
turn towards: How do we plan for a recovery? What is our exit strategy to assure growth in an up
market? Should we increase our advertising and marketing spending? Positive developments will
come as many of these plans will take months to execute. Companies need to stay ahead of the
curve.
TH: CPG manufacturers have a more pessimistic outlook on 2009 than most retailers I have spoken
with. However, many manufacturers do see opportunities to at least hold firm on their marketing
spending. While big retailers like Target, Walgreens and Walmart announced plans to reduce store
expansion in 2009, they are still expanding and investing in new formats. The same is true for a
number of other national and regional grocers as they look for opportunities to test or open new
formats and find new locations to expand their footprint.
What are the biggest opportunities for consumer packaged goods
manufacturers and retailers in 2009?
JB: Sustainability remains an extremely important long-term
trend as opposed to a fad. Today, ethical companies can use
this platform as a differentiator. Within three years, it will be
expected and opportunities to promote it will diminish as ‘doing
the right thing’ becomes the norm.
Sustainability remains
an extremely important
long-term trend...
JJV: Now is the time to plan ahead and develop an exit strategy out of a crisis. Look at all potential
pitfalls and determine a plan to turn things around. Not planning for an exit strategy is actually
slowing down the recovery.
JR: The biggest opportunities will be found by aligning with the deepening consumer behaviors that
have been occurring since the beginning of 2008. As the economy slows, these behaviors will
intensify. Some of these behaviors include:
z
z
z
z
greater at-home related opportunities;
fulfillment of basic over discretionary needs;
pervasive trading down;
variety and convenience taking a back seat to value.
TH: Consumers have told us how they are staying home more
often and consuming more meals at home or at work. This
speaks to meal solution opportunities for food manufacturers
and retailers. In addition to the “meal deal” promotions many
grocers have implemented, there are opportunities for at-work
There are opportunities
for at-work meals and
meals and other meal solutions. One example is ConAgra’s
new line of microwave meals. New product opportunities can
other meal solutions...
come to those manufactures that provide a product that
delivers real benefits. Value messaging is another strategy
coming out loud and clear, such as Kraft’s TV advertisement that compares the size and price
advantage for Velveeta cheese with a block of cheddar cheese.
While unit sales of many non-food, health & beauty aids, and general merchandise products fell in
2008, the fact that consumers may be spending more time at home speaks to opportunities in these
categories too. Procter & Gamble is a good example of successfully positioning some of their health
& beauty brands against higher-prices department store or beauty salon offerings.
What is the one development that has surprised you in 2008?
JB: What surprised me most was the high level of debt families accumulated. Too many families are
living beyond their means. Whilst the credit crunch was predicted by some, a good reminder to us all
is that in economics, what should happen, usually does…eventually!
JJV: The number of businesses that have been operating beyond their “natural” means—the
overuse of incentives, promotions, etc.—has pushed the environment to a limit. Those companies
who were healthy before the recession hit will thrive. The ones who were already struggling have
been hit harder. Like the athlete who uses prohibited drugs to stretch beyond their physical limits,
when corporations operate beyond their means, it is only a matter of time before they will get caught.
JR: The potential for a fundamental shift in consumer behavior
is most surprising. This recession is not a cyclical decline and
The potential for a
subsequent recovery back to norms. The fundamentals that
fundamental shift in
drove consumption for the past 10 years—most notably, the
housing and credit markets and the way households
consumer behavior is
overleveraged themselves—have abated. It is almost as if we
are turning back the clock to the 1980s or early 1990s where
most surprising...
households start to save and become more fiscally responsible
in their consumption habits. And while there is long term gain
associated with these behaviors, in the short term, we are looking at a slower, very moderate
recovery for potentially the back half of 2009 or early 2010.
TH: What surprised me most was how escalating gas prices—which rose above four dollars a gallon
in the first half of 2008—and the mid-September collapse of financial markets had altered the
shopping and spending habits among those with higher incomes. These consumers have led the
growth in shopping trips to value retailers such as dollar stores and supercenters.
