India’s retail boom is driven by a plethora of reasons–from increasing disposable incomes and changing lifestyles, to growing demand in rural areas and smaller towns, and the rise of the global consumer. Indeed, global retail giants are trying to tap into this vibrant market but their core business model seems to be failing their aspirations.

The reason behind this change—the unique purchase drivers of the Indian consumer. Think–Value for money (through deals and bargain-hunting), convenience (e.g., deep rooted system of home delivery of purchases) and relationship based customer service (legacy of “kirana” or corner stores).

So, to survive and grow in such a market what are retailers doing? Tweaking their business models and making their stores locally relevant. Take a look at how global and local companies are adapting and innovating for the Indian consumer in the organized market.

1. Flexing Store Formats—With over 150 stores across India, Big Bazaar (an Indian hyper-market) is created on the principle of a “bazaar” (the Indian market place); Big Bazaar offers a local market feel but in large store format set-up. Wal-Mart (Easy Day in India) too is moving away from its typical big-box strategy and is diversifying its store format strategy in India e.g., opening small format stores, creating stores in the middle of towns and residential areas to make it easily accessible.
2. Meeting local expectations—Distinct regional preferences of the Indian consumers are mirrored in store efforts to localize merchandize across stores. This helps in making stores relatable, merchandize appealing and consumers comfortable while shopping. For example, Marks & Spencer’s has been working to shed its exclusive and over-priced image. Based on Indian preferences, Marks & Spencer’s for the first time introduced shirts with pockets and longer shirts for women. In addition, it has made itself less niche by making its products affordable and expanding in big and small towns through a varied store format.
3. Embracing Customer Service—Along with the traditional conveniences of local stores (e.g., home deliveries), courteous staff and loyalty programs are basic expectations. For most successful retailers, technology aided services (like e-commerce, online stores and store operating systems) differentiate them from the rest. For instance, Shopper’s Stop, a department store chain and multi-brand apparel retailer provides high quality customer and store experience by combining traditional services like in-house tailors with strong technology solutions in online, point-of-sale and inventory. This has helped it carve a reputation for itself as a convenient and reasonable store to shop from.

Do you have any experiences or stories on what companies are doing differently to be accepted in the Asian market? What do you think is working for them?

Over 100 years ago, the founder of Wagh Bakri wanted to create a tea that would unite all Indians.  ‘Wagh’ means ‘Tiger’, standing for Indian upper classes.  ‘Bakri’ means ‘Goat’, and represents the lower classes.  The idea is to bring the Tiger and Goat together over tea, an important and shared ritual.

The juxtaposition of the Tiger and the Goat is probably, metaphorically, what stood out most in my first visit to India a couple weeks ago.  Around every corner, you get images like the one that sticks in my mind of an extended family scraping together a meager existence beneath a brand new elevated rail line.  But in talking with Indians, it’s striking how optimistic all of them are for what the future holds.

The sense of optimism isn’t the only difference between your average Indian consumer and an average Western consumer.  MLC pulled together a group of 15 CMOs from native Indian enterprises, from Reliance to Tata to SBI Life to Gujarat Tea.  We discussed MLC’s latest B2C work focused on Decision Simplicity, with an eye to understanding similarities and differences between Indian and Western consumers.

Here are a few other Indian consumer insights I picked up:

• “The Hindu Middle”: Indian consumers typically don’t use extremes in calling out products or people—they avoid hyperbole to the up- or down-side.  As a marketer, if you were hoping for Indian consumers to provide product ratings and reviews with the same grade inflation you see in the West, be sure to have a Plan B.
• Recommendation cynicism—Indian consumers are by nature not trusting of third party recommendations.  Despite (or perhaps because of?) a marketing culture of rampant celebrity endorsement (Bollywood and cricket stars plugging products everywhere you turn), Indians tend not to put much weight on recommendations coming from third parties they don’t know.  Ond CMO suggested that, unless an Indian consumer has a basis for deep trust in some other facet of life, she is unlikely to trust the recommendation of another Indian…even an acquaintance.”
• The novelty of brand choice—the average Indian consumer is very much in a state of welcoming all the new choices that a teeming free-market has to offer.  There’s a degree of amusement and entertainment for the Indian consumer in experiencing the range of choices that Western consumers are familiar with (and often jaded by).

Have another Indian consumer insight to offer?  Drop us a comment below.  And then, stay tuned for more to come as MLC continues to explore global marketing and marketing in emerging markets.

ps  You can, of course, find Wagh Bakri on Facebook.

“Oil companies need holes, not drills” - Old Sales & Marketing Saying

This post was written by former colleague Andrew Kent of the Sales Executive Council. Visit the original here.

The utilities business faces a looming crisis—if not today, then in the decade or two to come. Simply put, the industry’s current business model is set up such that smarter use of its product threatens its profits, and this tension between supplier and customer can’t go on forever.

But utilities companies need not view this as a threat. On the contrary, leading utilities are already capitalizing on one of the biggest megatrends in Sales today: the need to make more money by selling less stuff.

The root of utilities’ problem is this: their ability to grow depends on selling more kilowatt-hours each year, but consumers and society have an urgent need to use less—and are waking up to the fact that they actually can. Peter Fox-Penner writes in the Harvard Business Review (July-August 2009):

Utilities have always assumed that their output would continue to grow… But electricity and gas customers—aided by the utilities themselves—are reducing consumption. Sales are already flattening, and they’ll only fall faster as governments put in place more incentives to control greenhouse gas emissions (p. 18).

The U.S. Department of Energy projects U.S. energy demand to grow by only 0.7% a year over the next 25 years, and U.S. energy use per capita will never surpass its 2000 peak. Indeed, McKinsey estimates that the United States could cut $1.2 trillion off its energy bill over the next ten years.

Source: U.S. Energy Information Administration (EIA) “Annual Energy Outlook – 2011”, released April 26, 2011

This is great news for consumers and the environment, but it’s a lot of revenue for a sales leader to give up. How do you cope with a world in which policy, consumer needs, and the very planet conspire against your mandate to sell more stuff?

