With the nation seemingly emerging from recession, American consumers remain skittish about spending their money during this upcoming holiday season according to new research from The Nielsen Company.  Households continue to focus on “essential gift giving” such as staple consumables, candy, beverage/alcohol and entertaining at home, and 86 percent said that they expect to spend the same or less this year than last — with a 7 percent increase in those indicating they would spend less.  Overall, Nielsen is projecting that holiday sales will rise 0.03 percent this year, accounting for $90 billion in dollar sales.

“Given everything the consumer has absorbed over the past 12 to 18 months, the fact that we expect this coming holiday season to be flat in dollars can be viewed as a modest positive,” said James Russo, Vice President, Global Consumer Insights at The Nielsen Company. “Americans have undergone a fundamental change in how they spend their money, and the days of stretching finances to make purchases not deemed as necessary are over, at least for the time being.  That said, our research has shown that consumers are looking forward to loosening their purse strings a bit, but only once they feel more confident about the state of the economy and their personal financial situation.”

Update: James Russo Discusses Holiday Spending on CNBC

Other key findings from the research include:

• Traditional items such as apparel, toys and technology will be most popular categories, albeit at restrained levels and primarily sold in “value” channels.
• Products aligned with at-home entertainment such as cookware, kitchen items, bed and bath accessories and alcoholic beverages will do well.
• Gift cards are one category where consumers plan to spend more this holiday season, followed by toys and apparel.
• Value retailers such as dollar stores, online, discounters and club stores will attract the lion’s share of holiday spending as consumers minimize trips and search for the best values, while office supply, pet stores, home improvement and drug retailers are likely to feel the brunt of the economic slowdown.
• Some 20 percent of households said that they had no plans whatsoever to entertain at home or away from home during the holidays.
• Spending cut-backs are being driven by all income groups.

So how can retailers make the most of this season? They need to recognize that U.S. consumers are, first and foremost, seeking value and will start their holiday shopping well before Thanksgiving.  They should also reach out to their best customers and make them feel special and give them a reason to shop at their outlet during the season and into 2010.   Successful retailing has always been about delivering the right product at the right price and in the right place.  The difference now is effectively mining and communicating to the right consumer as an active participant in driving growth.

As a whole, Canadians are more likely to wait out minor illnesses and conditions before doing anything about them.  Almost two-thirds said that they wait to see if a problem gets better before taking OTC medications.  Ten percent of those surveyed said they never take non-prescription medications for minor ailments, preferring to tough things out, and some indicating that they believed that using these products could be harmful to their health. 

When illness does strike, 17 percent of Canadians take advantage of their medical coverage and visit their doctor for advice (compared with just 9 percent for Americans).  They also put a lot of stock in their pharmacist: 40 percent said that the advice from pharmacists was important to them when choosing an OTC medication, compared to just 13 percent in the U.S.

“Canadians can be classified as minimalists when it comes to self-medication, especially in tough economic times.  When we do reach for an OTC treatment, we normally rely on the advice of a pharmacist to find a medication that is effective, fast, safe and offers value for money,” said Carman Allison, Director, Marketing Communications at Nielsen Canada.

Read the full report.

In the U.S., consumers remain skittish.  Shifts to private label brands continued at a strong pace, as they have for the last eight months, while consumers are shopping less frequently and spending less per trip.  Canadians, on the other hand, are spending more per trip, and are taking advantage of retail promotions.  Unlike in the U.S., private label brands are struggling to gain share as national brands step up promotional activity.

In Europe, the French remain relatively unchanged in their shopping.  Value channels continued to see growth and more retailers were selling on promotion, leading to a modest increase in the amount spent per trip.  Germans showed very little change in the number of shopping trips they took, nor did they increase or decrease how much they spent.  Unit sales increased, however.  In the UK, sales volume improved slightly from the previous month, while budget store brands’ growth slowed as consumers began returning to premium brands.  British shoppers were also spending slightly more per trip.  Italians continued to move to store brands and value channels, although they were reducing their shopping frequency.  Spaniards, who have been among the most optimistic, have not seen that reflected in spending.

Brazilians showed an 8 point surge in optimism, and this translated into more frequent shopping trips and higher sales, in both volume and value terms.  Hong Kong and China both showed growth in sales, but Taiwan showed declines, and optimism there was among the lowest in Asia.  Indian consumers’ confidence was high, and volume and value sales both increased by more than 5 percent.