Secondly, the decline in retailer spending and shopping within discretionary retailers, such as
apparel, electronics, office supply, department stores, etc., in 2008 has been unprecedented. This
trend will continue in 2009, as virtually every major industry (from automotive to housing to
restaurants) will continue to experience weak sales in 2009. However, it is hopeful that a U.S.
economic stimulus program will be implemented by the second half of 2009, which should drive
more consumer spending and make 2010 a better year.
Nielsen Consumer Insight, February 2008
Delivering consumer clarity
Feb.2009 - Issue 15
http://www.nielsen.com/consumer_insight/ci_story4.html
Transforming China’s Growth Engine:
Moving from exports to consumer demand
By: Susan Whiting, Vice Chair, The Nielsen Company
CI SUMMARY: China’s export-driven economy has slowed as a result of the global recession.
With a drop in exports and a growing unemployment rate, the Chinese government is urging
consumers to spend in order to spur the economy. While various stimulus plans are being
investigated, the nation’s success may rely as much on altering cultural dynamics as replacing
economic models.
When China first announced its massive stimulus plan at the end of 2008, it was
largely praised both internally and around the world. The four trillion Yuan ($586
billion) package was designed to expand growth 1% for each of the next two years,
and help ensure gross domestic product (GDP) would remain above the 8% threshold
Chinese leaders have repeatedly said is needed to maintain economic and social
stability.
But as its principal trading partners, Europe and the United States, have slipped deeper into
recession, China’s export-driven economy continues to slow as well. The nation’s exports in
December fell 2.8% from a year earlier, while foreign direct investment—another key economic
driver—faded in the final three months of last year.
Just as worrisome is the World Bank’s forecast of 7.5% growth in 2009—though still much better
than the International Monetary Fund’s current 5% projection.
Stimulus plan concerns
Since its introduction in November, the plan has come under increased scrutiny. Some observers
question the actual amount of the stimulus, noting it includes funds already budgeted in the
government’s 2006–2010 plan. Others think it relies too heavily on monies that must be raised by the
provinces and private businesses.
Most important, however, is the fact that the package includes
only a few programs geared toward expanding consumer
spending. Yet that is crucial to achieve the government’s
expressed goal of transforming China’s growth engine from
exports to a model based more on domestic demand.
The package includes
only a few programs
geared toward
expanding consumer
spending...
Consumer spending challenges
Efforts to boost domestic consumption face considerable
challenges, even in an economy as relatively strong as
China’s. At December’s CAIJING Annual Conference in
Beijing, hosted by the nation’s leading business and financial magazine—and in which I had the
privilege to participate—several prominent economists, academics and government officials shared
their perspectives on the issue.
According to Cai Fang, Director of the Institute of Population
Studies at the Chinese Academy of Social Science, one factor
suppressing consumer spending is what he describes as an
“income effect,” which is the direct result of declines in both
employment and income growth.
One factor suppressing
consumer spending is
declines in both
employment and
income growth...
With the drop in exports, China’s manufacturing also has
weakened, forcing thousands of factories to close. Nowhere
has this been more evident than in provinces like Guangdong,
where export growth plunged from 22.3% in 2007 to just 5.6%
in 2008, and where it is expected to remain flat throughout this year.
Consequently, it has been reported that close to ten million Chinese migrant laborers are out of
work. On top of this, as many as seven million university and college graduates also are seeking
employment.
Moreover, even consumers willing to spend may find it difficult, since too few can afford to buy the
goods their factories produce principally for export.
Indeed, earlier this year, China announced it had revised its 2007 GDP growth to 13%, thus
surpassing Germany as the world’s third largest economy. Yet China's 1.3 billion residents have a
per capita GDP of only about $2,500, compared to the more than $40,000 enjoyed by Germany's 82
million inhabitants.
Potential growth drivers
To maintain employment levels and sustain income growth, Cai believes China must focus its efforts
on various sectors of potential growth. For example, there are opportunities to enhance labor
productivity in coastal export businesses—particularly through training and education—while also
establishing low-cost manufacturing in parts of Midwest and Western China.