The answer is to stop selling stuff altogether, and start selling outcomes. In the case of energy, you’re not selling kilowatt-hours, therms, or joules—you’re selling light, heat, and motion. Fox-Penner explains:

Selling services, not output, is the logical next business model for the industry. To put it simply, customers would pay for each lumen of light generated [or unit of computer time, heat, cooling, and so forth] rather than each watt of power consumed… Because the use of such energy services will continue to grow for the foreseeable future, utilities could expect rising rather than falling revenues. Moreover, power companies would have a strong incentive to develop and market new technologies. Utilities would get into the business of selling or leasing such technologies and persuading customers to use energy-efficient appliances (pp. 18-19).

In other words, utilities’ profits go up when they help customers do the same things without burning costly fuel.

This isn’t as far out as it sounds. Indeed, one forward-thinking utility recently sent SEC its new Commercial Teaching pitch showing customers how to spend less on energy.

Three factors make the shift to outcomes-based energy sales inevitable (and possible):

1. Energy-Saving Technologies. These are becoming cheaper and more widely available, aggressively marketed by firms like Schneider Electric and GE. Winning utilities will preserve revenues by partnering to include these technologies in energy services bundles.
2. Smart Grid. Widespread Smart Grid adoption will soon provide utilities and consumers with device-level detail on energy usage. In the long-term, this will enable utilities to charge customers based on device usage instead of energy usage.
3. Competition and Regulation. In competitive markets, selling customers better outcomes for fewer units of energy helps utilities win share from competitors and justify higher prices; this helps makes up for lower volumeper customer. In many regulated markets, utilities face stricter efficiency targets but can’t raise rates; energy services are a primary option for making up lost revenues.

Of course, this is all easier said than done. Next week, I’ll be back with practical guidance on how to convince customers to come along with you for the journey, and what skills your sales reps need to sell outcomes instead of energy.

In the meantime, please leave your thoughts on whether you see this shift to outcomes-based energy sales coming, and what you’re doing to get ahead of it, in the comments section.

By Ana Lapter

Dealing with the future is a difficult task by nature, but this year’s planning process is further complicated by the tremendously uncertain global economy.  Recession fears, slow economic growth, lower consumer spending, feeble employment rates and depressed housing markets across much of the developed world are some of the factors that are weighing on executives, adding a new layer of volatility to any strategic planning exercise.

Uncertainty was the main modus operandi for marketers during the 2007-2009 recession. But even though the recession is technically over, recent stock market swings exemplify the uncertainty that is quickly becoming part of the new norm.  From a strategic planning perspective, dealing with uncertainty means allocating resources for two critical human capital capabilities: organizational flexibility to cope with unexpected challenges and opportunities, and change management.

To cope with uncertainty, a great human capital strategy should consider the following ten principles:

1. Build a portfolio of alternative capabilities or options to choose from in case the unforeseen happens, and embed these alternatives in the current operational structure using different assignments, different avenues for executing projects, experimentation, etc.
2. Deemphasize top-down control mechanisms and rigid processes and encourage employee participation, particularly with respect to actions and decisions that are closer to the point of market contact.
3. Adopt a more customer-focused approach by encouraging customer involvement and boosting the role and prominence of market research in decision making.
4. Promote a culture of continuous learning and doing, beyond the scope and boundaries of current projects and development programs, by building on-the job development programs, introducing rotation programs inside and outside the marketing function and assigning dual roles to individuals.
5. Place a premium on differentiating between signal and noise by investing in superior data gathering, advanced analytics and data mining for pattern identification and aggregated analysis of unstructured and structured data.
6. Encourage thinking beyond a specific campaign or project and focus planning and execution on integrative components to assess the magnitude of change and avoid “breaking points”.
7. Leverage a variety of team structures and concepts, including “just-in-time”, global, mixed, and “virtual” teams.
8. Foster a working environment that encourages the emergence of innovative ideas at every level of the organization through incentives, recognition, recruiting and developing entrepreneurial behaviors.
9. Invest in personal leadership and transparency to communicate and drive organizational buy-in for change.
10. Build strong “sensing” mechanisms and capabilities to identify emerging threats and opportunities by investing in competitive intelligence, demand mapping and social listening skills.

Here at MLC, we’ve just launched new research into talent, and we’re asking ourselves and members: what are the essential Marketing competencies – both individual and organizational – of 2015?  While we are still in the early stage of the research process, we are currently exploring the combination of organizational and human strategies that are most likely to guide marketing organizations, as new competitive environments and different economic challenges emerge.

Please contact me at abostan@executiveboard.com if you want to share your thoughts about the marketing talent of the future.

What does it mean? First, we should recognize that credit-rating agencies themselves have been in hot water. There’s evidence that folks like Standard & Poor’s, Moody’s and other credit raters contributed to the Great Recession (and the Not-So-Great Recovery) by rubber-stamping financial instruments and portraying risky investments (mortgage-backed securities, credit default swaps) as safe, easy money. The raters are in a fight for their lives, a fight that depends on reestablishing their credibility as objective, neutral evaluators of creditworthiness. And, as uncomfortable as it may be to admit, signs point to the fact that the US simply is not what it used to be in terms of macroeconomics. We’re $14 trillion in debt, and the people in charge of the federal checkbook can only agree on making a $2 trillion minimum payment. As NPR financial correspondent Heidi Moore succinctly commented, “The US government is like a kid who turns in his homework late and incomplete” (Minnesota Public Radio, 8 August 2011). Lucky the teacher didn’t flunk us.