“While things are starting to look up, it’s clear that Americans and Western Europeans aren’t quite convinced that recovery has taken hold and remain cautious when it comes to shopping.  The labor market is clearly affecting this behavior.  It comes as little surprise that Brazil, India and China – countries that have generally been less affected by the global recession – are among the first to see renewed consumer confidence and sales growth,” said James Russo, Vice President, Global Consumer Insights at The Nielsen Company.

The Buzz

While the idea of recovery hasn’t opened up global consumers’ wallets quite yet, it has started to infiltrate their discussions on the Web.  In June, 71 percent of survey respondents thought that their countries were in recession, an improvement from the 77 percent who thought the same in April.  Additionally, 26 percent believed that their country will be out of a recession in the next twelve months, up three points from April.  Global recession buzz has declined 27 percent since March.  In July, however recessionary buzz perked up, primarily in Western Europe.

“We are likely to see an overall downward trend in recession discussions, but it will be choppy until consumers really feel as if they are experiencing the recovery,” said Russo.

Download the latest Nielsen Economic Current.

“After nearly two years of downward trending, we are now seeing an uptick in Canadians’ moods as the notion of recovery is taking hold,” said Carman Allison, Marketing Director, The Nielsen Company. 

Almost 40 percent of Canadians said that local job prospects will “good” or excellent” over the next 12 months, compared to just 23 percent of Americans.  More than half (52%) characterized the state of their personal finances the same way, edging out Americans, 48 percent of whom felt that way.   More than a third (37%) said that the next 12 months was a good time to buy the things they need or want.

That said, Canadians will continue to save spare cash: 30 percent said that they’d put that money into savings, 11 percent said they would invest in retirement funds and another 40 percent indicated that they would pay off debts.  But after those expenses, the Canadian consumer’s wallet seems to be thawing out a bit: almost a quarter (23%) indicated that they were spending on out-of-home entertainment, and the same percentage said that they were spending on vacations.  Another 21 percent said that they were buying new clothes.  And once recovery in full swing, Canadians want to resume buying technology upgrades and replacing major household items.

Read the full report on Canadian consumer confidence.

In short, value-message and recession-themed ads did not break through TV ad clutter at higher than ordinary rates.  In fact, ad recall of the 67 ads evaluated was at rates lower than historical averages for the 11 advertisers.  Packaged goods manufacturers saw no decline, while retailers registered minor declines.  Financial service, insurance, auto and telecom advertisers posted significant declines. 

Read more about value-themed ads, including case studies of those that were the most effective, in the new edition of Consumer Insight.

SUMMARY: Advertisers are aiming to reach the value-minded consumer with creative advertising executions that deliver recession-themed messaging. Nielsen IAG examined 67 value-themed ads across 11 national advertisers and found that breakthrough retention rates were not as expected. It turns out that the same creative attributes that make for good advertising also make for good value-message advertising. Discover which ones worked and why.

Recession has gripped the economy since December 2007, but by the time it was officially declared a year later, the announcement only affirmed what had already been felt by consumers for many months. Consumer confidence had already plunged 17 points from the second half of 2007 to the first half of 2008. Although it leveled off by the second half of 2008 and through the first h alf of 2009, it has remained in a trough—about 20 points below 2007 levels.

National TV advertisers also began reacting to the recession before it was declared—a deluge of value-focused ads began appearing in the second half of 2008, and value

brands honed their messages to fit the economic environment.

Consumer or consumed?

If consumer state of mind is any indication, receptivity to value-message advertising should be strong. The American Psychological Association reported in February 2009 that 80% of Americans were stressed due to the economy. And behavioral indicators are confirming that sentiment as consumers are seeking value—spending less and saving more. Nielsen reports that 61% of consumers are using coupons and sales, stocking up, switching brands—especially to private label brands—or switching stores. They are also saving more, putting off buying new cars, and even pulling back on buying property, life and health insurance.

Capturing a captive audience

“Staying in” has become the new “going out” and cocooning consumers are tuning-in to television at record-breaking rates. In Q4 2008, time spent watching TV in the home per month reached a historic all-time high, and then went even higher in Q1 2009 when it topped 153 hours.

Capitalizing on a new consumer mindset, advertisers have flooded the airways with recession-themed commercials. But do these value-messages capture more consumer attention?

Breaking through

In a review of TV ad recall, Nielsen IAG found that value-message and recession-themed ads did not breakthrough TV ad clutter at higher rates than ordinary ads. In fact, across an identified set of 67 value-message or recession-themed ads across 11 national advertisers that aired between late 2008 and early 2009, ad recall was slightly lower than the advertisers’ own historical averages in most cases.

