thought lines autumn 2011[1]

8/3/2019 Thought Lines Autumn 2011[1]

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In this issueCost, quality and effort - the shiftingshopper trade offAre western economies down-and-out orwill they bounce?New frontiers in scienceHighlights from the IGD Convention

audience pollFour innovation trends for 2012Issue seven: Autumn 2011In this issueCost, quality and effort - the shiftingshopper trade offAre western economies down-and-out orwill they bounce?New frontiers in scienceHighlights from the IGD Conventionaudience pollFour innovation trends for 2012

Issue seven: Autumn 2011


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ISSUE SEVEN AUTUMN 2011

Cost, quality and effort the shifting shopper trade-off

By IGDs shopper insight manager, Tim Maton

TThe latest financial squeeze is shiftingshopper behaviour once again. Itwould be far too simplistic to viewthis just in terms of trading down. Thereality is much more interesting and theresponses available to companies muchbroader.

The value prism

The shopper value equation has oftenbeen viewed as the balance of twofactors: cost and quality. Thats toosimple. Charting shoppers through recentturbulent times has reinforced our view ofthe importance of the third dimension tovalue: time and effort.

Weve been following how shoppers havemanaged a three-way trade off betweencost, quality (including ethics) and effort.Looking through this three cornered

prism not only helps us better understandthe decisions people have taken already,it also helps anticipate their next moves.

2008/09: Savvy shopping

In normal circumstances, most shoppersare creatures of habit. They buy mainlythe same products in the same stores atthe same time, each week. However, theglobal recession of 2008/09 jolted manyshoppers out of their habits, encouragingthem to economise.

Those thinking only in two-dimensionsat the time anticipated a big swingtowards budget ranges. There was somemovement in that direction but the effectwas muted. There was also no discernibledecline in ethical shopping.

Shoppers are always highly resistant tolowering their standards, viewing this as apersonal failure. When hit by an economicshock, their first resort is to seek ways to

save money without sacrificing quality.They can achieve this by trading time andeffort against expense. Its been called


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savvy shopping.

HighExpenseGreaterEffortLower

QualityThe value prism 2010: Holding position2008-09:SavvyShopping2011: Return of thesavvy shopperHighExpenseGreaterEffortLowerQuality

HighExpenseGreaterEffortLowerQualityHighExpenseGreaterEffortLowerQuality2010: Holding position

During 2010, as the economy showedsome glimmers of recovery, shoppersstayed in a holding position. A sense ofuncertainty about the future remainedalthough there was a slight migrationback towards paying a premium forconvenience.

2011: Return of the savvyshopper

The current year has seen another waveof fuel and food inflation, governmentspending cutbacks, tax increases, rescuepackages for European economies andmuch speculation about a return torecession.

Almost four in ten (37%) British shoppersnow say they are trying to save moneyfrom their grocery shopping bill, up froma quarter (26%) in October last year.So the savvy shopper has re-emerged,returning to the tactics deployed in 2009,

only more so.

1.


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Comparing prices. A greater numberof shoppers are making moreconsidered decisions scrutinisingprice and promotions. In fact 41%of British shoppers say theyretaking more time over shopping andchoosing products, up from 25% in

2008.2. Shopping around. Almost half(46%) of British shoppers claim to beshopping around more since the turnof the year, a marked increase fromthe 27% saying this three years ago.Our data confirms this fits a Europe-wide trend for shoppers expandingtheir repertoire of stores andchannels, flexing spend, dependingon where they find the best value.3.

Self sufficiency. Two-fifths (39%) ofBritish shoppers claim to be cookingmore from scratch up from 27% in2008. Over a quarter (27%) say theyhave been making more packedlunches, compared with 18% claimingthis three years ago.4.Seeking alternatives. Since thebeginning of the year, shoppers have


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Hunting harder for value Hunting harder for valueshown a greater preparedness toexperiment with private label.More than a third (36%) of Britishshoppers say they intend to buy moremid-tier private label products in the

year ahead, up from 26% at the endof 2010. Shoppers only stick withprivate label when they are satisfiedwith the quality (except in desperatecircumstances) but 79% believequality has improved over the last twoyears.

2012: What next?