Another possibility is to leverage flexible means such as self-employment, incorporation, and other
channels beyond traditional state-owned enterprises.
Still, encouraging consumers to spend will require more than
just augmenting employment, contends Shen Minggagao,
Caijing magazine’s chief economist. China must significantly
reform its social programs before more people will part with
their money.
Encouraging
consumers to spend
will require more than
just augmenting
employment...
Unlike its American counterpart, the average Chinese family
saves about 30% of its income, mainly because of China's frail
social safety net. Without support systems like social security
or health and unemployment insurance, people must rely on
their own resources to pay for a hospital stay or a child's education.
The way to stimulate consumer demand, notes Shen, is to speed such reforms. In addition, he sees
an immediate need to increase Chinese income levels, especially those of low-income groups in
both urban and rural areas.
Huang Qifan, Vice Mayor of China’s largest municipality, Chongqing, agrees with the concept of lowincome family stipends, along with discounts on purchases of home electrical appliances by rural
families. He also thinks changing the personal income tax system could generate aggregate demand
among consumers.
A tax deduction or refund on individual mortgage spending, for instance, would help restore property
market confidence and increase consumption—as would a special tax refund for those whose
incomes depend on exports.
Possible pitfalls
But Zhou Xiaochuan, Governor of the People’s Bank of China, warns that if China only reduces
taxes without reducing administrative spending, there will other issues to deal with, including a fiscal
deficit.
Instead, he recommends a bundled resolution that provides a progressive percentage tax cut
supported by a proportionate reduction in government administrative expenditures.
So far, the government has taken a number of steps in response to these and other
recommendations. In January, it announced it would spend an additional 850 billion Yuan ($124
billion) over the next three years to improve health care coverage. It also has lowered the down
payment requirement for home purchases from 30% to 20% of a home’s value.
A difficult dichotomy
Yet the nation’s success may rely as much on altering cultural
dynamics as replacing economic models. China is encouraging
its citizens to spend more at a time when consumers in the
United States are being admonished to do just the opposite,
putting even greater pressure on exports and manufacturing.
The nation’s success
may rely as much on
altering cultural
dynamics as replacing
economic models...
In fact, Chinese and American consumers have ostensibly
become mirror images of one another. While Chinese families
save nearly a third of their incomes, Americans’ personal
savings rate has crept near zero for the past several years. It is not surprising then that household
consumption represents more than two-thirds of the U. S. economy, compared to slightly more than
35% in China.
Changing that correlation won’t be easy. In 2008, American households accounted for only about
4.5% of the global population, but bought more than $10 trillion worth of the world’s products and
services. On the other hand, the four-in-ten people who live in either China or India bought only $3
trillion.
Optimistic results
Nonetheless, there are signs that Chinese consumers are
open to the possibility of spending more of their money.
There are signs that
According to Nielsen’s most recent Global Consumer
Confidence Survey, nearly three-quarters (72%) of Chinese
consumers are optimistic that their country is not in a
recession. Accordingly, China’s Consumer Confidence Index
(CCI) of 96 has remained relatively stable since 2006, and
hovers above the CCI of 84 that is the global average.
Chinese consumers
are open to spending
more...
More than half (56%) of consumers surveyed are generally optimistic about their personal finances
in 2009, though less so (41%) about job prospects. Among those willing to spend their spare cash,
most favor leisure-related categories, such as holidays, out-of-home entertainment and new
technology—areas in which the government hopes to encourage greater consumption.
For its part, the government too is willing to spend more where necessary. Much like its citizens, it
has “money in the bank,” with a budget surplus that exceeded one trillion Yuan in the first half of last
year. Recently, it announced it will expand the country’s money supply by 17% next year to spur
domestic spending. It hopes to grow 2008 bank lending levels by as much as $14 billion.
