Post-financial crisis, what are U.S. consumers really thinking? The answer may surprise you.
On one hand, with consumer confidence at an 11-month low, it’s clear that people are still worried and anxious about the economy. But look deeper and you’ll find a surprising amount of optimism and resiliency, according to John Gerzema, chief insights officer for Young & Rubicam Inc. advertising agency. The economic downturn, he says, “has awakened core American values such as self-reliance, community, creativity and thrift.”
Gerzema reached this conclusion during the two years he spent researching and writing his new book, Spend Shift, which is scheduled for publication this fall. He will describe in detail the insights obtained from this research at the upcoming BAI Retail Delivery 2010 in a session entitled the “The Post-Crisis Consumer.”
In the interview below with BAI Banking Strategies, Gerzema presents some of the highlights from the book. The bottom line for financial services companies, he says, is to understand “that they’re no longer dealing with consumers but customers.”
“The word “consumer” in this day and age is actually a derogatory term,” Gerzema adds. “It kind of infers a mindless gobbling beast of indifference. Customers are what matter and they cannot be manipulated.”
Q: Your new book, called Spend Shift, describes how U.S. consumers are embracing a value shift in five areas. What are these value shifts?
Gerzema: The book is based on a two-year study of crisis and post-crisis behaviors that we did survey work for, through our brand database, which is called BrandAsset Valuator. We surveyed over 17,000 Americans each quarter, through the various periods of the recession into what you might call the recovery. Basically, we found that people were moving from mindless to mindful consumption, in that they were being more careful how they spend and that their spending was linked to the five value shifts.
We found that about 55% of Americans were spending money on the basis of a kind of self-expression, which meant that they were “voting with their consumption” by catering to companies and brands that fit their values and that reflected some of the values that were important to them, such as self-reliance, thrift, community and ethics. The surprising fact is that these people in the 55% group were just as likely to be Republican or Democrat, from the Northeast or from the Midwest. It was very much a uniting concept.
In terms of the five values, we found one core value, which we refer to as “indestructible spirit” – it’s the idea of optimism, resiliency and opportunity. In the face of the economic downturn, people are retaining their optimism to search for opportunity and for personal growth. Despite the fact that there’s still very high unemployment, and it’s been really hard for people, the economic downturn has enabled them to focus on what really matters, whether it’s family, changing careers or deciding what you really want to do with your life. It’s focusing away from wants to needs. It has awakened core American values such as self-reliance, community, creativity and thrift.
A second value we refer to as “don’t fence me in.” This came out of a lot of the work we did in Dallas, where we found people focused on re-tooling, continuous education and general self-betterment. By that I mean people were going back to school, either a vocational school or community college, or using the libraries. People use the library system in Dallas as a kind of community center – not only to network but also as a source of continuous learning. We note that 68% of Americans today have a library card, the highest percentage ever.
This re-tooling spirit extends into crafts and hobbies; there’s a big “do-it-yourself” movement. We found 81% of people focused on learning new skills so they could do more for themselves and rely less on others. We met with Etsy founder Rob Kalin, who talked about the crafts movement as a form of creative self-expression as well as self-reliance. Many people joined the Etsy community during the recession to make quilts or jewelry in an effort to make ends meet after being laid off. And in the process, many found a new career doing something they really loved.
The third value we call “liquid life.” This is the idea of being nimble, adaptable and agile. Before, the American Dream was about stuff – how many TVs and cars you had. Now, it’s about how nimble and flexible you can be. In this environment, people are becoming very savvy in learning that fixed costs and overhead are the enemy. We met people who had given up cable to watch TV off of Hulu or had dropped their landline phone; in fact, 25% of all American households now are without a land-line phone.
We found evidence in a lot of the data of people moving from a credit to a debit society. People have less access to credit because housing values are not what they were before and lines of credit are being expunged for many people. Given that, people are saving more and trying to spend less – basically trying to draw down their credit and live within the funds that they have. Visa reported last year for the first time more of their customers are using debit rather than credit cards. The implication is that they’re spending money that’s really theirs and, therefore, brands take on greater meaning, because the money they are spending is truly theirs.
