The post-crisis consumer | John Gerzema | TEDxKC

John Gerzema says there's an upside to the recent financial crisis -- the opportunity for positive change. Speaking at TEDxKC, he identifies four major cultural shifts driving new consumer behavior and shows how businesses are evolving to connect with thoughtful spending.

Good evening.

Thirteen trillion dollars in wealth

has evaporated
over the course of the last two years.

We've questioned the future of capitalism.

We've questioned the financial industry.

We've looked at our government oversight.

We've questioned where we're going.

And yet, at the same time,
this very well may be

a seminal moment in American history,

an opportunity for the consumer

to actually take control and guide us

to a new trajectory in America.

I'm calling this The Great Unwind.

And the idea is a simple, simple idea,

which is the fact that the consumer

has moved from a state of anxiety
to action.

Consumers who represent 72 percent

of the GDP of America
have actually started,

just like banks and just like businesses,

to de-leverage, to unwind their leverage,

in daily life, to remove themselves

from the liability and risk

that presents itself as we move forward.

So, to understand this -
and I'm going to stress this -

it's not about the consumer
being in retreat.

The consumer is empowered.

In order to understand this,
we're going to step back and look

a little bit at what's happened

over the course
of the last year and a half.

So, if you've been gone,
this is the easy CliffsNotes

on what's happened in the economy. Okay?

Unemployment up. Housing values down.
Equity markets down.

Commodity prices are like this.

If you're a mom trying to manage a budget,

and oil was 150 dollars a barrel
last summer,

and it's somewhere between 50 and 70,
do you plan vacations?

How do you buy?

What is your strategy in your household?

Will the bailout work?
We have national debt, Detroit,

currency valuations, healthcare,
all these issues facing us.

You put them all together,
you mix them up in a bouillabaisse,

and you have consumer confidence
that's basically a ticking time-bomb.

In fact, let's go back and look
at what caused this crisis,

because the consumer, all of us,
in our daily lives,

actually contributed a large part
to the problem.

This is something I call
the 50-20 paradox.

It took us 50 years

to reach annual savings ratings

of almost 10 percent. 50 years.

Do you know what this was right here?

This was World War II.
Do you know why savings was so high?

There was nothing to buy, unless
you wanted to buy some rivets. Right?

So, what happened though,
over the course of the last 20 years -

we went from a 10 percent savings rate
to a negative savings rate.

Because we binged.
We bought extra-large cars,

supersized everything, we bought remedies
for restless leg syndrome.

All these things together
basically created

a factor where the consumer
sort of drove us

headlong into the crisis
that we face today.

The personal debt-to-income ratio

basically went from 65 percent

to 135 percent in the span
of about 15 years.

So consumers got overleveraged.

And of course our banks did as well,
as did our federal government.

This is an absolutely staggering chart.

It shows leverage,
trended out from 1919 to 2009.

And what you end up seeing
is the whole phenomenon

of the fact that we are actually

stepping forth and basically leveraging

future education,
future children in our households.

So if you look at this in the context
of visualizing the bailout,

what you can see is
if you stack up dollar bills,

first of all, 360,000 dollars

is about the size of a five-foot-four guy.

But if you stack it up, you just see
this amazing, staggering amount

of dollars that have been put
into the system

to fund and bail us out.

So this is the first 315 billion.

But I read this fact the other day,
that one trillion seconds

equals 32 thousand years,

so if you think about that,
the context, the casualness

with which we talk about trillion-dollar
bailout here, and trillion there,

we are stacking ourselves up
for long-term leverage.

However, consumers have moved.

They are taking responsibility.

What we're seeing is an uptake
in the savings rate.

In fact, 11 straight months
of savings have happened

since the beginning of the crisis.

We are working our way
back up to that 10 percent.

Also, remarkably, in the fourth quarter,

spending dropped to its lowest level
in 62 years,

almost a 3.7 percent decline.

Visa now reports that more people
are using debit cards

than they're using credit cards.

So we're starting to pay for things
with money that we have.

And we're starting to be much more careful

about how we save and how we invest.

But that's not really the whole story.

Because this has also been
a dramatic time of transformation.

And you've got to admit,

over the course
of the last year and a half,

consumers have been doing
some pretty weird things.

It's been pretty staggering,
what we've lived through.

If you take into account
80 percent of all Americans

were born after World War II,

this is essentially our Depression.

As a result,
some crazy things have happened.

I'll give you some examples.
Lets talk about dentists,

vasectomies, guns and shark attacks. Okay?

(Laughter)

Dentists report molars,

you know, people grinding their teeth,
coming in

and reporting the fact
that they've had stress.

And so there is an increase in people
having to have their fillings replaced.

Guns, gun sales, according to the FBI,

who does background checks,
are up almost 25 percent since January.

Vasectomies are up 48 percent,

according to the Cornell institute.

And lastly, but a very good point,

hopefully not related
to the former point I just made,

which is that shark attacks
are at their lowest level from 2003.

Does anybody know why?

No one is at the beach.
So there is a bright side to everything.

But seriously, what we see happening,

and the reason I want to stress
that the consumer is not in retreat,

is that this is a tremendous opportunity

for the consumer
who drove us into this recession

to lead us right back out.