Even so, China’s economy has been unable to avoid the “economic tsunami” that has engulfed
much of the rest of the world, and its eventual outcome rests on a host of variables both at home and
abroad. So far though, it appears to be in position to effectively weather the global economic storm.
Nielsen Consumer Insight, February 2008
Delivering consumer clarity
Feb.2009 - Issue 15
http://www.nielsen.com/consumer_insight/ci_story5.html
Awards Shows Take Centerstage:
Sales from award-winning performers skyrocket
By Valentina Nucete, Nielsen Entertainment and
Virginia Harvey, Nielsen Monitor-Plus
CI SUMMARY: Despite waning viewership numbers—and a male audience that has gone
MIA—award shows remain popular with advertisers, and even more so with artists who can see
music sales climb as much as 700% one week after the show airs.
The Grammy Awards, Academy Awards, MTV Video Music Awards, Emmy Awards
and Golden Globe Awards represent the pinnacle of professional achievement in an
artistic sense, and serendipitously, in a financial sense as well.
Knee-deep in the award season, Nielsen evaluated music sales data for the week prior to and
following the Grammy Awards during the 2006-2008 seasons. Nine out of ten artists who won or
performed at the Grammys earned the ultimate accolade—an increase in album sales. Threequarters of those artists managed to spin a win into a jump in digital song sales as well.
Great performances
For the 2008 Grammys, two-thirds of participating artists
enjoyed a sales boom of 50% or more. Notably, British warbler
Amy Winehouse hit a sales high note. After nabbing five
awards, her week-after-airing sales of Back to Black climbed to
4.5 times those of the show week "115,000 vs. 25,000 units".
Two-thirds of
participating artists
enjoyed a sales boom
of 50% or more...
Similar sales spikes were observed for the 2007 Grammys,
with half of musical participants enjoying a sales push of 50% or more during the seven day postshow period. In an unprecedented revival, The Police reunited to cut a track titled Outlandos
D’Amour that copped top sales honors with a 120% unit increase.
Future focus
The nominee list for the 2009 Grammys features a number of familiar faces—including Madonna, the
Eagles, John Mayer, Maroon 5 and Rascal Flatts—who have appeared in two of the last three award
shows as performers, winners or both. In a rare triple play, 2009 candidates Bruce Springsteen (Best
Rock Song) and John Legend (Best Rap/Sung Collaboration) either performed or won Grammys in
2006, 2007 and 2008.
Springsteen’s record sales following a Grammy win or appearance enjoyed a bump anywhere from
37% to 200%. Legend’s results were even more impressive, with after-show sales ranging from 77%
to 700%. If the past is predictor of future success, expect to see them both at the podium again this
year.
Movie magic
Just earning a nomination in the Academy Awards proved
powerful enough to move the song sales dial during the critical
post-program week. After winning the 2008 Best Original Song
Oscar, digital downloads of the Glen Hansard and Marketa
Irglovasong entry Falling Slowly rose some 207% (42,000 vs
14,000 the pre-show week). The movie soundtrack album
Once, which featured the song, also saw sales soar from
19,000 to 47,000 copies.
Just earning a
nomination proved
powerful enough to
move the song sales
dial...
In prior years, the Melissa Etheridge entry I Need to Wake Up from the film An Inconvenient Truth
and the Houston/Coleman/Beauregard collaboration It’s Hard Out There for a Pimp from the movie
Hustle and Flow grew sales by 87% and 275%, respectively. The soundtrack albums for both films
increased by 59% and 77%, respectively, and other Academy Award-nominated entries in the Best
Original song category followed suit, posting gains in both song and soundtrack album sales.
Ads up
Who are you wearing? Red carpet coverage has become almost as big a draw as the Oscars. The
names of top designers, jewelers, hair stylists and make-up artists trip off the tongue of your average
consumer. So, it’s no surprise that a department store like JCPenney holds the number three topspending position among Academy Award advertisers for the past five years courtesy of a 2008
spend of almost $11 million, roughly one-third more than in 2007.