An interesting company that we interviewed for the book was Blu Homes, which makes pre-fabricated, modular housing. They have become very popular with people who like the idea of being able to grow into a house, rather than buying more house than they can afford. In their business model, you add rooms as your income increases – very much an anti-McMansion concept. This idea of being able to live within your means is an undercurrent in much of our data – and I think it’s important for financial services.
This has essentially been the Depression for most people. Eighty percent of Americans were born after World War II so it has had a remarkably profound impact on our psyche by awakening core American values, which are essentially old-fashioned American virtues of responsibility, self-reliance, community and thrift. “Values” is often a loaded, emotional word, meant to divide Americans. But we found those values don’t divide us but rather unite us, which we found very exciting.
Q: You’ve mentioned three values – indestructible spirit, don’t-fence me in and the liquid life. What were the other two?
Gerzema: The next one we call an “army of Davids,” which has to do with the idea of community and cooperative consumerism. Clearly, consumers and individuals have more power than ever before because of search, mobility and social media. But they’re also becoming more powerful as they use these technologies to band together to scale up their power.
An example is Groupon discount coupons; the more people who join a given offer, the lower the price can be. We found “cow poolers” in Kansas City – people who band together to buy organic beef at great prices. There’s also a movement called “carrot mobbing,” which encourages consumers to patronize socially responsible businesses.
The fifth value we call “block party Capitalism,” which is anchored in the movement back to character and authenticity. This movement in focused on shopping in your local community and keeping your tax dollars local. We found a good example in Detroit, where a man named Charles Sorel opened up a restaurant in Detroit called Le Petit Zinc. He bought his produce and all his food from the only green market in downtown Detroit and then he encouraged local Detroit inner city residents to work at the restaurant.
We also profiled a couple of interesting financial institutions for the book. One was Nevada Federal Credit Union, a local bank that is trying to help people recover from the recession by giving them strong financial advice and encouraging them not to get too far out in terms of their credit. They talk to their customers frankly about the huge housing crisis in Nevada to help them avoid getting caught up in that. It’s straight talk, almost like a personal coach who’s trying to give you the skinny to help you get back on your feet.
We also found a community in western Massachusetts, Berkshires, that actually created its own currency, called “Berkshares.” The idea originated in 2006 when a handful of businesspeople, community boosters, and the local chamber of commerce began looking for ways to help local retailers, restaurants, and service people survive competition from national chains that were moving into the small mountain towns. The Berkshares provide a 5% discount on local sales.
I might add that my grandfather, Carl Gerzema, served as president of the Farmers Trust and Savings Bank in Lakota, Iowa. My father, Larry, worked for the Comptroller of the Currency as the regional administrator of the national banks in the fourth district of Cleveland. I did tap into my banking roots to write this book – and my dad gave me some good advice along the way.
Q: So, given this shift in values, how should the typical bank approach the American consumer in terms of services or products?
Gerzema: One of the key things we’re finding for all businesses is that they need to believe that they’re no longer really dealing with consumers but customers. The word “consumer” in this day and age is actually a derogatory term. It kind of infers a mindless gobbling beast of indifference. Customers are what matter and they cannot be manipulated. They’re the ones whom you must treat with respect, the same way you treat your shareholders.
We’re also now seeing evidence of businesses creating social communities, such as Wal-Mart with its Eleven Moms program. This is a network of “mommy bloggers” who essentially act as an outside advisory board to Wal-Mart, giving them input as to what moms are really looking for as they shop.
I think it becomes really important to understand community. We’ve also got to think about America in a different way. While we tend to think about America as a developed market, we’re actually saying that the search for values in companies can make America an emerging market again. Rethink your business on the basis of connecting to the values that people are looking for.
One of the things we noted in our study was that 60% of people said they would not support a company that took government bailout money. Three-fourths said they prefer to buy only from companies whose values matched their own. And 60% said that they would actively avoid companies whose values do not fit their own.
So, values is often a loaded term but these values we found are quintessentially American. They involve faith, depending on however you describe your faith, which can be religious or faith in family or community. All of that has become much more important after the recession.
Mr. Cline is managing editor of BAI Banking Strategies.
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