The postcrisis consumer John Gerzema

[Music]

thirteen trillion dollars in wealth has

evaporated over the course of the last

two years we’ve questioned the future of

capitalism we’ve questioned the

financial industry we’ve looked at our

government oversight we’ve questioned

where we’re going and yet at the same

time this very well may be a seminal

moment in American history an

opportunity for the consumer to actually

take control and guide us to a new

trajectory in America I’m calling this

the great unwind and the idea is a

simple simple idea which is the fact

that the consumer has moved from a state

of anxiety to action consumers who

represent 72% of the GDP of America have

actually started just like banks and

just like businesses to deleverage

to unwind their leverage in daily life

to remove themselves from the liability

and risk that it presents itself as they

move forward so to understand this and

I’m going to stress this it’s not about

the consumer being in retreat the

consumer is empowered in order to

understand this we’re going to step back

and look a little bit at what’s happened

over the course of the last year and a

half so if you’ve been gone this is the

easy cliff notes on what’s happened in

the economy okay

unemployment up housing values down

equity markets down commodity prices are

like this if you’re a mom trying to

manage a budget and the oil was a

hundred and fifty dollars a barrel last

summer and it’s somewhere between 50 and

70 do you plan vacations how do you buy

what’s your strategy in your household

will the bailout work we have national

debt Detroit currency valuations health

care all these issues facing this you

put them all together you mix them up in

a bouillabaisse and you have consumer

confidence it’s basically a ticking time

bomb in fact let’s go back and look at

what caused this crisis because the

consumer all of us in our daily lives

actually contribute a large part to the

problem this is something I call the

5020 paradox

it took us 50 years to reach annual

savings ratings of almost 10 percent 50

years do you know what this was right

here this is world war two you know why

savings was so high there was nothing to

buy unless you wanted to buy some rivets

right so what happened though over the

course of the last 20 years we went from

a 10%

rate to a negative savings rate because

we binge

we bought extra car large cars

super-sized everything we bought

remedies for restless leg syndrome all

these things together basically created

a you know a factor where the consumer

sort of drove us headlong into the

crisis that we face today the personal

debt to income ratio basically went from

65 percent to 135 percent in the span of

about 15 years so consumers got over

leveraged and of course our banks did as

well as get our federal government this

is an absolutely staggering chart it

shows leverage trended out from 1919 to

2009 and what you end up seeing is the

whole phenomenon of the fact that we are

actually stepping forth in basically

leveraging future education future

children in our households so if you

look at this in the context of

visualizing the bailout what you can see

is if you stack up dollar bills

first of all 360,000 dollars is about

the size of a 5 foot 4 guy but if you

stack it up you just see this amazing

staggering amount of basically dollars

that have been put into the system to

fund and bail us out so this is the

first 315 billion but I read this fact

of the day that one trillion seconds

equals 32,000 years so if you think

about that the context the casualness

with which we talk about trillion dollar

bailout here and trillion there we are

stacking ourselves up for long term

leverage however consumers have moved

they are taking responsibility what

we’re seeing is an uptick in the savings

rate in fact 11 straight months of

savings have happened since the

beginning of the crisis we are working

our way back up to that 10% also

remarkably in the fourth quarter

spending dropped to its lowest level in

62 years almost a 3 point 7 percent

decline visa now reports that more

people are using debit cards than

they’re using credit cards so we’re

starting to pay for things with money

that we have and we’re starting to be

much more careful about how we save and

how we invest but that’s not really the

whole story because this has also been a

dramatic time of transformation and you

got to admit over the course of the last

year-and-a-half consumers have been

doing some pretty weird things because

it’s been pretty pretty staggering that

we live through if you take into account

80% of all Americans were born

after World War two this was essentially

our depression and so as a result some

crazy things have happened

I’ll give you some examples let’s talk

about dentists vasectomies guns and

shark attacks okay

dentists report molars

you know people grinding their teeth

coming in reporting the fact that they

have stress and so there’s an increase

in people having to have their fillings

replaced guns gun sales according to the

FBI who does background checks are up

almost 25% since January vasectomies are

up 48% according to the Cornell

Institute and lastly but a really good

point

hopefully not related to the former

point I just made which is it shark

attacks are at their lowest level from

2003 does any anybody know why we’re no

ones at the beach so there’s a bright

side to everything but seriously what we

see happening and the reason I want to

stress that the consumer is not in

retreat is that this is a tremendous

opportunity for the consumer who drove

us into this recession to lead us right

back out and what I mean by that is that

we can move from mindless consumption to

mindful consumption right if you think

about the last three decades the

consumer has moved from savvy about