The top slot in award show advertising support goes to General Motors: five years running at the
Academy Awards and the Grammys, three years at the Emmys, and four years at the Country Music
Awards.
Worth it
L’Oreal lives its classic slogan, apparently believing award show advertising is “worth it”. The
company dominated at the 2005 Golden Globes, spending $4.4 million on advertising. Procter &
Gamble put its best face forward at the MTV Video Music Awards, reigning as top sponsor every
year except 2006.
Apple chose to debut its groundbreaking iPhone at the Academy Awards in July 2007, five full
months prior to product release, spending a whopping $5 million on three TV spots. Even the
government got into the award advertising game, spending its way onto the MTV Video Music
Awards’ top10 advertiser list for 2004-2008 thanks to a massive recruitment ad budget.
Encore ads
Success breeds success, or at least cultivates encore advertisers. Keen observers will note that
many advertisers from the February 2008 Grammy Awards also ran schedules during the 2009
Grammy nomination announcements. For example, sponsor P&G slated seven spots for total air
time of 2 minutes 30 seconds. Other repeat advertisers included Sprint and Time Warner. A highlight
of the announcements was a digital duet featuring Best Buy and the Apple iPod in a 30-second spot.
Viewer attrition
Despite robust advertiser support, award shows are not the
“draw” they used to be. The MTV Video Music Awards now
skew to younger females, with a rapidly dwindling male
audience. The downward spiral can be seen in Academy
Award viewership, the Emmy Awards and the Grammys, with
only the Golden Globes managing to hold its audience fairly
constant.
Award shows are not
the “draw” they used
to be...
As for what’s behind the downturn, there are any number of theories. Some blame a dated format
that drags on. Some find the scripts predictable and boring. Some find the talent too old and
unrelatable. Some believe the awards themselves are pretty much predetermined by the box office
results. Take your pick as to the main motivation, it’s undeniable that consumers are taking a pass.
The 2008 Oscar show averaged a 10.7 rating in adults 18-49, down 24% from the 2007 audience
and 14% below the previous low, suggesting that all age groups are losing interest. The zenith of
Academy Award broadcasts was the 1998 show when Titanic won a record-tying 11 awards,
drawing 55 million U.S. viewers.
Chicks and flicks
On a more upbeat note, the 2007 Oscar numbers were up 3% over the prior year, particularly among
women 18-34 and 18-49. Overall, the telecast drew 8% more viewers among adults 18-34, achieving
a 12.9 rating that was its best performance among this demographic in five years.
Perhaps explaining the attraction of the Oscars to advertisers, Claritas and Spectra drafted a very
appetizing profile of the average viewer, describing her as an upper-middle-income to upper-income
female, at least 35 years old, college educated and residing in the New England, Mid-Atlantic and
Pacific regions.
Critics aside, award shows are earning rave reviews from advertisers and the retailers who benefit
from a telecast-driven sales lift for winning and performing artist offerings.
Nielsen Consumer Insight, February 2008
Delivering consumer clarity
Feb.2008 - Issue 15
http://www.nielsen.com/consumer_insight/ci_topline_article_XIV.html
Americans Favor Diversity:
Trends suggest otherwise
By: Doug Anderson, EVP, Research & Development, The Nielsen Company
CI SUMMARY: A new Pew Research Center survey suggests that most Americans value
diversity and favor living in communities with a variety of income levels, political views and
ethnic groups. Data from the U.S. Census Bureau and The Nielsen Company, however, paints a
somewhat different picture, which shows that neighborhoods are still largely divided by race—
and increasingly—by economics and politics.
From almost any perspective, the United States is an incredibly varied and diverse
country. There is tremendous range in climate, topography, affluence, degree of
urbanization, ethnicity and household composition. According to results of a new
survey from the Pew Research Center, released December 2008
(http://pewresearch.org), most Americans value diversity and favor living in
communities with a variety of income levels, political views and ethnic groups. Data
from the U.S. Census Bureau and The Nielsen Company, however, paints a
somewhat different picture of how communities actually live—a portrait of a country
still separated by race, ethnicity, political orientation and a wide range of other factors.