It’s true that carrying the level of debt that we’ve been carrying is a financial disaster waiting to happen, but we’ve actually carried debt for 60 of the past 71 years. One might easily agree with vice president Dick Cheney, who, seven years ago, famously said, “Reagan proved that deficits don’t matter.” And one might ask: Well, do they matter or not? If they do, then why has the US credit rating never before been downgraded? The answer, at least if you listen to S&P, is straightforward enough. The US government is not acting in a unified, responsible way. Simply put, it’s not acting like a triple-A credit risk, so it doesn’t deserve that rating. Time to play catch-up to the rest of the class: Australia, Austria, Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Singapore, Sweden, Switzerland and the United Kingdom all still enjoy AAA ratings. So much for American exceptionalism.

A double-dip recession is bound to have political repercussions stateside in the next 18 months. But for consumers in affected markets across the globe, rating-agency jockeying and stock market woes mostly translate to more of what they’ve already been living through for the past few years. While the Great Recession that started in 2007 forced a seismic shift in consumer attitudes — from a world of ample credit to one of credit scarcity, this economic news won’t immediately make consumers change their minds any more than they already have. Because while nations in North America and Europe are now coming to terms with getting their economic houses in order, regular consumers in homes across the globe have been doing that for some time.

Why the sudden volatility?  Consumers haven’t suddenly changed spending behaviors, nor have business customers. And suppliers look healthier than in some time, beating earnings estimates and sitting on plenty of cash. Credit availability has drastically improved. Inflation is hardly threatening.

The answer seems to lie in the health of developed economies. While many appeared to be on the mend for the past year (albeit slowly), it’s become clear the recovery is far more fragile than was thought, especially in the US.  We’re not in a recession, but we’re also not in a recovery that is self-sustaining.

In such an unstable place, most signals (economic data) are too weak or confusing for investors to proceed with confidence.  Even small pieces of information have outsized impact and prices gyrate.  Markets, after all, are just groups of people trying to discern future value and in this case they are struggling.

So, what are executives doing in the face of this volatility?  Some are being tougher on discretionary spending.  Many are revisiting assumptions for 2012 planning.  But the executives we’ve spoken with are not deviating from the strategies and tactics they put in place following the recession.

There is one thing all executives should be doing right now – getting used to operating in an uncertain environment.  Fortunately, that doesn’t require telling the future.  It does require, however, a structured exploration of what could be, and flexibility to respond regardless what becomes.

Most companies can stand to improve in this area.  Want to learn more? Join your peers in our upcoming webinar, Taming Uncertainty, on 25 August at 11:00 am EDT.  We’ll clarify why volatility has become “normal” and how the best companies are working around it.

Recent activity in the financial markets – not to mention news trickling out of policy-making bodies like the US Congress, Federal Reserve, and the European Central Bank – strongly suggests (but does not guarantee) that at a minimum, a period of soft growth lies ahead for businesses. At worst, we could be facing down another recession; InTrade suggests a 44% chance of the US entering a negative-growth period in 2011, and in Europe, commercial bank exposure to bad sovereign debt might be contagious enough to tip many countries into recession.

So: that’s the bad news. And it’s pretty bad; it could even be catastrophic if policymakers can’t (or won’t) come up with the right answers. But here’s the thing: even in the darkest throes of the last crisis, business and consumer activity continued. Most people remained employed, even if they didn’t get their usual raises and bonuses. And there was still an opportunity for B2Bs to grow. But how?

In our recent B2B research, we identified four kinds of business buyers: Number Crunchers, Service Seekers, Innovators, and Risk Avoiders. We used these profiles to identify the kinds of marketing communications each was most likely to respond to, but each group also reacts differently to slowdowns in the growth environment.

For instance, we defined Innovators as buyers whose prime driver is growth: they make strategic purchases to improve their capabilities, and they’re more interested in learning opportunities provided by their supplier than any other group. But in many businesses, this profile will be inconsistent with diminished opportunities for growth; stronger bottom-line pressure on these buyers will leave many struggling to justify innovation-oriented purchases.

Service Seekers, on the other hand, are highly-satisfied, long term customers making smaller, more transactional purposes. Their biggest priorities are customer service and a great rapport with sales reps, and they tend to be very stable customers. Bottom-line pressure will also result in service seeking buyers struggling to justify their supplier relationships.

I think, if the worst predictions about the economy come true, we’ll see customers begin to crowd into the “Number Cruncher” and “Risk Avoider” categories: customers who are extremely focused on bottom lines and lifetime values, and who want to make absolutely sure that the supplier and products are reliable. They’ll do it because budget pressures will be up and tolerance for risk across the enterprise way down.

So how do you reach Number Crunchers and Risk Avoiders? Our discussions with marketers around the world have unearthed some hints on how to tailor marcoms to these groups. Autodesk enlists fellow customers to calm fears of supplier risk, FedEx uses a tool to quantify customer concerns, and our risk tool will help suppliers understand which risks they should message about.

But the most important element of staying afloat in a bad economy is psychological: resisting the urge to excessively scale back, keeping risks in perspective, and understanding that even in the worst economies, there’s still room to survive and thrive.

But recent activity in the financial markets – not to mention news trickling out of policy-making bodies like the US Congress, Federal Reserve, and the European Central Bank – strongly suggests that, at a minimum, a period of soft growth lies ahead for businesses. At worst, we could be facing down another recession; InTrade suggests a 44% chance of the US entering a negative-growth period in 2011, and in Europe, commercial bank exposure to bad sovereign debt might be contagious enough to tip many countries into recession.

So: that’s the bad news. And it’s pretty bad; it could even be catastrophic if policymakers can’t come up with the right answers. But here’s the thing: even in the darkest throes of the last crisis, consumer activity continued. Most people remained employed, even if they didn’t get their usual raises and bonuses. And there was still an opportunity for brands to grow if they could offer the right value and strike the right message for the times.

MLC’s 2011 B2C study focuses in on the overloaded, frazzled, easily-distracted consumer, and the consequences that overload has for brands. We noted that overloaded consumers are highly associated with brand-disloyal behaviors, and were less likely to recommend or advocate, even for brands that they like. The result for consumer brands is commodification and, increasingly, no purchase at all, as the purchase decision complicates itself to the point of indecision.