As the economic squeeze continues andpossibly intensifies, shoppers will find

it more difficult to save money withoutsacrificing quality. However, mostshoppers are still far from exhaustingtheir options and have highlighted twotactics in particular that they intend topursue further over the remainder of theyear.

One is to apply greater budgetarydiscipline. Two-fifths (42%) of Britishshoppers intend to keep to a set budgetwhen shopping, which probably meanscutting down on discretionary impulse

purchases. This is an increase from the36% who have focused on it so far in2011.

The second tactic is to plan morecarefully and reduce waste. For example,39% intend to make better use ofleftovers, an increase from the 33% who

claim to have done so during the first halfof the year.

So shoppers can continue to trade effortagainst cost although not indefinitely.There is a limit to the effort shoppers arewilling and able to make. Eventually theywill begin to sacrifice quality and we haveseen more signs of this in recent months.

What does this mean forretailers?

Different companies specialise in servingdifferent parts of the value prism.However, the majority would like to see

lots of shoppers occupying the highexpense corner.


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Unfortunately, a prolonged squeezewill force more people out of thiscorner. If so, most retailers would prefershoppers to head in the greater effortrather than the lower quality direction.Higher sales of ingredients would thenpartly compensate for falling sales of

convenience foods.

Retailers neednt be passive observersin this. They can exert a strong influenceby reducing the effort required to be asavvy shopper. For example:

Web-based, or better still,smartphone enabled services, suchas Leclercs Quiestlemonischer makecomparing prices easier

The Waitrose Quick Check serviceallows shoppers to keep a runningtotal of their bill while shopping

Weekly meal plans, such asSainsburys Feed the Family for 50per Week help shoppers to managetheir household budget and to reducefood waste

The Great Taste, Less Wasteprogramme at Morrisons is positionedas a campaign to help shoppers

get more meals for their money byreducing waste and making the mostof fresh food

Methods like these encourage shoppersto spend less. However, for retailers,thats much better than losing theircustom entirely. Theres plenty more thatretailers could and probably will do alongthese lines. The contest is on to establishthemselves as the savvy shoppers allyas they seek to save money withoutsacrificing quality.

What does it mean formanufacturers?

Branded manufacturers can also helpfamilies to economise. They can do so bymaking it less painful to trade down onquality, for instance through new entrylevel brands.

However, peering through the valueprism suggests some potentially more

attractive alternatives. For instance:

Introducing more semi-finished


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branded products (such as a syrup or

cake mix)

New forms of packaging to cut waste

Participating with retailers to producefixed budget meal plans.

Shoppers will continue to trade off threefactors in their search for best value. Onlyby looking at all three will companies seethe full range of possibilities.

Note that all the data cited in this articlecomes from IGDs new ShopperTrackservice, unless otherwise stated. If youwould like to discuss the ideas in this

article further, please do contact theauthor.

Follow @IGDShopperNews on Twitter

visit: www.igd.com


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ISSUE SEVEN Autumn 2011

Are western economies down-and-out or will they

bounce back?

By IGDs chief economist, James Walton

FFour years after the Credit Crunchand it is difficult to disputethat the Western world is livingthrough something much more than thedownward leg of a typical business cycle.

Debt continues to rise. Political unity

is crumbling. Power and influence isshifting. Critical resources are becomingincreasingly scarce. New technologiesare destabilising established businessmodels. These and other forces areeroding the foundations of the Westsprosperity.

The question facing America, Europeand Japan is no longer when will therecovery arrive but will there ever bea full recovery? Some are questioningwhether we might have passed the peak

of prosperity in developed countries.

In these conditions, what assumptionscan we make about the future of Westernmarkets and how should companiesprepare?

Cycles of history

To answer these questions we shouldlook back as well as forward. Todayscircumstances may feel unique butstability is historically rare; flux andchange are the norm. There have beennumerous examples of economic andpolitical structures which have emerged,prospered, failed and been replaced.

Some economists argue that businesscycles typically quite short are not theonly ones at play. There are also longerterm cycles which define whole eras inhuman development.

The Kondratiev Wave theory was

proposed in 1925 by Russian economistNikolai Kondratiev. He suggested thateconomic activity fluctuates along a


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predictable path, with each cycle lasting40-60 years.

The wave articleAt certain stages these historical rhythmscan overpower the business cycle. TheVenezuelan economist Carlota Perez

believes this is what were experiencingnow.