This dichotomy between what consumers say and what they
actually do poses a challenge to marketers. While national
advertising and promotion must reach and appeal to a wide
range of consumers in a highly diverse marketplace, there is
also a need for more locally-targeted advertising and
promotion that speaks to the sentiments of varied consumer
segments.
This dichotomy
between what
consumers say and
what they actually do
poses a challenge to
marketers...
A preference for diversity
Seen in aggregate, the United States is an incredibly diverse
country. The Ozzie and Harriet majority—the “American family
ideal” of the 1950s and early 1960s—has fragmented into countless unique subgroups. In the early
1960s, nearly half of all U.S. households had children under 18, and the majority of those
households contained married couples where only the husband worked outside the home. Today,
there are more single parent with children households than there are the former “traditional” families.
The plurality of family households has both parents working, but only account for 41% of total. Over
70% of women with children work outside the home.
The racial and ethnic makeup of the U.S. has been used to
define the concept of diversity. Tremendous growth among
Hispanics and Asians has changed the ethnic face of the
country over the past several decades, and will continue to
change it for decades to come. Hispanics make up 15% of the
U.S. population today, a level expected to double by 2050.
With continuing high levels of immigration, within 16 years, a
higher share of the U.S. population will be foreign born than
during the prior peak immigration years early in the 20th
century.
Within 16 years, a
higher share of the U.S.
population will be
foreign born...
The Pew survey asked Americans if they like diversity in their communities and found overall that
they do. Just over half (51%) of Americans gave pro-diversity responses to at least four of the five
survey areas (political, racial, religious, socioeconomic and immigrants). There was however,
considerable variation based on political party affiliation, education, race and age as can be seen in
the chart below.
Results from the study also revealed that:
z
65% prefer to live in a community with a mixed racial make-up
{
{
{
z
59% prefer to live in a community with many different religious groups
{
{
z
73% of Democrats versus 52% of Republicans
76% of those ages 18-29 versus 47% of those ages 65+
83% of blacks, 69% of Hispanics, 60% of non-Hispanic white
73% of liberal Democrats versus 44% of conservative Republicans
70% of college graduates versus 52% of those with high school education or less
61% prefer to live in a community with a mix of upper, middle, and lower classes
{
{
71% of liberal Democrats versus 57% of all Republicans
68% of those with $100k+ in household income versus 55% of those with household
income of <$30k
Local areas are not so varied
Most Americans live in
In spite of the surveyed preferences for varied communities—
those with a mix of races, religions, and incomes— most
neighborhoods that are
Americans live in neighborhoods that are much more likely not
much more likely not to
to have such mixes. Using the latest small area data from
Nielsen, it is possible to see how concentrated various ethnic
have such mixes...
and/or racial groups are in the U.S. Although there is
significantly more racial integration at the community and
neighborhood levels than there was in 1950 and 1960, by and large the U.S. remains a country
separated by race and ethnicity. In 1990, the most concentrated 50% of Hispanics lived in
neighborhoods that were at least 48% Hispanic. By 2000, the most concentrated 50% lived in
neighborhoods that were at least 51% Hispanic, meaning that Hispanics were more concentrated
geographically in 2000 than in 1990. Much of this can be attributed to the rapid growth in the
Hispanic population between 1990 and 2000, driven by immigration with many new immigrants
moving into Hispanic-dominant neighborhoods.
Blacks also live in very concentrated communities. The most concentrated 25% of black households
resides in neighborhoods that are at least 77% black. The top half live in areas that are at least 43%
black. Over one-third of non-Hispanic white households live in Census tracts in which less than one
out of each 100 residents on average are black. Nearly 70% of non-Hispanic white households live
in tracts that are less than 5% black.