Bringing things back to economic instability, what effect does loss of income (or the threat thereof) have on consumer overload, stickiness, and ultimately the bottom lines of consumer brands? It’s not good. Consumers with less money, or who think they might have less money in the future, begin to view purchases as more important or involving significant tradeoffs, sending them on the research spiral:

And they aren’t wrong. Small purchases do take on an inflated importance in times of economic trouble. The best brands are the ones that recognize this and figure out how to communicate value without overloading an already-anxious consumer. Brands like DeBeers, P&G, and Netflix are returning control to consumers by providing transparent buying guides and schemas, allowing people to rest easy and know that a better deal isn’t readily available. Buy-back programs, like Best Buy’s and Hyundai’s, allow consumers to more easily face the buy now-buy later tradeoff, knowing that the decision is at least somewhat reversible if hard times strike.

But consumer brands have one silver lining – many recession-era behaviors have yet to recede, consumers are still buying an elevated amount of private label brands, and so the potential transition from slow to negative growth might not be as difficult as it was last time. Regardless, though, smart marketers with good products still have a chance to grow their brands in the coming months, even if the worst does happen.

If you believe that what is happening to the news industry may be playing out in these other industries, marketers should be fundamentally reconsidering the role of brands and therefore the way they do branding.

To boil down the Economist’s 14 page report on the news industry into six bullets:

• The era of mass news from early 1800s to about 2005 was a historical anomaly—news before the early 1800s was much more “atomized” (news came from social connections, vitriolic pamphlets printed in small runs, and from chatter at the local coffee house)
• In the past 10 years, the news scene has returned to an atomized state—the Internet and social media blew apart the mass news model by dropping production costs, commoditizing news and thereby dramatically increasing suppliers of news, while putting mass news outlets (newspapers) out of business
• The upshot: consumers of news (once again) fracture their attention across many more news sources than they used to.
• While consumers have many more news sources to choose from, they also suffer from a torrent of information coming from different sources.
• There is an opportunity for third parties to relieve this pain, and serve as filters and curators of the huge supply of news.  The best bloggers do this well (Andrew Sullivan and his blog the Dish is one of my favorite examples).  It also points up a new role for journalists and editors—many of them should shift their focus from generating the news to a more curatorial role, navigating the torrent of news and stitching together select news atoms into coherent and compelling narratives for consumers

So, why would any of this affect the role that brands play?  Well, if you step back and look at what is happening to select categories, a similar story is playing out (six bullets here, parallel to the bullets above).

• Before the rise of mass production and mass brands, consumer goods and services were provided by an “atomized” set of suppliers (think pre-Industrial Revolution cottage industries)
• In the past few years, the rise of social and mobile technologies are commoditizing many products (consumers can easily find lowest price and can easily source substitutes) and are injecting a huge dose of discoverability into consumers’ shopping, whereby they receive recommendations for brands or goods they never would have known about before
• The upshot: consumers are fracturing their walletshare across many more adjacent substitutes.  These aren’t lower priced, carbon copy substitutes for goods they regularly buy; these are substitutes that fulfill a need in a slightly different way.  Part of their value is that they aren’t mass produced—they are unusual or different or off-the-beaten path.  Here are recent examples that I’ve observed as a consumer:
  • My wife shops the Etsy bazaar to find a more unusual pair of earrings instead of going to the mall with the same old shops for the masses;
  • On the street in Chicago recently, I saw a sheet of paper taped to a lamppost with a QR code on it, advertising how a local artist can customize your shoes with special paint and a unique design—maybe consumers spend money here instead of adding a 25^th pair of name brand shoes to their collection;
  • My wife buys me a beer tasting class as a birthday gift instead of the usual name-brand apparel (see my previous blog post that spells out how Groupon is a breaker of consumer buying routines, much at the expense of mass brands).
  • In sum, mass brands in many categories suffer from a thousand tiny cuts as consumers fracture their walletshare in ways like these.
• While consumers now have many more options against which to allocate their (depressingly fixed) walletshare, they also suffer from a torrent of choices in what they could buy.  Our recent research on the consumer decision path suggests consumers are suffering from cognitive overload as a result of all this buying choice.
• There is an opportunity for third parties to help consumers deal with this pain, by serving as filters and curators to help them navigate this greatly expanded choice set.  Many entities are edging into this role already:
  • Google is using algorithms to help consumers find apparel they might like (see www.boutiques.com);
  • Some consumers are relying on their social networks to play this role;
  • Individuals are playing this role, oftentimes celebrity tastemakers (which may help account for the popularity of some celebrities on Twitter);
  • And new hybrids are arising, like Flipbook, that weave together social and algorithmic filters.

I’d argue the more powerful of curators won’t be algorithmic—they’ll be humans or have a very strong human component.  That’s because humans are better (for now, at least) at weaving together coherent and compelling narratives to make sense of these choices, and go beyond the cold buying guide.

The humans behind brands could well play this role.  In my next post, I’ll unpack what makes for a great curator, and why I think brands like Tory Burch are charting the path for a new model of branding that is better suited to categories that are dealing with a re-atomized marketplace.  Just like the news industry.

What’s more, we’ve observed that consumers typically retain habits they form in bad times for a significant period of time after the economic situation improves. The longer this goes on, the longer consumers will remain austere.

So what’s the outlook? We don’t pretend to have a crystal ball, but I think it’s fair to say that the prognosis is mediocre at best. A number of indicators of consumer health are trending up, but others suggest some risk of problems in the mid to long term. In all, the data suggest that, at best, the consumer spending pie is growing very, very slowly, and may in fact be stagnant or shrinking.

Brands can grow in a recession or consumer spending downturn, but it’s generally zero-sum growth, coming at the expense of other brands. Making product and brand messaging as simple as possible is one way to maintain share of wallet during downturns, and we’ve also got some thoughts on resource allocation and optimization during recessions, as well as some ideas on how coupons and incentives in particular can shore up market share in bad times.

