introducing the connected...

INTRODUCING THE CONNECTED SPENDER:

THE DIGITAL CONSUMER OF THE FUTUREEXECUTIVE SUMMARY

FEBRUARY 2017

AUTHORS

Louise Keely Executive Vice President, Nielsen; Board Member, The Demand Institute

Brian Anderson Associate Program Director, The Demand Institute

Ben Cheng Senior Methodologist, The Demand Institute

THE DEMAND INSTITUTE illuminates the way in which consumer demand is evolving around the world. We help government and business leaders align investments with where consumer demand is headed across industries, countries and markets. The Demand Institute is a non-advocacy, non-profit organization and a division of The Conference Board, which holds 501(c)(3) tax-exempt status in the United States. The Demand Institute is jointly operated by The Conference Board and Nielsen.

demandinstitute.org

THE CONFERENCE BOARD is a global, independent business membership and research association working in the public interest. Its mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance while better serving society. The Conference Board is a non-advocacy, not-for-profit entity holding 501(c)(3) tax-exempt status in the U.S.

conference-board.org

Nielsen Holdings plc (NYSE: NLSN) is a global performance management company that provides a comprehensive understanding of what consumers Watch and Buy. Nielsen’s Watch segment provides media and advertising clients with Total Audience measurement services across all devices where content — video, audio and text — is consumed. The Buy segment offers consumer packaged goods manufacturers and retailers the industry’s only global view of retail performance measurement. By integrating information from its Watch and Buy segments and other data sources, Nielsen provides its clients with both world-class measurement as well as analytics that help improve performance. Nielsen, an S&P 500 company, has operations in over 100 countries that cover more than 90 percent of the world’s population.

nielsen.com

http://demandinstitute.org

http://conference-board.org

http://nielsen.com

ACKNOWLEDGMENTS

The Demand Institute is entirely accountable for the information, ideas, and projections in this report. The report does not necessarily reflect the views of the numerous people from other organizations who generously gave their time and expertise to help shape it.

The authors would like to thank the board members of The Demand Institute, Louise Keely, Karen Kornbluh, Jonathan Spector, and Bart van Ark, for their sponsorship and intensive involvement in the work of The Demand Institute, including this report. We appreciate the input we received from them and other colleagues at The Conference Board and Nielsen.

In addition, we thank our editors, Geoff Lewis and Karen Schenkenfelder, who helped us to articulate our findings clearly and accessibly. The communications teams at The Conference Board and Nielsen have been trusted partners in the communication of our findings.

INTRODUCTION 6

KEY TAKEAWAYS 7

THE RISE OF THE CONNECTED SPENDER 9

CHARACTERISTICS OF CONNECTED SPENDERS 13

WHY FOCUS ON THE CONNECTED SPENDER? 17

IMPLICATIONS FOR CONSUMER-FACING BUSINESSES 21

The Demand Institute • Connected Spender • February 20176

INTRODUCTION

When consumer-facing companies look around the world for growth opportunities, they tend to think about consumption growth driven by an income-based middle class. In particular, the standard approach to maximizing potential sales has been to focus on products and services designed to meet the needs and tastes of the middle class. However, our research suggests that this approach is misguided. By looking at the drivers of global consumption growth in a new way, we have identified likely purchasers across income groups and across economies.

We call these consumers Connected Spenders. They are connected because they have internet access and use the internet to research purchases and to shop. But Connected Spenders are not merely online shoppers. They are digitally savvy consumers who have enough income for discretionary purchases, are avid shoppers who punch above their income class in discretionary spending, prefer premium products, and are on the cutting edge of consuming trends. Globally, the Connected Spender population rivals that of the global middle class, but the Connected Spender cohort is growing faster than the middle class and spending more: by 2025, these consumers will account for half of global consumption. For marketers coping with a sluggish global economic environment and middle-class malaise, tapping into the Connected Spenders can help generate healthy growth.