marketing in the 90s to gathering all

these amazing social and search tools in

this decade but the one thing that’s

been holding them back is the ability to

discriminate by restricting their demand

consumers can actually align their

values with their spending and drive

capitalism in business to not just be

about more but be about better we’re

going to explain that right now based on

why anarse brand asset valuator

proprietary tool of vml and Young &

Rubicam we set out to understand what’s

been happening in the crisis with the

consumer marketplace we found a couple

of really interesting things we’re going

to go through four values shifts that we

see driving new consumer behaviors that

offer new management principles the

first cultural value shift we see is

this tendency towards something we call

liquid life this is the movement from

America is defining their success on

having things to having liquidity

because the less excess that you have

around you the more nimble and fleet of

foot you are as a result Dec laws say

consumption is in debt Class A

consumption is the whole idea of

spending money

makes you look a little bit anti-fashion

the management principle is dollars and

cents so let’s go look at some examples

of this debt class a consumption that

falls out of this value first thing is

we see something must be happening when

p-diddy vows to tone down is bling but

seriously we also have this phenomenon

on Madison Avenue in another place is

where people are actually walking out of

luxury boutiques with ordinary sort of

generic paper bags to hide the brand

purchases we see high-end haggling in

fashion today high-end haggling for

luxury and real estate we also see just

a relaxing of ego and sort of a

dismantling of artifice this is a story

on the Yacht Club

that’s all basically blue collar blue

collar Yacht Club where you can join the

Yacht Club but you’ve got to work in the

boat yard is sort of condition of

membership we also see the trend toward

tourism that’s a little bit more low-key

right Agri tourism going to vineyards

and going to farms and then we also see

this movement forward from dollars and

cents what businesses can do to connect

with these new mindsets are really

interesting a couple things that are

kind of cool one is it frito-lay

figured out this liquidity thing with

their consumer they found their consumer

had more money at the beginning of the

month less at the end of the month so

what they did is they started to change

their packaging larger packs at the

beginning of the month smaller packaging

at the at the end of the month really

interestingly too was San Francisco

Giants they’ve just instituted dynamic

pricing so it takes into account

everything from the pitcher matchups to

the weather to the team records and

setting prices for the consumer another

quick example of these types of

movements are obviously the rise of

zinga zinga has risen on the consumers

desire to not want to be locked into

fixed costs again this theme is about

variable cost variable living so micro

payments have become huge and lastly

some people are using Hulu actually is a

device to get rid of their cable bill

so really clever ideas there that are

kind of being taken a hold and marketers

is starting to understand the second of

the four values is this movement toward

ethics and fair play we see that play

itself out with empathy and respect the

consumer is demanding it and as a result

businesses must provide not only value

but values increasingly consumers are

looking at the culture of the company

looking for their conduct

marketplace so what we see with empathy

and respect lots of really hopeful

things that have come out of this

recession and I’ll give you a few

examples one is the rise toward

communities in neighborhoods and

increase emphasis on your neighbors as

your support system also a wonderful

byproduct of sort of really lousy thing

which has been unemployment is a rise in

volunteerism that’s been noted in our

country we also see the phenomenon some

of you may have boomerang kids

these are boomerang alumni where

universities are actually reconnecting

with alumni and helping them with jobs

sharing skills and Retraining we also

talked about character and

professionalism we had this miracle on

the Hudson in New York City you know in

January and suddenly Sully has become a

key name on BabyCenter so from a value

and value standpoint what companies can

do is connect in lots of different ways

Microsoft is doing something wonderful

they’re actually vowing to retrain two

million Americans with IT training using

their existing infrastructure to do

something good also a really interesting

company is gore-tex gore-tex is all

about personal accountability of their

management and their employees to the

point where they really kind of shun the

idea of bosses but they also talk about

the fact that their executives all of

their expense reports are put on to

their company internet for everyone to

see complete transparency I think twice

before you have that bottle of wine the

third of the four laws of post crisis

consumerism is about durable living

we’re seeing on our data that consumers

are realized this is a marathon not a

sprint

they’re digging in and they’re looking

for ways to extract value out of every

purchase that they may witness to the

fact that Americans are holding out of

their cars longer than ever before nine

point four years on average in March a

record we also see the fact that

libraries have become a huge resource

for America did you know that 68% of

Americans now carry a library card the

highest percentage ever in our nation’s

history so what you see in this trend is

also the accumulation of knowledge

continuing education is up everything is

focused on betterment and training and

