By: James Russo, Vice President, Marketing, The Nielsen Company
SUMMARY: The global financial crisis is impacting every market around the world, but that doesn’t mean consumers everywhere are reacting the same way. While huge numbers of people feel the impact of rising fuel prices and plan cutbacks in new clothes, utilities and entertaining, it’s the consumers in the world’s developing markets who feel the most optimistic.
While the world remains firmly ensconced in a severe credit crisis, consumers in the world’s fastest developing countries believe the global recession will be over within a year. Results from the Nielsen Global Consumer Confidence Survey, which polled 26,202 consumers in 52 countries as the global financial crisis reached a fever pitch in late September and early October, found that consumers in some parts of the world think the turbulence might ease in the coming year—especially if financial markets stabilize—encouraging the return of consumer confidence.
|Consumers in large developing markets view their medium-to-long–term prospects as strong...|
Things are okay here
Despite being affected by current global conditions, consumers in large developing markets view their medium-to-long–term prospects as strong. More consumers in India (51%), Vietnam (45%), China (34%) and Russia (31%) expect the global recession to end within the next 12 months as compared with the other markets surveyed. One in two Indians believe the local economy will continue to show good growth, and that the global recession will have limited impact on their buoyant domestic market .
Some of this positive outlook is based on cultural differences. Indian investors have been safeguarded by the country’s relatively nascent financial market, where savings accounts are the principal investment option for many consumers, mainly due to the fact that fewer investment options exist overall. According to Nielsen’s 2008 Money Monitor, Indians are more comfortable putting their money in fixed deposits and saving for a secure tomorrow than they are in spending for a comfortable today, a marked contrast with consumer attitudes in other, more developed markets.
|Consumers in India were the most optimistic of all markets surveyed...|
In fact, consumers in India were the most optimistic of all markets surveyed with regards to their job prospects and personal finances over the next 12 months, with 75% optimistic that their job prospects are good or excellent and 77% expecting their personal finances to be in good or excellent shape in the coming year. On the flip side, Korea and Japan were the most pessimistic, with a whopping 96% of Koreans reporting not so good or bad job prospects over the next 12 months, and 91% of Japanese expecting their personal finances to be not so good or bad.
View from the regions
Globally, the Nielsen consumer confidence average, which is based on consumers’ confidence in the job market, status of their personal finances and their readiness to spend, fell four index points from 88 to 84 points since May 2008, with declines across all regions. The largest half-yearly survey of its kind, the Nielsen Global Online Consumer Confidence and Opinion Survey experienced its largest single drop in three years with a six point drop in May, including a 17 point drop in the U.S. between October 2007 and May 2008.
The October 2008 results showed that Latin America remained the most optimistic region, with a regional consumer confidence index average of 96.8, followed by EEMEA at 88.5 and Asia Pacific at 85.1. Consumer confidence in North America fell two points to 83, while Europe fell five index points to 77.
Despite a drop of eight points in the past five months, India (114) and Denmark (112) came out on top of the new global consumer confidence rankings, while South Korea, which in October saw its stock market close at its lowest point in three years, languished at the bottom of the rankings, at 36 points—a loss of 14 points. Norway, the world’s most optimistic nation in May 2008, dropped to fifth place with a decline of 20 points, and Sweden dropped 14 points. Bucking the trend, seven markets saw their consumer confidence index go up since May: Brazil (+4 points), Hungary (+4 points), Philippines (+3 points), South Africa and Thailand (+2 points), and New Zealand and China up one point since May 2008.
|Consumers are intensifying previous cutbacks...|
Those results suggest that without predicting the extent of the global financial crisis, Western consumers had already started changing their spending patterns and shopper behavior a year ago in preparation for a tough 2008. Countries including the United States, United Kingdom, Italy and France actually recorded their most significant declines in consumer confidence six to 12 months ago, when people began to tighten their belts in response to the U.S. sub-prime crisis, falling property prices, rising food and fuel prices and volatility in local stock markets. Today, consumers are intensifying previous cutbacks as they shift into serious credit crunch mode.
However, while spending will be tight over the upcoming holiday season, a few consumers in the more-developed markets are still hopeful that things will be better by the end of 2009: one in six U.S. consumers expect to see the end of a global recession within 12 months, even as 52% of them cite the economy as one of their top two concerns.
One-fifth of global consumers reported that the economy is their number one concern, followed by food prices, except in the U.S., where fuel prices are even more concerning than food prices. Worldwide, 62% of the survey respondents reported that they have a car, ranging from 86% of the people in Australia and France all the way down to only 21% in Hong Kong. A vast majority of car owners (83%) say they are somewhat or very impacted by higher gas prices. To cope, 69% are using their car less, 45% are combining errands/trips and 20% are using more public transport.
|The retail clothing sector may be among the hardest hit...|
Compared to previous downturns, 2008 is likely to have a serious impact on lifestyle and way of life in many parts of the world. Nielsen’s survey results suggest that the retail clothing sector may be among the hardest hit, as one in two global consumers say they’ll cut back on buying new clothes, while 40% of global consumers plan to delay mobile phone or laptop technology upgrades, also suggesting a tough 2009 for the personal technology sector.
In this environment, “staying in” has become the new “going out.” Almost half (47%) of global consumers will cut back on out-of-home entertainment and one in three will switch to cheaper grocery brands. In the U.S., more than half are cutting down on out-of-home entertainment, and Nielsen Consumer Panel research found the changes going even farther in France, where consumers plan to cut back on their consumption of meat and wine—the mainstays of their cuisine—and 37% will also cut back on at-home entertainment, an integral part of the French lifestyle.
|Budget cutbacks and lifestyle changes are increasingly involuntary...|
Nothing to spare
Globally, three in five (62%) consumers described their state of personal finances as “ not so good/bad”—a clear indication that all these budget cutbacks and lifestyle changes are increasingly involuntary. According to the Nielsen Consumer Confidence Survey, 25% of French consumers said they had “no spare cash after paying basic living expenses”, up from 17% in May 2008. One in five U.S. consumers is in the same position, as are 28% of Portuguese, 22% of South Africans and 21% in the U.K.
Of the consumers who do have spare cash left after paying basic expenses, cultural differences are stark in terms of how that money is spent. Fully three out of four (74%) people in Hong Kong and 70% of Singaporeans put extra money into savings, while 70% of Russians and 47% of Portuguese spend extra money on new clothes, a bright spot for the beleaguered apparel industry and a reminder of the optimistic attitudes in emerging markets versus the rest of the world.
The survey also found that there are a few places where consumers still plan on entertaining outside the home. Forty-five percent of Brazilians and Swiss spend extra cash that way, as do 44% of Russians. Russians are also the best hope for marketers of home improvement and new technology products, with 53% of consumers in that country planning to spend extra cash on their home and 52% planning to spend it on new technology products. For the travel industry, 53% of Chinese are planning to direct extra cash into holidays and vacations.
Resist the temptation to hibernate
Just as so many consumers are reacting to the turbulent financial times by nesting at home, the tendency can also be strong for marketers to cut down on ad spending until the economic outlook brightens. Less adjustment may be necessary for global marketers with consumers in emerging markets, where attitudes remain positive, but for marketers targeting worried Western consumers, it’s important to remember that gaps and opportunities still exist. For example, while the “stay-in” trend is undoubtedly tough on bars and restaurants, it also creates new openings for innovative premium and prepared foods and beverages designed for at home entertaining.
Companies that continue to invest in their brands and products and stay engaged with their target market will come out of this downturn as winners. Consumers will remember which products best understood their needs during the slowdown, so brand investment has never been more important for securing long-term loyalty .