The Demand Institute • Connected Spender • February 2017 7

KEY TAKEAWAYS• FOR COMPANIES SERVING CONSUMERS IN THE MODERN, CONNECTED ECONOMY, INCOME-BASED

APPROACHES TO GROWTH, SUCH AS SEEKING GROWTH OPPORTUNITIES FROM THE MIDDLE CLASS, ARE INSUFFICIENT. Such approaches ignore two important considerations: consumer mind-set and engagement, and access to goods and services.

• TO ADDRESS THESE SHORTCOMINGS, WE HAVE DEVELOPED A NEW APPROACH TO IDENTIFY THE CONSUMERS ABLE AND READY TO BE HIGHER SPENDERS. We call them Connected Spenders, and over the next decade, they will account for 46% of the world’s consumer spending, or $260 trillion.

• CONNECTED SPENDERS SERVE AS AN INDICATOR OF WHERE GLOBAL CONSUMPTION IS HEADED. On average, they are younger, more urban, and more affluent than other consumers, and they display more confidence and engagement. They outspend other consumers in a variety of categories.

• OVER THE NEXT DECADE, THE NUMBER OF CONNECTED SPENDERS AROUND THE WORLD WILL MORE THAN DOUBLE, FROM 1.4 BILLION IN 2015 TO 3.0 BILLION IN 2025. Their share of global consumers will rise from about 19% of global consumers to 37%. More importantly, spending by Connected Spenders will grow from about $15 trillion annually in 2015 (about 35% of global consumption) to more than $32 trillion in 2025, or 53% of global consumer spending.

• BY 2025, ONLY THREE MATURE ECONOMIES—THE UNITED STATES, JAPAN, AND GERMANY—WILL BE AMONG THE 10 LARGEST MARKETS FOR CONNECTED SPENDERS. Emerging markets such as Indonesia, Pakistan, and Nigeria will contribute significantly to global growth in the number of Connected Spenders.

• WHILE THE NUMBER OF CONNECTED SPENDERS WILL GROW FASTEST IN EMERGING MARKETS, MATURE MARKETS WILL CONTINUE TO PLAY A LARGE ROLE IN CONSUMER SPENDING. By 2025, the typical Connected Spender in a mature market will spend nearly $40,000 annually, 10 times the amount of a typical Connected Spender in an emerging market.

• THE MOST IMPORTANT CHARACTERISTIC OF CONNECTED SPENDERS IS THAT THEY HAVE ACCESS TO THE INTERNET AND EVERYTHING THAT COMES WITH THAT. The ability to participate in the digital economy hinges on that access. Over the next decade, we estimate an additional 2.3 billion consumers will gain access to the internet, and almost all of that growth will come from emerging markets.

• CONNECTED SPENDERS ARE OMNICHANNEL SHOPPERS, USING THE WEB FOR A VARIETY OF CONSUMING ACTIVITIES, including researching and shopping online, sharing ideas and reviews on social media, and viewing media and advertising.

• CONNECTED SPENDERS ARE THE IDEAL CONSUMER FOR A VARIETY OF GOODS AND SERVICES, AND CONSUMER-FACING BUSINESSES SHOULD USE THEM AS A FIRST LENS in making decisions about which markets to invest in, how to communicate with and reach consumers, and what conditions they should be monitoring across different markets.


THE NUMBER OF CONNECTED SPENDERS WILL MORE THAN DOUBLE GLOBALLY

2015

1.4BCONNECTED

SPENDERS

3.0BCONNECTED

SPENDERS

+572M

+496M+164M +108M +98M +83M +79M

CEN

TRAL

&SO

UTH

ASIA EA

ST A

SIA

& P

ACIFIC

SUB-

SAHARA

NAFR

ICA

EURO

PE LATIN

AM

ERIC

A

MID

DLE

EAST

&

NORT

H A

FRIC

A

NORT

HAM

ERIC

A

2025

GROWTH IN CONNECTED SPENDERS WILL PLAY OUT IN TWO STAGES

Consumer-facingbusinesses in second-stage marketsshould focus ondeepening engagementwith existinginternet users.

Consumer-facingbusinesses in �rst-stage marketsshould focus onincorporating newinternet users intomodern consumerculture for the �rsttime.