Asians do not live in neighborhoods nearly as ethnically concentrated as blacks and Hispanics,
though this varies substantially by country of origin. For example, Japanese immigrants and
Americans of Japanese origin are much less concentrated than those from China or India. These
differences in geographic concentration are strongly associated with education (and consequently
with affluence). College educated ethnic Americans are much less likely to live in dominant ethnic
neighborhoods than those with high school educations or less.
Data from the U.S Census Bureau in the table below shows the most segregated metropolitan areas
in the U.S. for both blacks and Hispanics. The markets are ranked by a Dissimilarity Index. The
index measures the percentage of a group’s population that would have to change neighborhoods
for all neighborhoods to have the same incidence of the group as in the market as a whole. For
example, 85% of the blacks in Detroit would need to move to white-dominated neighborhoods in
order for every neighborhood in Detroit to have the same incidence of blacks.
Income is a differentiator
There is also substantial and growing separation of households by income in the U.S. Prior to World
War II, many more Americans lived in smaller towns and cities with a mix of income levels, where
factory owners and factory workers; doctors and patients; and store owners and customers lived in
the same communities. With the rapid suburbanization of American after the war and the related
increase in poverty in cities, households of differing income levels tended to separate.
An article in the journal Demography by Fischer, Stockmayer, Stiles, and Hout (volume 41, pages
37-59) finds that between 1970 and 2000 there was a 32% increase in the separation of higher
income Americans (the top 20%) from all other Americans. Despite this trend toward the geographic
isolation of higher income households—which continues today—blacks and Hispanics are still nearly
three times as separated from non-Hispanic whites as affluent Americans are from the bottom 80%.
Local targeting at the store level
With such broad diversity and concentration of population groups at the local level, locally-targeted
advertising and promotion become even more important. Like communities, stores are also very well
defined by their makeup along racial, ethnic, or affluence lines, and as such are very targetable. The
Nielsen data in the table below summarizes the distribution of sales for the major retail channels
based on the distribution of blacks and Hispanics in the individual store’s trading areas.
Politics and diversity
In the Pew Survey, 63% of respondents said they would prefer Communities have
to live in a community made up of people with a mix of political
become more
views, while less than one-quarter prefer to live in a place
where everyone shared their own political views. Political
politically homogenous
diversity was most valued by Independents (i.e., not
Democrats or Republicans), by blacks, and by those with
rather than less...
incomes over $100,000. However, over the last 35 years,
based on analysis of election returns, communities have
become more politically homogenous rather than less. In their book, “The Big Sort”, which argues
that Americans are clustering into politically similar communities, Bishop and Cushing show this
trend toward politically homogenous communities using the latest election data.
In the 2008 presidential election, nearly half of all votes were cast in counties that went for a
candidate by 20 or more percentage points. In 1976, when Carter defeated Ford, only 27% of voters
lived in counties where the margin was more than 20 percentage points. It seems less likely that
individuals have made conscious decisions to move into communities based on political trends, but
rather that demographics account for much of the difference. Political affiliation is generally tied to
certain key demographics that govern decisions about where to live; income and home values,
presence or absence of families with children, education, racial or ethnic make-up all influence
where people choose to live and also influence political affiliation.
Theory versus reality catching up
The Pew survey results suggest that Americans are accepting of diversity, even if communities
haven’t quite caught up yet. Demographic projections reveal quite clearly that the U.S. will become
even more diverse over the decades to come, as the majority of population growth will come from
new immigrants entering the country. Seen from the top down, the U.S. is still the melting pot of the
world—a nation that is diverse ethnically, politically, economically, and in its beliefs.
From the bottom up, however, neighborhoods are still largely divided by race—and increasingly—by
economics and politics. Marketers need to find a common ground for their products, varying the
scope of advertising and promotional messages by national, regional or local delivery. Accurate
targeting, driven by data to keep up with an ever changing country, will be necessary not only to
drive growth, but simply to maintain balance.
Sources:
The Nielsen Company, Claritas & Spectra
Pew Research Center – Americans Say They Like Diverse Communities; Election, Census Trends
Suggest Otherwise (released December 2, 2008)
Nielsen Consumer Insight, February 2009