Across the spectrum, retention rates varied. Consumer packaged goods brands within this group saw no decline in their breakthrough rates on the whole; retailers saw minor declines; financial services, insurance, automotive and telecommunications advertisers tended to see significant declines.

Yet, not all advertisers who saw a decline in their breakthrough rate were necessarily unsuccessful with their value/recession ads. Breaking through to the widest possible audience certainly plays an important role in ad impact, but for some ads, a moderate breakthrough rate combined with a high-impact message was enough to get the desired effect.

High-performers

A case in point is the value/recession auto campaign that topped Nielsen IAG’s list for surpassing the advertiser’s own ad performance norms. One Asian auto maker addressed the anxieties of potential car buyers head-on by delivering a unique, innovative and timely buyer protection offer, allowing the owner to return the car without damaging his/her credit score in the event of job loss.

Although it was not the best remembered (auto ads tend not to be well-remembered among general audiences), it was the best liked value/recession campaign and the strongest message conveyor among the smaller base of viewers who recalled it. Most importantly, it generated more ad performance improvement for the advertiser than any other campaign studied. It may also have been the most written-about campaign of the TV season, raising the auto makers profile as a challenger to two bigger American motor companies that spawned rival offers.

Proving that getting a jump on competitors with a unique value message pays off, the Asian carmaker returned far better sales results than its domestic competitors. Its sales were down just 1.5% in March 2009 vs. 50% for the American rivals in the same month. Yes, in a deep recession, success may be measured in terms of minimizing revenue losses. But the Asian carmaker continues to see U.S. market share gains.

This example illustrates another important finding about value/recession ads. When a creative campaign is designed around the message, it often inadvertently sacrifices breakthrough. Apparently, entertainment value is dampened when the value/recession theme is dialed up. And viewers look to TV primarily to be entertained—perhaps even more so in a recession. Hitting the bull’s-eye with its message, the Asian carmaker overcame the handicap of lackluster breakthrough.

But what happens to advertisers without a ground-breaking value message?

Messaging masterpiece

Walmart and Target came aboard the recession-themed bandwagon in late 2008 with new value campaigns. For Walmart, value has always been a central message, but the shift from “Always Low Prices,” to “Save Money. Live Better” signaled Walmart’s acknowledgment of a tougher economic climate for customers. They showcased a series of ads that demonstrated how to stretch a budget with lifestyle trade-offs, including:

• Buying a coffee maker for home-brewed coffee vs. daily coffee shop coffee (save $400/yr.)
• Making home cooked meals vs. dinner out for a family of four (save $425/yr.)

The ads were short and straightforward with a clear message echoed in the voice-over and in the visuals. They were not blockbuster ads by any stretch of the imagination, but they did capture more viewer attention than Walmart’s previous ad campaigns and gave the retailer a slight edge in the crowded world of retail advertising at a crucial time when consumers were actively seeking value

Messaging miss

Target on the other hand, had less impact with its “Brand New Day” campaign, which also conveyed lifestyle trade-offs, including:

• The New Movie night—a DVD
• The New Vacation Glow—self-tanner

The campaign married Target’s playful style-focused approach with the recession-themed message, but the feel-good visuals and music arguably overshadowed the value messaging, and it fell short compared to Walmart’s more direct and unambiguous approach.

In its later ads, Target took a completely different path when it introduced the moms who “love Target” because they can get “bargains on basics” and “steals on staples.” The new creative did indeed have more overt messaging, but it came at a price. Without Target’s iconic and stylish visuals and music, viewers were less able to connect the ads to the retailer

Staying true

Brand equity is precious. The core messages associated with a brand will be the ones that consumers are most likely to remember—even when presented in a new way. It may also follow that the primary reasons why consumers bought the brand in the first place will be the same reasons they continue to buy the brand.

Take the example of a major consumer packaged goods manufacturer that launched two similar creatives which were simultaneously aired in late 2008 supporting the message that their brand was an economical way to feed the family. While both ads conveyed this essential campaign message, the second one also utilized the brand’s traditional nutrition/taste message.

Viewers of the second ad had no trouble recalling the nutrition/taste message, but viewers of the first ad were hard-pressed to accurately recall the ad’s value message. This is more remarkable considering that recall measures were based on real-world viewing of the campaign and that most consumers would have been exposed to a heavier dose of the value message because it was in both ads.

