10 Pillars for the Economic Recovery
When the consumer economy eventually starts to recover and create the new normal, the architects of recovery will not be economists or politicians - they will be consumers. It will be a two-speed recovery and the fast lane will be driven by a band of recession-busting consumers known as the New Economic Order.
Consumers are, after all, the ultimate shareholders of the consumer economy, so ignore these future-shapers at your peril. So, who are they, and what are the fast lane building blocks of the next normal?
Twenty-four percent of consumers, the new economic order or NEOs are already shaping their new reality; and planning for what it will look and feel like to come out of the COVID shutdown. There are 5 million NEOs in Australia, 60 million in the US, and they are called the new economic order because they are the most valuable consumers in the economy. History shows that if you follow them, you will find the future.
As society emerges from the COVID pandemic and the global economic slump many of us will be overwhelmed by a feeling of remorse at the grossness of our irrational consumption, and by the superficiality of our sham opinions. British writer Edward Docx refers to our behaviour as 'the teeming insecurities on which social networking sites were founded and now feed.'
After the emotional rollercoaster of the pandemic and recession, we will want to become reacquainted with the spellbinding narrative of connection, purpose, and meaning. Writing in 2011, immediately after the Global Financial Crisis, Docx urged us to ‘tune in carefully’ to detect the growing desire for authenticity all around us.
We can see it, he said, in the specificity of the local food movement or the repeated use of the word “proper” on gastropub menus. We can hear it in the use of the word “legend” as applied to anyone who has actually achieved something in the real world. We can recognise it in advertising campaigns, such as Jack Daniel’s, which ache to portray not rebellion but authenticity. We can identify it in the way brands are trying to hold on to, or take up, an interest in ethics, or in a particular ethos.[1]
He could have been channelling the NEO ethos, the NEO sense of purpose we will see during the next recovery. In short, he observed that after a period of disaster, a culture of care emerges to be celebrated and cherished.
The culture that emerges after the looming economic recession will be characterised by 10 pillars:
1. Purpose & Meaning ("If I’m not fully immersed, I’m just a spectator")
2. Control ("We’re taking back control – in every part of our lives")
3. Sustainability & social conscience (donate, protect, care, support, foster)
4. Hyperlocal ("At home or across the globe, I want an intensely local experience")
5. Human scale (authenticity, artisanal deliciousness, and beauty)
6. Think Small ("Stop shouting at us, we just want the quiet truth")
7. Inconspicuous consumption (experience something extraordinary that just fires)
8. Digital acceleration (expanding new online channels, live streaming & connectivity)
9. Post-material mindset (betterment in mind & body, art, culture, personal challenges)
10. Inclusion (a hyper-focused subject or purpose in online communities of interest)
Intelligent business leaders are already charting the new course back to growth. And the starting point is the consumer who embodies all 10 recovery pillars – the new economic order.
History and data science give us a glimpse into why this is an economic imperative for business.
We all know that consumers don’t spend on products and experiences when they are unconfident or uncertain. So, for business leaders, the opportunity in any economic crisis is to know who will panic least and whose recovery rate will make them spend more, more quickly – in other words, who will recover first and fastest?
After the Global Financial Crisis of 2007/08, NEOs recovered sooner than low-value Traditionals and NEOs recovery rate was much faster. According to Roy Morgan, by August 2009 money-active NEOs were 20 index points clear of money-passive Traditionals.
As I wrote in 2011, NEOs are more resilient consumers than Traditionals. “Looking back on the economic impact of 9/11, SARs and now the Global Financial Crisis, it is clear that while NEOs may slow their spending during the deepest period of uncertainty, they are back spending sooner and more frequently than anyone else; spending on the things that are most aligned with who they are and what they desire. And they recover months, even years, ahead of Traditionals. This reflects a NEO’s sense of their own ‘individual economy’ shaped by their personal confidence, optimism, imagination, and prospects. This is radically different from a Traditional’s reliance on perceptions of the traditional economy as their guide.”
NEO resilience explains why by mid-2009 NEOs were 20 points ahead of Traditionals in consumer confidence (see graph above). And by 2010 the lead had stretched to 24 points. Fast-forward a decade to 2018, and the confidence gap between NEOs and Traditionals was still more than 20 points. It is systemic.
NEO resilience was on full show throughout the GFC. For example, guests to Clayoquot Wilderness Resort on Vancouver Island were being asked to pay $US2,000 per night per person, to stay in a tent. Owner John Caton was under pressure from his high-end competitors deeply discounting their rates. A NEO strategy was developed with a simple proposition: “Come stay for four nights and the first night’s on us.” That was a 25 percent discount, but nowhere was the word ‘discount’ used. At the height of the GFC Clayoquot’s occupancy rate was up on the previous year. And when it was all over, John Caton’s competitors took years to lift their heavily discounted room rates back to 100 percent.
Also, as the GFC progressed, global accommodation brand Four Seasons needed to sell luxury private residences sitting atop its brand-new hotel in Denver, Colorado. No one was buying houses or apartments in America during the GFC; however, a NEO strategy changed all that. A NEO marketing and sales strategy saw Four Seasons’ developers sell 90 percent of the Denver condominiums at a combined value of $400 million in just 6 months. Without discounting.
A resilient consumer brand needs resilient consumers. So, as the COVID-induced recession bites, the smart money's on the future-shaping NEOs to keep spending through the crisis and be back driving the fast lane of recovery, first and fastest. Australia’s 10 million Traditionals will remain stuck in the slow lane.
[1] Docx, E. 2011, “Postmodernism is dead,” Prospect Magazine, iss: 185, August.