Here are three indicators that suggest consumers might be holding their own, as well as two that suggest trouble ahead:

Retail sales. Minus a slight blip last month – a blip that can largely be explained by structural issues in the auto and energy markets -  retail sales have generally been getting stronger since the official end of recession in the U.S.:

Total consumer spending. Tracking retail sales, this indicator has largely been positive since the end of the recession, almost two years ago – and is nearly back on the pre-recession trend:

Be wary of this graph, however: it includes fuel and food spending, which are taking up more wallet share.

Accelerating household deleveraging. American households are generally retreating from the high levels of debt that characterized the pre-recession years:

Decreased debt service payments mean a greater percentage of household income is available for discretionary purposes.

We’ve analyzed the good – now, we’ll take a look at the bad:

Unemployment. Here’s where the real pain lies. First, there’s the “headline” unemployment rate – the rate of adults looking for work who haven’t yet found it:

That’s more or less constant – and abnormally high, given that since mid-2009 we’ve technically been out of recession. This graph doesn’t count underemployment – people who aren’t working as many hours as they’d like, or those who would like to switch jobs, but cannot – which is significantly higher.

Finally, there’s the ratio of employed people to the rest of the population:

What do these graphs tell us? They say that the unemployment is more or less remaining constant, despite the return to slow rates of post-recession economic growth; that many people are in part-time employment situations out of necessity; and that we’re not adding new jobs fast enough to keep pace with population growth.

Food and energy prices. Competing with concerning levels of unemployment for the “nastiest economic indicator award” are rising food and energy prices in America and around the world, stemming mostly from increasing demand in emerging markets. Here’s a visualization of food and energy price increases since mid-2009 (food is in blue, fuel in red):

Food and energy prices are shrinking the share of consumer wallets available for other marketers.

All in all, these data indicate that – at least at this very moment – there’s a declining pool of money available for consumer marketers, that more individual consumers are hurting due to being un-or-underemployed, and that for all those consumers, that declining pool of money is cut into even further by higher energy and food prices.

MLC members, for more on brand growth in tough times, please consider attending one of our upcoming executive retreats. This year, they focus on the theme of decision simplicity – giving overloaded consumers a break from tough-to-understand marketing messages.

One academic paper, The Plastic Trap: Self-Threat Drives Credit Usage and Status Consumption, offers some interesting insights. The authors – professors at London Business School and Cornell – set out to explain why people on a low income spend a proportionally larger amount of their earnings on status goods than those with a higher income. The traditional explanation – that “individuals conspicuously consume to signal their wealth” – only seemed like part of the picture. The study found that status purchases aren’t just about impressing others, but also about making ourselves feel better when we’re down – or, more specifically, about repairing bruised egos.

The study used lab-based experiments to deflate participants egos by, for example, getting them to take simple tests and showing that they scored worse than others. Next, participants were asked how much they would pay for luxury goods, such as cars or watches. The result?  “Individuals whose self-worth was harmed sought affirmation in high-status goods.”

If low self-esteem makes you desire luxury goods, we can assume that losing your job or your house would actually increase your chances of forking out for a high-status item, even though this is when you can least afford it (as this commentary points out).  Problematically, financial difficulties might actually make you more likely to overspend to get that temporary ego boost, despite the dire long-term consequences.

The study also went one step further and looked at the impact of credit vs. cash payment.  It found that belittled participants were more likely to seek the pain-free experience of credit payment and that this painlessness further increased chances of buying status goods.   The authors conclude that a combination of low self-esteem and credit payment creates a “perfect storm” in which consumers who can least afford it are most at risk of overspending on luxury goods.

This second finding about the dangers of credit cards has been confirmed by a number of other studies (described in more detail by Jonah Lehrer).  One such study by professors at MIT involved a real-life auction for baseball tickets. Half the auction buyers were told to pay with cash, the other half with credit.  The professors then averaged bids from each group.  The contrast was pretty stark: for heavy credit card users, the average bid was nearly twice as much as the average cash bid. The paper was entitled: Always Leave Home Without It.

Neuroscience research helps explain this phenomenon. Typically, spending money activates the insular cortex – the part of the brain that imagines pain when seeing other people suffer and responds to nicotine withdrawal.  In order to buy, the anticipated pleasure of owning a desired good must activate the nucleus accumbens (the brain’s pleasure center) more than the price tag activates the insular cortex. It is the interaction between the brain’s pleasure and pain centers that regulates our spending. The problem is, when you spend on credit, the insular cortex doesn’t seem to get it. “The nature of credit cards ensures that your brain is anaesthetized against the pain of payment.”  And since spending doesn’t feel bad, we spend more, whether or not we can afford it. Jonah Lehrer prophesies that this problem will only get worse as cell phone payments take off – since payment will be even easier and more pain-free.

MLC members, for more information on consumer decision making, please attend this webinar or meeting series on the changing purchase process.

Given signs like these of increasing customer demand, it’s no wonder why folks are jumping in. But it seems like there’s a lot of wisdom to tap into in the membership, here – so we’re asking: what do companies see as the upside of embracing mobile payments in a broader way? We’re asking this question on our Digital Media Discussions forum, and we’d love your input.

What does a successful mobile payment platform look like? What advantages does it confer relative to the status quo, a mix of cash and plastic? Six hypotheses we’ve thought of:

The “arms race” scenario. Are banks and retailers moving into the mobile space simply because their competitors are doing it? If this is the case, what are the signs you’re seeing of growing demand on the consumer side?

A data play. Does mobile offer significant advantages in customer understanding, relative to plastic? Do typical mobile payments user agreements allow processors and retailers to access information in other parts of the phone?

Increased brand awareness. Do payments give retailers license to push ads to the phone? Does the mere act of using a branded payment platform, whether provided by financial institutions (like Mastercard) or retailers (like Starbucks) reinforce brand connections in a way not previously available?

Savings on interchange fees. Particularly for mobile apps like Starbucks’, which are tied to loyalty program accounts, is there a significant savings on interchange to be had? We imagine that a single large transaction (loading the loyalty card) is more advantageous than multiple small transactions from a retailer’s perspective.