Guiding principles

Ultimately, whether an ad is value-focused or not, success is highly dependent on creative execution. The same creative attributes that make for good advertising also make for good value-message advertising. Some rules-of-thumb include:

• Give viewers a reason to watch;
• Be entertaining;
• Use easily recognizable brand cues;
• Have a clear and simple message;
• Don’t cram too much information into a single ad;
• Keep the visuals uncluttered.

Contact us to learn more.

But the environment is emerging as an inadvertent winner in the global economic downturn.  Lower new car sales translate into fewer cars on the road and lower exhaust emissions.  “Cash for Clunkers” programs like those started in some European countries and more recently in the U.S. mean that older, less fuel efficient vehicles are being replaced with new models.  Families have rediscovered cooking at home, and are re-purposing leftovers as opposed to just tossing them out (in flusher times, households tended to waste up to 30 percent of food).

Despite having more pressing issues on their mind, consumers want retailers and manufacturers to step up and do what they can to make products more environmentally friendly, whether that means increased energy efficiency, ethically raised crops and animals or less packaging.

The middle of summer marks the beginning of the Back to School (BTS) season, as parents and kids across the country start to prepare to return to class rooms in late August and early September.  The excitement of school starting isn’t just felt by the kids – retailers also look forward to the season, as it’s an incredibly important time for the $2.5 billion office/school supplies category.  Additionally, with the economy mired in a steep recession this season, the BTS season will be closely watched for signs of a recovery in spending. Half of annual unit sales of some related products occur during the BTS period, accounting for 36-38 percent of annual revenue.

This year, as the US continues to be in the grips of recession, Nielsen is forecasting a dollar sales rise of 0.4 to 1.3 percent, to $2.17 billion, a pace below the growth achieved in 2008.  Unit sales will drop to 1.18 billion, down 5.5 percent from 2008.

In 2008, Nielsen predicted that dollar sales of BTS supplies would rise 2.6 percent; the actual result was 2.4 percent.

“Unlike the winter holidays, back to school shopping, to some extent, is not viewed as discretionary by consumers. Kids must have certain items at the start of the new school year.  That said, we expect sales to increase at an extremely modest level in dollar terms in 2009.  The nation is firmly in the midst of recession, so consumers will spend their money carefully, as they have for the better part of a year, and focus on purchasing the essentials,” said James Russo, Vice President, Global Consumer Insights at The Nielsen Company.

One peripheral category which is forecast to gain is bottled waters. Often considered a  discretionary item, bottled water is consumed as a staple, and is expected to out-pace juice sales with growth of 3.57%.

“The winners this season will be retailers who offer strong discounts and appeal to the consumer’s desire for savings and value. Look for gains from supercenters, dollar stores, drug stores and to a lesser extent, club and grocery stores,” said Russo.

Back-to-school categories include office/school supplies, artist/hobby supplies, scissors and tape/glue.  Retail outlets covered by Nielsen are food, drug and mass merchandisers, including Walmart.  Figures do not include dollar stores, online sales or office supply retail chains.

“In the previous Nielsen Global Consumer Confidence survey conducted in March, we were seeing the first signs that as far as the world’s consumers were concerned, the recession had bottomed out. Three months later, they’re starting to embrace the idea of recovery – which is a major turning point,” said Jonathan Banks, Business Insights Director, The Nielsen Company.

In Nielsen’s latest survey, which polled 14,029 online consumers in 28 countries late in June, 71 percent of respondents thought their country was in recession – a positive reduction of six points from a high of 77 percent when the survey ran in March 2009.

“The BRIC and Asian markets have recorded the greatest jumps in Consumer Confidence Indices in the past three months,” noted Banks. “Consumer confidence in India jumped 13 Index points, and climbed 9 points in Japan, South Korea, Hong Kong and Indonesia. Consumer confidence rose 8 Index points in Taiwan and Brazil, and 7 points in Singapore, Turkey, Russia, Philippines and the UK. The only exceptions to this upswing were in the USA and New Zealand, which held flat in the second quarter, with Germany the only country to register a decline of one Index point,” said Banks.

Even in the market registering a small decline – Germany – there are encouraging signs that a recovery is imminent. According to the Nielsen survey, nearly one in three Germans (29%) said the recession would be over in the next 12 months, compared to only 22 percent three months ago. One in three Germans also thought “now is a good time to buy the things they want”, indicating a renewed willingness to spend on discretionary items. Thirty-eight percent described their personal finances as “good” for the next year.

“This is one of the strongest indicators of a global consensus among consumers that the worst is over, and that finally, there is light at the end of this long tunnel. And consumers in emerging and Asian markets are clearly of the view that they are driving in the recovery lane now,” added Banks.
The latest Nielsen Confidence numbers are a welcome return to positive, confident territory for consumers in the developed Asian markets of South Korea, Taiwan and Japan, who have been battling economic inertia and political instability for several quarters.