Perez associates long waves with theemergence, adoption, saturationand maturity of transformationaltechnologies, along with the social andcultural changes which accompany them.

She identifies five economic wavessince the 1770s, each driven by a set oftechnologies, as shown below. Cycle time

for the four completed waves varied butaveraged about 50 years.

According to Perez, each cycle dividesinto four phases:

1.Installation in which newtechnologies challenge the old andinvestors pour in capital to profit froma rising market, eventually creating aspeculative bubble.

2. Turning point the bubble burstscausing a shake-out. Althoughdestructive, this phase is essential toprogress.3. Deployment proven approaches inthe installation phase see widespreadadoption, creating new prosperity.4.Exhaustion technologiesbecome mature and the benefitsdwindle, causing a search for newbreakthroughs.Perezs idea is visualised by IGD in thechart above. The exact height of eachwave isnt important but notice that eachwave of technical development drivestwo pulses of economic growth before itis spent.


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What next?

According to Perez, cheap energy andtransport (the foundations of the previousera) are giving way to cheap informationand its transmission. The Credit Crunch

marked the end of phase one of thedigital age and now were now livingthrough the turning point ahead of themass deployment phase.

This rollout could include: superfastbroadband across all developed

Technology alone is not enough toprogress the cycle. It requires technologyand capital to work in concert. A healthybanking system is required and yet todays

system is badly damaged, unable tosupport technology deployment at thepace required.

Political and social circumstances mustalso be conducive. Today, however,governments across the Western worldface a near-universal fiscal crisis asexpectations for social provision collide

sheet, pay close attention to staffmorale and otherwise build yourbusiness resilience.

3.Relinquish some of the old noteverything will be swept away but thevalue of some assets will erode as thecost of information falls and the costof fossil fuel rises. Anticipating thetrends early will allow you to divestat the right time, freeing funds forinvestment.4.Usher in the new the keycountries, affordable smartphones

worldwide, cloud based storage of data,

printed electronic tags, voice activated

with limited means, bringing sociodemographicgroups into conflict.

2005

characteristics of the next phase

will be digital, sustainable and

global development, so invest and


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devices, automatic language translation,artificial intelligence automating manymore tasks and widespread use ofsensors to deliver live feedback.

Most industries will then undergo a

shake-out as new models supplantthe old. The media and entertainmentsectors are experiencing this alreadyand many others, including retail, arebecoming destabilised. Farming andmanufacturing are not immune asemerging technologies and rising energycosts upturn their financial equations.

However, we can expect great economicand social benefits from this process.Perez acknowledges that technology

is only part of the story and describesthe opportunity as using technology tohelp build a sustainable economy thatpromotes full global development.

Her vision is that the period from 2020 to2040 becomes the next golden era asthe information age promotes education,co-operation, democracy, health,efficiency and stability.

Whats holding us back?

This analysis is therefore cause for longterm optimism but there are also reasonsfor medium term pessimism.

Deployment is, therefore, on a go-slowuntil the financial and political systems arereformed and stabilised. Given the scaleof the challenge, this period will last someconsiderable time.

What it means forcompanies

Any model of change is only ever asimplification of reality but these ideashave the ring of truth.

Western markets are down and could staydown for a prolonged period but theyhavent been knocked out!

For business leaders, the task is to chart acourse through extended turbulence withthe aim of eventually capitalising on thenext era of prosperity.

What are the key principles that businessleaders should apply in setting that


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course?

1.Play a long game set attainablegoals for the medium term andmanage expectations but set sightshigh for the long term.

2.Manage risk be sceptical abouteconomic forecasts, anticipatevolatility, maintain a healthy balanceencourage radical thinking in these

areas.

5.Remember the social factor consumers as well as companies willexperience dislocation and will need

reassurance from business that thesituation is under control so put astrong emphasis on building trust andtransparency.6.Watch for the upturn when theupswing finally arrives it will be morepowerful than a normal businesscycle. Recognising this early andresponding decisively will bring greatfirst-mover advantage.7.Get a head start the seeds of the

next techno-era are probably withus today and will likely involve acombination of renewable energy,biotechnology and nanotechnology.If you would like to discuss how the forcesdescribed in this article are likely to affectyour company, please dont hesitate tocontact the author.