Decreased friction at the point of sale. Do mobile platforms (particularly those based on near-field communications) offer significant advantages in terms of friction and willingness to buy? Is buying with mobile less mentally demanding, from a consumer point of view, than plastic or cash? Do you project labor or equipment savings as a result of shorter checkout lines?

Better shopper marketing. As mentioned in this week’s Wall Street Journal article, are mobile payment systems providing a hook for shopper marketing-focused tech throughout the rest of the store? If you’re a retailer, and do in-store mobile coupons, are you seeing higher conversion rates compared to other coupon provisioning systems?

What do you think? Let us know on the discussions forum, or in comments here. We’ll take your responses and compile them into a subsequent Wide Angle post.

(updated 5/24: added additional hypothesis)

We’ll be talking a lot more about our findings at our executive meeting series and webinar series starting this summer, but we certainly have found some surprising things, a few of which we’ll talk about here.

First off – the purchase funnel is dead, or at least a lot less common than we think it is.

We surveyed nearly 6,000 US and UK consumers about recent purchases across all categories: the remembered purchases were anywhere from under $10 to over thousands of dollars, including ongoing and one-time services, cars, luxury goods and apparel, and the results were definitely surprising.

You’re probably familiar with the purchase funnel, invented in 1898 by the colorfully-named ANA founder St. Elmo Lewis (that’s his attractive photo we’ve included here): he proposed that consumers go from awareness to interest to desire to action, gradually reducing the number of options or brands they consider along the way.  This has been adopted with some changes as the standard across industries.

Well, even though we tested pretty much every category out there, in none of those categories was the funnel the majority way consumers purchased.

We found that purchases generally fell into three categories, in roughly equal proportion across our sample:

1. The traditional funnel, where consumers consider many options and then choose one
2. The ‘tunnel’ where consumers only consider one brand before purchasing
3. The ‘spindle’ or reverse funnel, where consumers add and subtract options as they go along, then make a decision.

While they were roughly equal in proportion, they were definitely NOT equal in outcome.  Tunnel buyers have stronger brand intent and are more likely to repurchase. In fact, a ‘tunnel’ process was the top driver of repurchase across everything we tested.

Meanwhile the ‘spindle’ purchasers were less likely to recommend and repurchase, and more likely to be anxious along the way and do post-purchase research to confirm they made the right choice.  (As a side note, our survey found a shocking 1 in 5 customers perform post-purchase research – perhaps a sign of lack of confidence overall as the number of choices increases).

You may be thinking to yourself, surely people buying cars or luxury goods don’t just consider one brand?  Shockingly, over a quarter of them do – 28% for cars, 26% for luxury goods.  You must know some families that only buy Fords, or only buy Toyotas.  It turns out there are a lot of them.  On the other end of the spectrum, over half of sub-$10 purchases are ‘tunnels’– showing how great the opportunity for consumer packaged goods to cement those routines.

In our upcoming meeting and webinar series Compressing the Decision Journey we’ll be looking into the implications of these findings (and more): how do we help more people follow a ‘tunnel’ process?  How do we prevent customers from over-thinking the purchase and ending up unhappy?

In the meantime, what do you think about our purchase funnel findings?  Was the funnel ever an accurate way of describing the majority of consumers?  Has the abundance of choice (or other factors) changed the way customers buy?

This is already increasingly the norm for folks in Europe and Asia, where Japan’s mass transit systems have accepted mobile payments for years. but in America, mobile payment platforms are still in their infancy. Startups like Square and Boku have promised to bring payments to our smartphones, and next-generation technologies like near-field communication (NFC) will push payments even further.

But improving technology is only half the equation – in a nation where credit cards are almost ubiquitous and transactions are nearly frictionless, will merchants go to the trouble of buying new equipment and training staff for mobile transactions? Last week’s move by Starbucks suggests that they might. In case you missed it in our Leading Indicators a few weeks back, the coffee giant will roll out a nationwide mobile payment system based on their very successful loyalty/gift card program. A mobile app displays a barcode linked to a user’s Starbucks card, the barcode is scanned, and the transaction total is deducted from the balance of the card.

What can Starbucks (and other merchants with similar market positions) expect to gain from implementing a system like this?

• Reduced friction at the point of sale. No more digging around for credit cards or exact change, reduced wait times for card processing, and slightly increased willingness to buy all mean an increase of money flowing from consumer wallets to Starbucks – not to mention the benefits of a faster-moving line. Starbucks’ system also has the ability to store favorite drinks will reduce errors, as well. (Did you say frappuccino or cappuccino?)
• Decreased payment processing fees. If consumers transfer individual transactions away from credit cards and towards mobile systems, one larger credit card transaction (to add value to the loyalty card) will suffice for multiple visits. For a volume business like Starbucks, that could result in serious savings in terms of payments to credit card processors.
• More (and better) demographic data. Sales from the mobile app (as well as the loyalty card) carry demographic data – addresses, zip codes, previously-ordered drinks, age (if you’ve opted into the free-drink-on-your-birthday offer). Can anyone compete with this?
• Increased customer convenience and satisfaction. It’ll make ordering faster and more convenient, speed up what can be an interminable line, and there’s a pretty big “whoa, cool” factor here.
• Boost in upselling. You already tell Starbucks, when you register a card, what you’re most interested in about the chain. Is it their participation in the anti-AIDS RED campaign? Is it their CSR efforts, or fair-trade offerings? I’m not sure if it currently does, but it’s easy to envision an app that takes your order quad grande Americano order, and recommends a more environmentally-friendly (and more expensive) alternative.

My prediction: this will get other volume merchants, if they haven’t already, to begin thinking about how to implement mobile payment platforms. Consumer expectations have a way of changing pretty quickly when a big player introduces something new. At present, it’s probably only worth getting involved with if you’ve got a tech-savvy customer base, a strong, existing loyalty and payment program, and sufficient volume to see savings from scale.