“Asian consumer confidence appears to have been boosted through successful government economic stimulus packages that were speedily and effectively implemented at the onset of the global recession,” noted Banks. In the world’s second largest economy, the Japanese government implemented tax breaks, introduced cash deductions and subsidies on new car purchases, as well as providing cash payment and premium gift coupon schemes to stimulate spending.

“As well as expanding credit terms to small and medium sized businesses, in Japan there are even incentives to purchase eco-friendly household appliances as part of the government’s new environmental policy, and national toll prices for motorways have been discounted to encourage domestic tourism,” observed Banks.

Stock market gains in the BRIC and Asian markets have also had a major impact on consumer confidence,” said Banks. More than any other region, stock markets in Asia have rallied and property prices are starting to regain their pre-recession values. Russia’s stock market is up 60 percent from the start of the year and Taiwan is up over 50 percent. Brazil and Singapore’s stock markets have gained around 40 percent in the past six months and the South Korea and Hong Kong stock markets are up over 30 percent. With stock market gains so intrinsically linked to consumer confidence in Asian markets, it’s no surprise that Asian consumers are most confident about a receding recession, led by Hong Kong (-14 pts), Taiwan (-13 pts), Singapore and Japan (-12 pts), India and China (-10 pts).

“Positive economic news and growing consumer optimism in the past few months have definitely led consumers in these markets to believe that economic recovery will come sooner rather than later,” said Banks. According to the Nielsen survey conducted in March this year, 28 percent of Singaporeans said they expected their recession to end within 12 months – last month this number rose to 39 percent. UAE consumers also share this sentiment. In March, 32 percent of UAE consumers thought the recession would be over within a year but in June 43 percent said they expected the recession to be over before the middle of 2010.

Latest Nielsen data also shows that consumer confidence in the UK – a country that has suffered one of the most dramatic downturns in consumer confidence in the last year – is on the rebound, climbing 7 Index points in the second quarter. “UK consumers are getting the hang of consuming less. People with jobs – still the overwhelming majority – now have more disposable income as they reduce spending on big-ticket items like cars and holidays. With mortgage interest rates at their lowest levels, savings rates are increasing quickly and this has increased financial confidence,” said Banks.
“Consumers know that recovery won’t happen overnight but there has certainly been more good news than bad in the past few months,” noted Banks.

The decline in constant bad economic news in the media has directly impacted on the topics consumers are talking and blogging about. According to Nielsen Buzzmetrics, Nielsen’s service for measuring online conversations, the number of online discussions, or” buzz”, in the UK mentioning the word “recession” dropped around 60 percent between late March and late June this year. “People’s obsession with the recession has switched to how to live and spend more moderately in a new economic era,” said Banks.

Italian consumers have also become more optimistic, showing a strong gain of 7 Index points – their highest Nielsen Consumer Confidence Index since the second half of 2007. “Our survey supports recent Italian government figures which indicate that consumer confidence is returning to the Italian economy. In the last three months, Italian consumers’ concern for job security and the economy fell by 4 percentage points respectively, while average supermarket prices fell 0.2 percent in June 2009, indicating that consumers are less concerned about rising food bills than they were two years ago,” said Banks. The rise in consumer confidence in Italy has also been positively impacted by the government’s stimulus policies and the significant decline of negative economic coverage in the media. Online discussions mentioning the word “recession” have decreased by 35 percent this year according to Nielsen.

Globally, job security and the economy remained consumers’ top two concerns in life but even the level of these concerns has abated in the last three months and recorded declines of two and four index points respectively.

But the biggest change has come from high-income households.  Prior to the crisis, about 40 percent said that they saved most of their money; now, 52 percent indicate that savings accounts are their preference, while investments lost 7 percent. 

Of those who are still investing their money in the market, stocks continue to be the popular option, with 48 percent indicating equities as their top choice, followed by mutual funds (27%) and properties/real estate (14%).

“Singapore has always been amongst the top three countries in Nielsen global surveys in terms of the number of people expressing their intention to save their spare cash.  We are definitely a cautious lot who are more comfortable putting our hard-earned money in fixed deposits and saving for a secure tomorrow,” said Joan Koh, Executive Director, The Nielsen Company Singapore.

The survey on finance management polled 921 Singaporean adults aged 18 and older to find out how they apportion their disposable funds prior to and after the onset of the global economic crisis.