LEVEL OF DEVELOPMENT

SHARE OF INTERNETUSERS SPENDING

SPARE CASH

INTERNETPENETRATION

POPULATIONGROWTH

CONTRIBUTION TO GROWTH OFCONNECTED SPENDERS (2015-2025)

100%100%

66%

66%

25%

9%

21%

13%

E.G. CHINA, INDIA, INDONESIA E.G. UNITED STATES, SINGAPORE,UNITED ARAB EMIRATES

STAGE 1MARKETS

STAGE 2MARKETS


THE RISE OF THE CONNECTED SPENDER

We define the Connected Spender as a consumer who has internet access, the wherewithal to fund discretionary purchases, and a greater tendency to consume than other internet users. How they think about shopping and consuming sets Connected Spenders apart from other consumers.

In mature economies, Connected Spenders already account for a majority of spending. In the coming decade, there will be rapid growth in the number of Connected Spenders in emerging economies and in high-growth economies such as China and India. As a result, we project that Connected Spenders will account for more than half of global consumer spending by 2025. Therefore, we believe that the Connected Spender cohort, not the middle class, will be the sweet spot for many marketers.

The total global population of Connected Spenders was about 1.4 billion in 2015, and we estimate that it will reach 3.0 billion in 2025, increasing from about 19% of global consumers to 37%. Total spending by Connected Spenders could grow from about $15 trillion in 2015 (about 35% of global consumer spending) to more than $32 trillion in 2025, accounting for over half of global consumer spending.

Across economies, we describe two stages of growth in Connected Spender populations. The first is driven by rising internet access, and the second depends largely on the combination of rising household incomes alongside increased consumer confidence

and engagement. In general, mature economies have achieved nearly universal internet access (90% penetration or more) and, therefore, are finished with the first stage of development. They are in the second stage of growth, which tends to be slower. In contrast, growth will be relatively fast in emerging and some growth markets. Today, these economies are squarely in stage one of Connected Spender growth. Internet penetration in these countries is typically well below 50%. Even in China, only 53% of households had internet access in 2015. In the next 10 years, an estimated 2.3 billion people worldwide are expected to gain internet access, and 2.2 billion will be from emerging economies. Many of these new users will be smartphone users.

Though the number of Connected Spenders will grow faster in emerging markets, the new Connected Spenders in those economies will have far less spending power than Connected Spenders in mature economies. We expect that in 2025, Connected Spenders in mature markets will still be spending 10 times as much per year as their counterparts in emerging economies.


710M

652M

114M

50M

57M182M

74M

49M

46M

50M

UNITED STATES

BRAZIL

NIGERIA

GERMANY

RUSSIA

PAKISTAN

INDIA

INDONESIA

CHINA

JAPAN

TOP 10 MARKETS BY NUMBER OF CONNECTED SPENDERS IN 2025

KARACHI, PAKISTAN


CHARACTERISTICS OF CONNECTED SPENDERS

As individuals, Connected Spenders tend to have specific characteristics in terms of age and income. More importantly, they behave in specific ways that make them extremely attractive customers. They have higher confidence than other consumers; spend more across all categories, especially discretionary products such as electronics; are more engaged online; and are more responsive to media and advertising messages. Understanding these characteristics will help marketers target these individuals.

Younger, higher income, more urban

While Connected Spenders exist across ages, income groups and geographies, they are more concentrated among younger, higher-income and urban populations. Nearly one-third of Connected Spenders around the world are between the ages of 25 and 34, compared with less than one-fourth of other internet users. Most of them are Gen Y or Millennials and grew up with the internet. Only about 29% or Connected Spenders are over the age of 40, whereas nearly 40% of other internet users are. Across countries, 35% of Connected Spenders are in the highest income group. Less than one-third of Connected Spenders are in the lowest income groups in their countries. More than three-quarters of Connected Spenders live in urban areas, and internet users who are not Connected Spenders are twice as likely as a Connected Spender to live in a rural area.

Optimistic and willing to spend

On average, Connected Spenders have higher consumer confidence than other members of their economic cohorts, according to Nielsen surveys in 61 markets. Across countries, Connected Spenders routinely have higher confidence scores than other internet users. In 2015, Connected Spenders around the world had an average consumer confidence score of 115, compared with only 85 for other internet users.