Follow James on Twitter@jameswalton_IGD

visit: www.igd.com


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ISSUE SEVEN Autumn 2011

New frontiers in science

By IGDs nutrition and scientific affairs manager, Rachel Hackett

WWe are still only part way throughthe digital revolution with manymore developments yet tocome. However, if these prove insufficientto regenerate economic growth, whereelse should we look for a technologybased boost?

Here IGD runs its rule over the maincandidates.

Energy

An energy revolution is beginning tounfold as we replace fossil fuels withrenewable sources. The solution is likelyto lie in a combination of technologiesrather than a single breakthrough.

Technologies to watch out for include:

More efficient ways to convert waste

to fuelNew fuel cells for small-scalelightweight applications: laptops,phones etc

Lower cost, more efficient solarenergy

Microbial fuels, e.g. algae

Geothermal energy (extracting heatfrom the earths crust)

Using artificial intelligence to manageenergy efficiently e.g. homeenergy management systems, smartelectricity grids

Nuclear fusion

Nanotechnology

Engineering at the nanoscale allowsthe development of new materials withsuperior properties some of which can be

used in novel ways. Everyday consumerproducts can be made lighter, stronger,cleaner, less expensive, more efficient


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and more precise.

Nanoelectronics will prolong the trendfor miniaturisation meaning that moreinformation can be stored in ever smallerdevices.

Applications to look out for include:

Food ingredients delivering improvednutrition, safety and shelf life

Better performing portable fuel cells

for powering vehicles and appliances

Lightweight yet very strong materialsfor buildings, vehicles etc

Coatings for buildings, glass andmachines that reduce environmentalimpact, vibration, corrosion etc

Intelligent devices to monitorhealth, e.g. blood pressure, glucose,cholesterol

Medical devices for implantation

Genomics

Cost reductions and increasing speed

are making genome sequence data morereadily accessible both for humans andother life forms. This is generating anew branch of information technology:genomic information.

Applications to look out for include:

For humans: use of geneticinformation for medical markers,health diagnostics and personalisednutrition

Improved traceability andidentification of foods and otherbiological materials

More rapid selective breeding ofcrops for food and fuels (withoutusing GM techniques)

Further applications of GM for

animals, plants and microbes

Advances in understanding theinteraction between nutrition andother factors determining health


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Synthetic biology

Eventually, we will be able to designand engineer forms of life fromscratch. New DNA sequences could beconstructed to create biological parts

and whole organisms to perform specificapplications.

The risks and ethics in this field willbe hotly debated but the potential isenormous and applications could include:

New processes for synthesisingchemicals and pharmaceutica

Highly efficient biofuels

Biosensors which flag any changesin biological fluids and tissue e.g. formonitoring human health or waterpollution

Bioremediation to removecontaminants, e.g. desalinating water

In vitro production of food e.g. meat

The dazzling potential of todays scientificleading edge suggests that if we can

repair the worlds financial system thenwe have the potential to enter anotherperiod of prolonged prosperity.

With digital technology grabbing somuch of the attention, far-sightedcompanies might be able to outflank thecompetition by casting their sights morebroadly and becoming early adopters ofother groundbreaking scientific fields.

Feel free to contact the author for furtherinsight.


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ISSUE SEVEN AUTUMN 2011

Highlights from the IGD Convention audience poll

Over 700 directors and senior managers attended the 2011 IGD Convention on the t

heme ofbreakthrough innovation in October. Here are some of the highlights of the audience poll.

Which of these factors is currently causing you the

Whats happening to your R&D budget?

biggest headaches?

1Consumers/shoppers

1234On the increase

4%2 Rising input costs

35%

Holding steady

348%

Skill shortages39%

9%

45In decline

Changing regulations

4%

14%

A negative climate in the media

R&D budgets...those were the days

5%

6Tackling sustainability12%


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1%

7Problems in raising capital1%

8Slow pace of consumer spending28%

Which part of the world is the biggest source ofinnovation in your market sector?

1UK

Whats been happening to innovation in your

29%

market sector?

2Rest of Europe

10%

1Theres been more of it3North America

30%

218%

Its been less frequent but in bigger steps44Asia

17%

319%53%

Its being squeezed5Nowhere stands out

24%

Whats happened to the pace of innovation in your What experience has your business had with phonebusiness? apps?