Not really, it turns out.  In MLC’s recent Consumer Purchase Behavior survey, we specifically tested for changes in buying behaviors to see if consumers are returning to pre-recession patterns.  Spring thaw isn’t quite right—a better metaphor would be something like “dead cat bounce”.

For our global readership not familiar with this grim idiom, the gist is that dead animals don’t bounce very high when dropped.  From pretty much any height.  I should state at this point that no animals, living or dead, were harmed in the production of this blog post.

Here’s the scoop.  We looked at a broad swath of consumers in the US and the UK, and focused specifically on the ones who said the recession caused them to meaningfully change their buying behavior in one of these ways:

• Look for and use coupons much more often
• Purchase private label or store brands to save money
• Shop at more real or online stores to find best price, even if that means more travel or search time
• Purchase smaller quantities of goods instead of stocking up
• Make use of sharing or renting schemes to save money on big ticket items I used to buy

We then asked these consumers if they are they doing more, the same, or less of that behavior than they were in the teeth of the recession one to two years ago.  The results?

• Only 3-5% of consumers were doing less of any of these behaviors
• About 35-50% of consumers said they were doing about the same amount of each behavior.
• The remaining 40-60% are actually engaging in these behaviors more than they were as recently as last year.

Ouch.  Dead cat, indeed.

The results held in both the US and the United Kingdom, and we’d expect to see the same in most all developed markets.  That helps explain the recent earnings announcements from the likes of Colgate, P&G, Kimberly-Clark and Clorox—all of these companies are suffering from tepid demand in some of their core categories.  In Q4 2010, sales of private label goods grew at 1% year-over-year, whereas branded goods sales declined 0.8%, according to a recent Sanford C. Bernstein & Co’s analysis of Nielsen data.  Our research findings offer little prospect of a bounceback.

So, what are marketers to do?  It seems there are two levels of responses to think about: structural demand-supply changes and tactical marketing shifts.  In the structural category, marketers ought to be thinking about shifting energy to emerging markets, taking capacity off line (e.g., shutting less productive plants), and investing in innovation to develop new product that will serve new consumer needs at lower prices.  MLC members, see our latest work on radical innovation to advance your thinking here.

As to tactical marketing plays, in the coming months the MLC research team will scour the globe for best practices that don’t fall back on discounting, coupons and promotions.  If you’re proud of what your brand has done on this front, do give us a shout, please – pspenner@executiveboard.com.

This holiday season, I escaped the snow drifts plaguing much of the East Coast and spent the end of my year in hot and humid Ghana.  Ostensibly I was there for a friend’s wedding, but while touring the colorful fishing villages and bustling marketplaces in and around Accra, the marketer in me couldn’t sit still.  Given that “emerging market” seems to be the buzzword for 2011, I thought I’d share a few brief impressions from the pages of my unofficial travelogue:

Apples aren’t oranges. Though this was my first time in Africa, I’ve traveled previously to other countries that fall under the über heading of “emerging market”.  In particular, I was struck by how different cities across Ghana felt relative to those I’ve explored in Brazil.  Both countries lead their respective continents as far as a growing, stable economy is concerned, but two major differences stuck out:

1. Ghanaian commerce is almost entirely cash-based, whereas I was easily able to credit card myself across Brazil.
2. Public transport, let alone serviceable roads, were hard to come by in Ghana while even a tourist like me could easily navigate Brazil’s city streets.

It may be tempting to view developing countries as a cohesive segment, but the financial institutions and basic infrastructure can vary drastically from country to country.  A marketing strategy must necessarily take into account the realities of the specific market at hand.

Mobile matters. From rural villages to the more urban city centers, one accessory was ubiquitous: the cell phone.  Ghanaians from all socioeconomic backgrounds use the phone not just to stay in touch with friends and family but as a major tool for conducting commerce.  While it’s no secret that mobile devices change the way American consumers shop, what’s less clear is how Marketing should adapt.  Accordingly, MLC will take a look at the impact this instant access to information has on the nature of both B2C and B2B purchase decision-making across 2011.

Adaptation is a must. Marketing attempts to inflect specific customer beliefs to achieve certain outcomes but, given major cultural and lifestyle differences, these attitudes vary drastically based on societal norms of a given country.  For instance, my travel-sized toothpaste appeals to largely cosmetic concerns when it touts a lasting white smile, whereas billboards for the same brand in Ghana appeal to a more primordial need when stating that “germs will attack your teeth at night.”  Both enact the same behavior (brush teeth more often), but the latter positioning demonstrates an appeal to the more basic health and well-being concerns prevalent in the developing world.

Of course, all these musings boil down to one central tenet: customer understanding must serve as the foundation of your marketing strategy, regardless of whether you’re building it for a developed or emerging marketplace.

We then analyzed those who planned to spend more, and discovered they are very savvy mobile users.

Respondents who plan to spend more:

• Have more income (no surprise)
• Are more likely to do most of their holiday shopping online
• Are more likely to follow online recommendations or reviews
• Are more likely than the others to make a purchase on the phone
  • 50% of ’spend mores’ have bought digital products on their phones, 30% have bought physical products on their phones.
• Are more willing to accept location-based coupons
  • Also, they don’t differentiate as much between coupons from favorite restaurants/stores and coupons from generic restaurants/stores
• Are more likely to scan items in the store – 56% of people who plan to spend more this year have scanned an item in the store compared to 40% of the others.

Correspondingly, those who plan to spend less are much more likely to shop in stores and call themselves ‘bargain hunters’ for holiday shopping.

We also asked questions about what kind of holiday shoppers people are (fast, slow, online/in store, look for bargains etc.)

Those planning to shop mostly online for the holidays:

• Are more likely to spend more
• Are more likely to have an iPhone
• Are more comfortable switching between phone/computer and phone/store to make purchases

Bargain hunters:

• Are much more likely to accept location-based coupons from their favorite stores
• Are slightly less likely to accept coupons from generic stores

These findings have important implications for retailers. For those targeting higher income shoppers, a mobile strategy may be relatively more important than for those targeting bargain hunters. Consumers are clearly comfortable moving back and forth between traditional online, mobile, and in-store shopping.