This confidence is reflected in how Connected Spenders shop and purchase. In any given income group, the Connected Spenders allocate more of their income to discretionary purchases than other internet users. For example, Connected Spenders allocate 6% of income to vacations, compared with 3% for other internet users, and spend 6% on


65% 78%

11585

23% 31%

OTHERINTERNET USERS

CONNECTEDSPENDERS

CONSUMER CONFIDENCE INDEX

ARE AGE 25-34

LIVE IN URBAN AREAS

CONNECTED SPENDERS ARE YOUNG, URBAN, CONFIDENT CONSUMERS

77%52%

77%

78%

88%

90%

42%

53%

68%

75%

SPEND SPARE CASH ON PLEASURE TRAVEL AND VACATION

SPEND SPARE CASH ON RECREATION AND ENTERTAINMENT

SPEND SPARE CASH ON ELECTRONICS AND APPLIANCES

SPEND SPARE CASH ON DINING OUT

SPEND SPARE CASH ON APPAREL

OTHERINTERNET USERS

CONNECTEDSPENDERS

CONNECTED SPENDERS ARE ACTIVE CONSUMERS OF DISCRETIONARY GOODS AND SERVICES


56%35%

52%

62%

65%

83%

37%

38%

50%

71%ENJOY THE FREEDOM OF BEING CONNECTED ANYWHERE ANYTIME

LIKE TO RECEIVE ADS/PROMOTIONS THAT REFLECT DEMOGRAPHIC PROFILE

WILLING TO PAY PREMIUM FOR INNOVATIVE NEW PRODUCTS

WOULD SHOP AT A PHYSICAL STORE USING SMARTPHONE/TABLET

USE SOCIAL MEDIA SITES TO HELP MAKE PURCHASE DECISIONS

OTHERINTERNET USERS

CONNECTEDSPENDERS

CONNECTED SPENDERS ARE EAGER TO PARTICIPATE IN THE MODERN DIGITAL ECONOMY

electronics, versus 4% for other internet users. Other internet users, on the other hand, allocate more income to necessities, spending 19% of income to food and beverages consumed at home, versus 15% for Connected Spenders. Across categories—even in necessary products—the Connected Spenders are likelier than others to opt for the new variation or the premium brand.

Connected Spenders are enthusiastic shoppers and use the internet both to gather information and to make purchases online and offline; they are “omnichannel” buyers. Connected Spenders may prefer the latest gizmos, but they also appreciate

value and, compared with other internet users, spend more time online shopping for the best deals.

Connected Spenders are also leading-edge media consumers. They are cord cutters and streamers—two to three times as likely to watch a program on a smartphone or tablet as other internet users. As an advertising audience, Connected Spenders also lean digital. They are as likely to respond to a traditional TV or print ad as other internet users, but they are far more likely to spend time scanning information on a manufacturer’s website and are more likely to recall internet ads.


CONNECTED SPENDERS COME FROM ALL INCOME GROUPS

LOWER

INCOME

CONNECTED SPENDERS

CONSU

MER

ENGAGEM

ENT

MIDDLE CLASS UPPER

Connected Spenders are themost engaged consumersfrom each income group and present a better approach for marketprioritization than income alone.

Illustrative only. Not drawn to scale.

INCREASING INCOMES CONTINUE TO UNLOCK CONNECTED SPENDERS

CONNECTEDSPENDERS

MIDDLECLASS

% O

F PO

PULA

TION >

>>

PER CAPITA GDP >>>

The middle class shrinks asconsumers reach upperincome levels.

Growth in the global middle class outpacesgrowth in Connected Spenders as lower-incomeconsumers enter the middle class.

Connected Spenders continueto grow as incomes rise andconsumer engagement deepens.

The growth in Connected Spenders is drivenprimarily by internet penetration butlags growth in income.

STAGE 2STAGE 1

Illustrative only. Not drawn to scale.


WHY FOCUS ON THE CONNECTED SPENDER?

Connected Spenders differ in some significant ways from the idealized middle-class consumer who for so long has captured marketers’ attention. True, many Connected Spenders come from middle-income cohorts, and on a global basis, Connected Spenders and the middle class are of comparable sizes (about 800 million in 2011). However, Connected Spenders are more avid consumers and are a faster-growing share of the world population.