development and moving forward we also

see a big dy eye movement I was

fascinated to learn that 30% of all

homes in America are actually built by

owners that includes cottage

and the like but 30% so people are

getting their hands dirty they’re

rolling up their sleeves they want these

skills we see that with the phenomenon

of raising backyard hens and chickens

and ducks and when you work out the math

they say it doesn’t work but the

principle is there that it’s about being

sustainable and taking care of yourself

and then we look at the High Line in New

York City and excellent use of

reimagining existing infrastructure for

something good which is a brand-new Park

in New York City so what brands can do

in companies is pay dividends to

consumers be a brand that lasts offer

transparency promise you’re going to be

there beyond today’s sale perfect

example of that is Patagonia Patagonia’s

footprint chronicles basically goes

through and tracks every product that

they make and gives you social

responsibility and helps you understand

the ethics that are behind the product

that they make another great example is

fidelity rather than instant cash back

rewards on your credit or debit

purchases this is about 529 rewards for

your student education or the

interesting companies SunRun I love this

company they’ve created a consumer

collective where they put solar panels

on households and create a consumer

based utility where the electricity that

they generate is basically pumped back

out into the marketplace so with

consumer driven co-op

so the fourth sort of post-crisis

consumerism that we see is this movement

about return to the fold it’s incredibly

important right now trust is not

parceled out as we all know it’s now

about connecting to your communities

connecting to your social networks in my

book I’ve talked about the fact that 72%

of people trust with other people say

about a brand or a company versus 15% on

advertising so in that respect

cooperative consumerism has really taken

off this is about consumers working

together to get what they want out of

the marketplace let’s look at a couple

of quick examples the artisanal movement

is huge everything about locally derived

products and services supporting your

local neighborhoods whether it’s

cheese’s wines and other products also

this rise of local currencies realizing

this difficult to get loans in this

environment you’re doing business with

people you trust in your local markets

so this rise of this sort of local

currency is another really interesting

phenomenon and then they did a recent

report I thought was fascinating they

actually started in

certain communities the United States

start to publish people’s electricity

usage and what they found out is when

that was available for public record the

people’s electricity usage in those

communities dropped then we also look at

the idea of cow pooling which is the

whole phenomenon of consumers organizing

together to buy meat from organic farms

that they know is safe and controlled in

the way that they wanted to be

controlled then there’s this other

really interesting movement that’s

happened in California which is about

carrot mobs the traditional thing would

be to boycott right have a stick well

why not have a carrot so these are

consumers organizing pooling their

resources to incentivize companies to do

good and then we look at what companies

can do then this is all the opportunity

about being a community organizer you

have to realize that you can’t fight and

control this you actually need to

organize it you need to harness it you

need to give it meaning and there’s lots

of really interesting examples here that

we see first is just the rise of the

fact that Zagat’s is actually moved out

of and diversified from rating

restaurants in to actually rating

healthcare so what credentials does the

GATS have well they have a lot because

it’s their network of people right so

that becomes a very powerful force for

them to make their brand more elastic

then you look at the phenomenon of Koji

this Koji doesn’t exist it’s a moving

truck right it’s a moving truck to LA

and the only way you can find it is

through Twitter or you look at or you

look at Johnson and Johnson’s mom Bruce

Asians write a phenomenal blog that’s

been built up where J&J basically is

tapping into the power of mommy bloggers

allowing them to basically create a

forum where they can communicate and

they can connect and it’s also become a

very very valuable sort of advertising

revenue for J&J as well this plus the

fact that you’ve got phenomenal work

from CEOs from Ford to Zappos connecting

on Twitter creating an open environment

allowing their employees to be part of

the process rather than hidden behind

walls you see this rising force in sort

of total transparency and openness that

companies are starting to adopt all

because the consumer is demanding it so

when we look at this and we step back

what I believe is that the crisis that

exists today

a is definitely real it’s been

tremendously powerful for consumers but

at the same time this is also a

tremendous opportunity and the Chinese

character for crisis is actually the

same side of the same coin

crisis equals opportunity what we’re

seeing with consumers right now is the

ability for them to actually lead us

forward out of this recession so we

believe that values driven spending will

force capitalism to be better it will

drive innovation it will make

longer-lasting products it will create

better more intuitive customer service

it will give us the opportunity to

connect with companies that share the

values that we share so when we look

back and step out at this and see the

beginning of these trends that we’re

seeing in our data we see a very hopeful

picture for the future of America thank

you very much

[Applause]