1Weve speeded it up


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32%

21234

Theyre delivering measurable benefits for usWere working on speeding it up

11%

43%

3Weve dabbled but weve not seen a benefit yet

No change8%

24%4 Its deliberately slower as we focus on bigger steps8%

Were working on it5Unfortunately, its slowing down

46%7%

Were happy to let our competitors waste their time this way

6 Its ground to a halt

19%

2%

IGDs 2012 Convention will be held on 9 October and is now open for bookings at aspecial early birdrate. More information is available at igd.com/convention.

visit: www.igd.com


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ISSUE SEVENAutumn 2011

Four innovation trends for 2012

By Jonathan Gunz, senior analyst - retail innovation

The parlous state of the world economy is forcing companies to return to the drawing board in search of new and sustainable modelsfor growth. Weve identified four trends in particular that are gaining momentum in response to this challenge.

3Trend 1: Collaborative consumptionWhats the idea?Instead of owning equipment (such as a drill) that you onlyuse very occasionally, why not form a community consortiumto buy and own it collectively? Such groups can also use theirbuying power to get better deals on various products and

services.ExamplesGroupon, LivingSocial and BuyaPowa connect people onlineto get better deals. Sobeys (Canada), Real (Germany) andMakro (Czech Republic) are amongst the first food retailersto encourage group promotions and buying techniques.Our VerdictIn many cultures, there has been a trend towardsindividualism but financial necessity and the ease ofconnecting online might now reverse this. Collaborativeconsumption is not about to become mainstream but willgrow in popularity.Trend 2: Pop-up paradise

Whats the idea?Why invest in expensive land, bricks and mortar if you canquickly and cheaply provide a temporary shop in locationswhere large groups are congregating? Digital technologyopens up new possibilities for this and manufacturers can get inon the act too.ExamplesTescos virtual store in a Korean subway is a potential landmarkevent and others are already testing the concept, includingOcado in London. Tesco also turned back the clock with a1950s vintage pop up store at Goodwood Races. Otherscreating temporary shops/exhibitions include Target, P&G,Unilever, Twinings, Danone and Coca-Cola.Our VerdictIt used to be said that retailing was about location, location,location. Taking stores to the people rather than attractingpeople to the stores is a powerful concept. If technology canmake this easier then retailing might never be the same again.Follow Jonathan on Twitter @gunz_IGDTrend 3: Customisation

Whats the idea?

People have always been willing to pay extra for certain productsor services if they are tailored to personal preference. The

problem has been to provide this economically. Now, newtechnologies are making customisation more affordable, not onlyfor production but marketing and communication too.


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Examples

In the US, Wrigley consumers are able to design their ownpackaging whereas in Israel, they can print their photo on to a canof Coca Cola. The Sainsburys website includes a personalisedmeal planning service. Before long we will see personalised offers

delivered to shoppers via their phones when entering a store.

Our Verdict

Marketing has already become much more fragmented and theage of mass production is also gradually coming to an end. Theuptake of genetic profiling could accelerate customisation forfood by creating demand for personalised nutrition. Some of thetraditional economies of scale will eventually disappear whichcould be good news for small companies.

Trend 4: Cradle-to-cradle thinking

Whats the idea?

Why pay a rapidly rising fee to dispose of waste when you canconvert it into a new and valuable resource? If you take a zerotolerance approach to waste, right from the product designstage, then almost everything, including energy, water andmaterials can be recaptured and reused.

Examples

Cumbrian Seafoods is converting shells to cement. Unileverhas achieved its zero waste to landfill target across all 11 of its

UK manufacturing sites. Pepsico and Robert Wiseman are atthe leading edge of cleaning and reusing water. Sainsburys isrunning vehicles powered by food waste. There are countlessother examples.

Our Verdict

This concept is business critical. Any company failing to take acradle-to-cradle approach will be exposed both to rising costsand public condemnation.

If you would like to discuss any of these articles and their implications for your business in more detail,contact Adrian Williams, head of customised development, on [email protected].

IGD, Grange Lane, Letchmore Heath, Watford, Herts, WD25 8GD, UKPhone: +44 (0) 1923 857141 www.igd.com


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thought lines autumn 2011[1]

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