The difference between the sizes of the middle-class and Connected Spender cohorts shifts over time as economies develop. Connected Spenders are more common in mature economies, where there were 100 million more Connected Spenders than members of the middle classes in 2011. In less affluent emerging-market countries, there were 100 million fewer Connected Spenders than members of the middle class.1 Since common definitions of the middle class include an upper bound on income, sizes are not comparable across countries with different levels of development. The Connected Spenders approach avoids this shortcoming by allowing consumers in

each market to identify, based on their own beliefs, whether or not they can engage in discretionary spending.

Following the growth of Connected Spender populations can help companies develop strategies to cater to these eager consumers. At every income level and at all stages of economic development, Connected Spenders punch above their weight class—outspending other internet users in their countries. By tailoring products and services to the preferences of these consumers, companies can generate above-trend growth.

1 In this analysis, we use the Pew Research Center’s global definitions of income groups. Pew defines a household as being middle income if it earns between $10 and $20 per person per day. See “A Global Middle Class Is More Promise than Reality,” Pew Research Center, June 2015.

http://www.pewglobal.org/2015/07/08/a-global-middle-class-is-more-promise-than-reality/


DIFFERENCES BETWEEN THE MIDDLE CLASS AND CONNECTED SPENDERS VARY CONSIDERABLY BY REGION

60M25M133M134M

113M102M

390M296M17M54M

20M23M73M149M

EAST ASIA& PACIFIC

SUB-SAHARAN AFRICA

LATIN AMERICA &CARIBBEAN

MIDDLE EAST & NORTH AFRICA

EUROPE CENTRAL &SOUTH ASIA

NORTH AMERICA

782MIN GLOBAL MIDDLE CLASS

(2011)

808MCONNECTED SPENDERS

(2011)


IMPLICATIONS FOR CONSUMER-FACING BUSINESSES

The Connected Spender approach provides a method for identifying consumers who spend more and who are likely to purchase certain types of goods and services. Understanding who these consumers are, where they live and what they want to purchase can help companies generate above-average sales, which is particularly important in an environment of restrained economic growth. In addition, the Connected Spenders are leading-edge consumers; where they go, other consumers will eventually follow. The Connected Spenders are likely to be among the first to snap up a new smartphone design or adopt a new electronic payment method.

By studying the behavior of Connected Spenders and the pattern of growth in Connected Spender populations, companies can identify the most important product and service attributes to include and which geographic markets to serve. There are trade-offs to consider. For example, while Connected Spenders tend to earn and consume more in high-income economies, the fastest growth in the Connected Spender population will occur in emerging and growth economies. In particular, global players in consumer-facing industries may want to consider places such as Indonesia, Nigeria and Pakistan, which have received less attention than markets such as Brazil, India and China but stand out as particularly strong markets for Connected Spender growth over the next decade.

To build a following in places such as Indonesia, which are in the first stage of Connected Spender development (when internet access is still limited but the main driver of Connected Spender growth), companies should monitor key developments, such as plans for communications infrastructure. Emerging and growth economies may be able to leapfrog quickly to a high level of internet penetration—at least in urban areas—through mobile broadband. Also, companies should pay attention to the development of payment systems and last-mile logistics, which are needed for successful e-commerce. In mature economies that are in the second stage of Connected Spender development, companies should focus more on consumer engagement—finding ways to serve the


needs of these lucrative but demanding shoppers. Efforts could include mass customization or superior omnichannel shopping experiences.

Reaching Connected Spenders is relatively easy, since they are, by definition, more active and interested in shopping than other consumers. To stand out with these consumers, companies may want to invest

more in online promotion, including websites packed with product data and other useful information. Connected Spenders are also likely to respond to digital and nontraditional forms of advertising, such as online sports events. All will be effective tools in capturing the $260 trillion in consumer spending from Connected Spenders over the next decade.

845 Third Avenue

New York, New York 10022

212 339 0220

demandinstitute.org

http://demandinstitute.org

introducing the connected...

Documents