John Gerzema: The post-crisis consumer

John Gerzema: The post-crisis consumer

The Great Unwind: A Consumer-Driven Shift

Overview of Economic Changes

Thirteen trillion dollars in wealth has disappeared over the last two years, prompting questions about capitalism and government oversight.

This moment is termed "The Great Unwind," where consumers are transitioning from anxiety to action, representing 72% of America's GDP.

Consumer Behavior and Economic Impact

Consumers are de-leveraging their lives, moving away from liabilities and risks as they navigate economic challenges.

Key economic indicators show rising unemployment, declining housing values, and fluctuating commodity prices affecting household budgeting strategies.

The 50-20 Paradox

The crisis was partly caused by consumer behavior; it took 50 years to reach a savings rate of nearly 10%, but this dropped to negative in the last 20 years due to excessive spending.

Over-leveraging led personal debt-to-income ratios to rise dramatically from 65% to 135% within 15 years.

Visualizing Financial Leverage

A staggering chart illustrates leverage trends from 1919 to 2009, highlighting how consumers have leveraged future resources for current consumption.

The enormity of bailout funds is emphasized with comparisons that contextualize the scale of financial intervention.

Shifts in Consumer Spending Habits

There has been an increase in savings rates over the past eleven months since the crisis began, indicating a shift towards more responsible financial behavior.

Notably, spending dropped significantly in the fourth quarter, with more consumers opting for debit cards over credit cards.

Unique Behavioral Trends Post-Crisis

Consumers have exhibited unusual behaviors during this period; examples include increased dental visits due to stress-related issues and a surge in gun sales (up by almost 25%).

Despite these oddities, there’s potential for positive change as consumers can transition from mindless consumption to mindful consumption.

Future Implications for Capitalism

The opportunity exists for consumers who contributed to the recession's onset to lead us out through conscious spending aligned with personal values.

Understanding Consumer Behavior Shifts

Value Shifts in Consumer Marketplace

The discussion begins with an introduction to Y&R's BrandAsset Valuator, a proprietary tool by VML and Young & Rubicam, aimed at analyzing shifts in consumer behavior during a crisis.

The first identified cultural value shift is termed "liquid life," where success is redefined from material possessions to liquidity, promoting nimbleness and flexibility in lifestyle choices.

Déclassé consumption emerges as a trend where spending frivolously is seen as anti-fashion; examples include celebrities toning down their luxury displays and consumers opting for generic packaging to conceal brand purchases.

High-end haggling becomes common, reflecting a dismantling of traditional status symbols. This includes the rise of blue-collar yacht clubs and low-key tourism trends like agritourism.

Companies are adapting to these changes; Frito-Lay adjusts packaging sizes based on consumer cash flow throughout the month, while the San Francisco Giants implement dynamic pricing strategies.

Ethical Consumption Trends

The second value shift focuses on ethics and fair play, emphasizing that consumers now demand empathy and respect from businesses alongside traditional value offerings.

There’s an increased emphasis on community support systems due to economic challenges, leading to higher volunteerism rates across the country.

Universities reconnect with alumni for job assistance, showcasing a trend towards mutual support networks among professionals facing unemployment.

Companies like Microsoft commit to retraining initiatives for Americans in IT fields, while GORE-TEX promotes transparency within its management practices as part of its corporate values.

Durable Living Insights

The third value shift highlights durable living; consumers are adopting long-term perspectives on purchases rather than short-term gains.

Data shows Americans are keeping their cars longer (average 9.4 years), indicating a focus on sustainability and longevity in consumer goods.

Library usage has surged with 68% of Americans holding library cards—the highest rate ever—reflecting a growing interest in knowledge accumulation and lifelong learning.

A DIY movement is emerging with 30% of homes built by owners; this trend emphasizes self-sufficiency through skills development such as gardening or home improvement projects.

Reimagining Consumerism and Community Engagement

Innovative Examples of Brand Responsibility

The discussion begins with the importance of reimagining existing infrastructure, exemplified by a new park in New York City. Brands should focus on long-term consumer relationships, transparency, and ethical practices.

Patagonia's "Footprint Chronicles" is highlighted as a model for social responsibility, tracking the ethics behind their products to foster consumer trust.

Fidelity offers 529 rewards for education instead of traditional cash-back rewards, showcasing how brands can contribute positively to consumers' futures.

Sunrun creates a consumer collective by installing solar panels on homes, allowing households to generate electricity that feeds back into the marketplace—an example of cooperative consumerism.

The Shift Towards Cooperative Consumerism

A significant trend is the artisanal movement focusing on locally sourced products and services, which supports local economies and fosters community trust.

A report indicates that publicizing electricity usage in communities led to reduced consumption, demonstrating how transparency can influence behavior positively.

Cow-pooling emerges as a way for consumers to collectively purchase organic meat from trusted farms, ensuring safety and quality control.

The concept of "carrot mobs" encourages consumers to pool resources to incentivize companies towards positive actions rather than boycotting them.

Opportunities for Companies in Crisis

Zagat's diversification into healthcare ratings illustrates how brands can leverage their networks beyond traditional markets to enhance credibility and relevance.

Kogi’s food truck operates through Twitter updates only, highlighting innovative marketing strategies that engage consumers directly in real-time.

Johnson & Johnson's "Momversations" blog taps into mommy bloggers’ influence, creating a platform for communication while generating advertising revenue—a win-win scenario.

Embracing Transparency and Values-driven Spending

The current crisis presents both challenges and opportunities; it allows consumers to lead change towards better capitalism through values-driven spending that promotes innovation and improved customer service.

This shift emphasizes connecting with companies that align with shared values, suggesting a future where ethical considerations drive market dynamics.