Leaders in this space are making these different platforms seamless: they have a mobile optimized website or apps (not just mirrors of the traditional site) which take advantage of the native functionality of the mobile device; they offer in-store product scanning and mobile coupons redeemable at point of sale; they use their traditional web sites and stores to call attention to the mobile channel. Some are even experimenting with location-based technology. For example, Ritz Camera has partnered with mobile media company JiWire to run location-targeted advertising campaigns and drive foot traffic to bricks-and-mortar retail locations. Mobile clearly offers tremendous opportunities to contextualize offers in ways that are timely and relevant. Retailers who successfully integrate these channels to provide a streamlined customer experience will be well-positioned to reap the rewards.

MLC members, keep watching this space for more on mobile trends and strategy. For research on social media, see the MLC topic center.

For Iconoculture, macrotrends are a way of talking about why people make the decisions they make. And expressions of Mindful Matters play out differently depending on one’s cohort. In Iconoculture’s annual quantitative values survey, we saw that Boomers especially had embraced simplicity: They identified with the top end of the simplicity scale, defined as “I strive to live a simple and uncluttered life,” more than any other demographic group did (Wave 1, 2010).

Of course, slower living isn’t a phenomenon that’s only about Boomers. As we’ve seen in such observations as the Great American Apparel Diet, where people commit to abstaining from buying clothes for a year, Millennials have their own way of more closely considering their purchases. Nor is the idea nation-specific. We’re tracking similar examples around the globe.

For many people feeling the pull of Mindful Matters, this marks the beginning of a more considered, maybe slower life. But for marketers, that shift in people’s values means change is afoot — and it’s happening fast.

For trends and observations we’ve seen related to the Mindful Matters macrotrend, check out the weekly insights page anytime this week.

In addition to crazy discounts and shopper stampedes, Black Friday also provided an array of creative promotional activity by top retailers.  While television and print circulars factored big in advertisers’ budgets, social media shouldered a growing responsibility in encouraging shoppers to spend spend spend.

Stores “Like” Facebook:

Several retailers, including Target, Walmart, Gap, and Toys ‘R Us, made their Black Friday deals available to those who “Liked” them on Facebook.  In addition, Target used the occasion to up its Facebook following by giving away 100 $25 gift cards a day in the week leading up to Black Friday to those who registered with its Facebook page (and hopefully shared that fact in their FriendFeed).

Old Navy jumped on the social game bandwagon, launching a Facebook game that allowed players to shop a virtual Old Navy store (with Black Friday sales prominently featured), shop for clothes, and give virtual Old Navy presents to Facebook friends.

Holiday Savings in 140 Characters or Less:

Based on data from ClickZ, @BestBuy was the most prolific tweeter on Black Friday with 70 posts on the high shopping holiday.  At nearly 108,000 followers, Best Buy also has the greatest number of “tweeps” of the 10 major retailers the website assessed

Target invested heavily in Twitter this season, even going so far as to purchase the #BlackFriday hashtag.  On Friday, @Target pushed out 13 tweets to its 55,000+ followers, while the much more popular @TargetDailyDeal account (92,000+ followers) published just one tweet.

Checking-In to Save at Check-Out:

According to AdAge, Target led the “I’m here” battle on Foursquare, with 17,872 check-ins on Black Friday.   Other big winners included Wal-Mart (12,639), Best Buy (10,565), Toys ‘R Us (8,998), and Apple (5,334).  Sports Authority did not crack the Top 10 in terms of Foursquare check-ins, but, according to ClickZ, the day was still a rousing social media success.  Sports Authority’s offer of 20 $500 gift cards to randomly selected checker-inners led to a tenfold increase in its Foursquare followers and a positive bump of 5X to 20X in check-ins at various store locations.

Toys ‘R Us spread the check-in love around, offering 15% discount coupons off purchases of $150 or more to the first 3,000 shoppers to check-in to Foursquare, Facebook Places, and Yelp.

Foursquare competitor Gowalla took advantage of Black Friday to promote itself, “hiding” an unspecified number of $50 Amazon.com gift codes at various retailers across the nation to encourage use of its app in the shopping madness.

Phoning it In:

In addition to checking in, more and more consumers are using their mobile phones to research and even buy this winter.  A National Retail Federation survey found that one-quarter of smartphone owners (including 45% of those aged 18-24) planned to use their devices to locate, research, price compare, and purchase their holiday must-haves.  Coremetrics reported that 5.6% of all retailers’ Black Friday web traffic came via mobile phones – a 27% increase over 2009.

The shopping season seems off to a good start – both in terms of sales and new marketing tactics.  As competition for yearend dollars heats up, looks for retailers to be even more creative in their social media efforts.

MLC members, learn more about consumer shopping trends from Iconoculture.

While the report is a look at the key management activities across the executive suite, and not just for marketers, MLC members have an immense role to play in helping build the culture of intelligent growth. The first management discipline our team identified in building the intelligent growth organization is customer experience innovation – a marriage of product innovation and selling flexibility that achieves breakthrough revenue growth.

But how do you get there? CEB asked the best customer experience innovators and found two common factors: they focus on reinventing the buying experience for their customers, particularly their key accounts; and they use social media to activate latent brand advocates.

The report is a potent reminder of just how instrumental marketers have become to corporate success. In austere times, when governments and consumers are reducing their budgets and paying off debts, the drive on behalf of buyers towards commoditization can be particularly destructive. Marketing leaders’ success or failure in differentiating their companies through customer experience innovation could mean the difference between an intelligent growth organization and one where growth is anything but certain.

I could share more, but that would be giving away the store, right? If you’d like to learn more, please consider joining us for a webinar the second week of December. We’ll have sessions for all time zones from December 7-December 9. It’s open to members and non-members alike. To get a copy of the report, click here.