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Meeting the Demands of the Smarter Consumer IBM Global Business Services Retail Executive Report IBM Institute for Business Value Meeting the demands of the smarter consumer IBM Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior executives around critical public and private sector issues. This executive report is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to [email protected] for more information. Introduction By Melissa Schaefer and Laura VanTine New technologies and socioeconomic trends are reshaping the retail marketplace. The IBM Institute for Business Value recently surveyed over 30,000 people in three mature and three growth markets to discover what consumers will want from retailers in the future. We now know that consumers are getting smarter…and understand how their preferences vary across generations, countries and shopping segments. The rules of the retail marketplace are changing dramatically. • Smarter consumers use social networking. Thirty-three percent With the development of new technologies for bidirectional of respondents are likely to “follow” a retailer on a social communication, consumers can get more information about networking site. Some of these people also swap notes, so a retailers and their products more easily than ever before. Mass single consumer’s shopping experience can influence the urbanization and increasing affluence are simultaneously giving decisions many others make about what to buy and where to consumers in the emerging world greater economic power. In buy it. short, as research conducted by the IBM Institute for Business • Smarter consumers are eager to assist. Seventy-eight percent of Value shows, consumers are getting smarter, more diverse and respondents would be happy to collaborate with retailers in more demanding. designing new products and services that meet their needs. • New avenues for reaching consumers are emerging. Sixty-two So what, more specifically, have we learned? percent of those who want to use their mobile phones to shop and make purchases would be willing to buy products that are • It’s a shopper’s market. Consumers now have access to a huge advertised in magazines or on billboards by sending a text. amount of information about retailers and their products via Similarly, 64 percent of those who want to use digital new technologies. They are using this information to shop television (TV) to shop and make purchases would be willing around more carefully; 41 percent of the people we polled to buy products that are advertised on TV by pressing a have switched from one primary retailer to another or started button on their remote controls. purchasing some goods from a secondary retailer during the • Rich rewards exist for retailers that get it right. Sixty-one percent past year. of respondents are prepared to spend more money with • Smarter consumers have higher expectations. The two improve- retailers that implement their suggestions. ments consumers would most like to see are personalized • Generation Y is leading the charge. Generation Y respondents promotions and consistently available products. In addition, (those aged 20-30) are the most willing to use multiple they want better value, quality and variety. technologies and alternative channels. They are also the most likely to follow a retailer on a social networking site and to reward a retailer financially for improvements the retailer makes. 2 Meeting the demands of the smarter consumer To sum up, smarter consumers know what they want when Another five billion consumers they go shopping and expect to be heard. But they are not only Technology is not the only factor reshaping the marketplace; more demanding, they are also more willing to help. Smarter economic and global trends are also playing a part. In late 2008, consumers will ultimately create smarter retailers – and 59 percent of the U.S. consumers IBM polled in its annual smarter retailers will be able to claim a larger share of their shopper survey reported that their discretionary budgets had customers’ wallets. fallen over the previous 12 months, and a full 91 percent said that they were spending less than before.4 They are not alone; Technology is changing the rules the recession has affected every country and, with an estimated New technologies are transforming the ways in which 39 million people worldwide losing their jobs since 2007, consumers behave. The number of mobile phone subscribers consumers everywhere are feeling the squeeze.5 exceeded 4 billion in 2009, and market research firm Infonetics predicts that it will reach 5.9 billion by 2013.1 An estimated 1.5 Fortunately, most of the major economies have now started billion television sets and 1.1 billion personal computers are in growing again, albeit very slowly, bringing the prospect of use, and some 1.7 billion people access the Internet.2 Two- some relief. In the longer term, many of the changes arising thirds of these tech-savvy consumers visit social networking or from population growth and globalization should also be blogging sites.3 positive. At the end of 2009, there were just over 6.8 billion people living on the planet. By 2020, the number is forecast to Thanks to technology, consumers are becoming increasingly reach nearly 7.7 billion – a rise of 12.4 percent. The bulk of informed, empowered and demanding. Armed with knowledge this increase will take place in the emerging markets of Asia, gleaned from a multitude of sources, they are spending their Africa, Latin America and the Caribbean.6 money on the goods and services they value most and stipu- lating how they will engage with retailers. They want to The global population is simultaneously becoming more interact in a way that is both relevant and timely: relevant to urbanized and more affluent. At the start of the decade, 53 whatever they are shopping for, regardless of where, when and percent of the world’s inhabitants lived in rural locations. But, how they are shopping for it; and timely in fulfilling their in 2008, the urban population outstripped the rural population needs. In short, today’s consumers are getting smarter. for the first time in history.7 Mass urbanization will give more people access to education, employment, healthcare and other such essentials, as will a second major milestone that occurred at much the same moment; the majority of the emerging Armed with new methods of gathering world’s population became middle-class by the standards of the countries in which they reside.8 information and interacting with retailers, consumers are becoming increasingly These demographic and socioeconomic changes have huge informed, empowered and demanding. implications for retailers. Retailers have traditionally focused on the cosmopolitan elite and middle class, but population growth and greater prosperity will create a new pool of nearly five billion consumers – the “affluent potentials” (i.e., the upwardly mobile under-classes) and rural poor – with some US$5.4 trillion to spend (see Figure 1). IBM Global Business Services 3 Customer segment Population in 2020 Aggregate consumption (defined by individual consumption power) power Cosmopolitan elite 500 million $11.5 trillion >$20,000 Growing middle class 2.1 billion $13.1 trillion >$3,000-$20,000 Affluent potentials 3.4 billion $4.1 trillion >$300-$2,999 Rural poor 1.5 billion $1.3 trillion <=$300 Sources: World Resources Institute and International Finance Corporation, “The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid” (2007); Paul Collier, The Bottom Billion (Oxford University Press, 2007); United Nations Population Division; “Somewhere over the Rainbow,” The Economist (January 24, 2008). Notes: Individual and aggregate consumption power is expressed in local currency equivalent in US dollars. It covers consumer goods excluding consumer durables and electronics. Numbers have been rounded. Figure 1: The growing global population and greater prosperity at the lower end of the economic spectrum will create new opportunities for innovative retailers. Peering into the future Our findings show that consumers are getting smarter, as they The key question, given the unprecedented proliferation of incorporate new technologies into their daily lives and infor- new technologies and such significant socioeconomic shifts, is: mation becomes more readily available. To put it another way, what will tomorrow’s consumers want? How will digital they are becoming increasingly: enfranchisement, rising incomes and metropolitan life shape the demands of shoppers in both the industrialized and • Instrumented – Able to call on a plethora of new technologies emerging worlds? The IBM Institute for Business Value to get instantaneous access to a wealth of information about surveyed more than 30,000 people living in three mature and retailers, their products and the shopping experiences of other three growth economies to determine how shopping habits are consumers changing and what consumers will expect of retailers in the • Interconnected – Ready to use these new technologies to future (see Figure 2). interact with retailers and other consumers • Intelligent – More certain about what they want from Our research covers how consumers want to interact with retailers, both now and in the future. retailers in the future (e.g., the sort of technologies and social networks they want to use). We have also looked at how their These trends are changing the balance of power in favor of preferences differ, depending on age, nationality and the types consumers, while simultaneously providing tremendous new of products for which they are shopping or the retail outlets opportunities for innovative retailers. where they are shopping. 4 Meeting the demands of the smarter consumer Survey methodology In October 2009, we conducted an online survey of 32,087 retail consumers living in the United States, Canada, United Kingdom, Brazil, China and India.
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