And what I mean by that is
that we can move from mindless consumption

to mindful consumption. Right?

If you think about the last three decades,

the consumer has moved
from savvy about marketing in the '90s,

to gathering all these amazing
social and search tools in this decade,

but the one thing
that has been holding them back

is the ability to discriminate.

By restricting their demand,
consumers can actually

align their values with their spending,

and drive capitalism and business

to not just be about more,
but be about better.

We're going to explain that right now.

Based on Y&R's BrandAsset Valuator,

proprietary tool of VML
and Young & Rubicam,

we set out to understand
what's been happening in the crisis

with the consumer marketplace.

We found a couple
of really interesting things.

We're going to go through
four value-shifts that we see

driving new consumer behaviors,

that offer new management principles.

The first cultural value shift
that we see is this tendency

toward something we call liquid life.

This is the movement
from Americans defining their success

on having things to having liquidity,

because the less excess
that you have around you,

the more nimble and fleet of foot you are.

As a result, déclassé consumption is in.

Déclassé consumption is the whole idea
that spending money frivolously

makes you look a little bit anti-fashion.

The management principle
is dollars and cents.

So let's look at some examples
of this déclassé consumption

that falls out of this value.

First things is we see something
must be happening when

P. Diddy vows to tone down his bling.

(Laughter)

But seriously,
we also have this phenomenon

on Madison Avenue and in other places,

where people are actually walking out
of luxury boutiques

with ordinary, sort of generic paper bags

to hide the brand purchases.

We see high-end haggling in fashion today.

High-end haggling for luxury
and real estate.

We also see just a relaxing of ego,

and sort of a dismantling of artifice.

This is a story on the yacht club

that's all basically blue collar.

Blue-collar yacht club,
where you can join the yacht club,

but you've got to work in the boat yard,

as sort of condition of membership.

We also see the trend toward

tourism that's a little bit more low key.
Right?

Agritourism, going to vineyards
and going to farms.

And then we also see this movement
forward from dollars and cents.

What businesses can do to connect

with these new mindsets
is really interesting.

A couple things that are kind of cool.

One is that Frito-Lay figured out
this liquidity thing

with their consumer.

They found their consumer had
more money at the beginning of the month,

less at the end of the month.

So they started to change their packaging.

Larger packs
at the beginning of the month,

smaller packaging
at the end of the month.

Really interestingly, too,
was the San Francisco Giants.

They've just instituted dynamic pricing.

So it takes into account
everything from the pitcher match-ups,

to the weather, to the team records,

in setting prices for the consumer.

Another quick example
of these types of movements is

the rise of Zynga.

Zynga has risen on the consumer's desire

to not want to be locked in to fixed-cost.

Again, this theme is about
variable cost, variable living.

So micropayments have become huge.

And lastly, some people are using Hulu

actually as a device
to get rid of their cable bill.

So, really clever ideas there

that are kind of being taken ahold
and marketers are starting to understand.

The second of the four values

is this movement toward
ethics and fair play.

We see that play itself out
with empathy and respect.

The consumer is demanding it.

And, as a result, businesses must provide

not only value, but values.

Increasingly, consumers are looking
at the culture of the company,

looking for their conduct
in the marketplace.

So, what we see with empathy and respect,
lots of really hopeful things

that have come out of this recession.

I'll give you a few examples.

One is the rise toward communities
and neighborhoods,

and increased emphasis on your neighbors
as your support system.

Also a wonderful byproduct
of sort of a really lousy thing,

which has been unemployment, is a rise

in volunteerism that's been noted
in our country.

We also see the phenomenon -

some of you may have "boomerang kids" -

these are "boomerang alumni,"

where universities are actually
reconnecting with alumni

in helping them with jobs,
sharing skills and retraining.

We also talked about
character and professionalism.

We had this miracle on the Hudson
in New York City, you know, in January,

and suddenly Sully has become
a key name on Babycenter.

(Laughter)

So, from a value and values standpoint,

what companies can do is connect
in lots of different ways.

Microsoft is doing something wonderful.

They are actually vowing to retrain
two million Americans with I.T. training,

using their existing infrastructure
to do something good.

Also a really interesting company
is Gore-Tex.

Gore-Tex is all about
personal accountability

of their management and their employees,

to the point where they really
kind of shun the idea of bosses.

But they also talk about the fact

that their executives,
all of their expense reports

are put onto their company
intranet for everyone to see.

Complete transparency.

Think twice
before you have that bottle of wine.

The third of the four laws
of post-crisis consumerism

is about durable living.

We're seeing on our data
that consumers are realizing

this is a marathon, not a sprint.

They are digging in.

And they're looking for ways
to extract value

out of every purchase that they make.

Witness the fact that Americans
are holding on to their cars

longer than ever before,

9.4 years on average, in March. A record.

We also see the fact
that libraries have become

a huge resource for America.

Did you know that 68 percent of Americans

now carry a library card?

The highest percentage ever
in our nation's history.

So what you see in this trend is also

the accumulation of knowledge.

Continuing education is up.

Everything is focused on betterment,
and training,

and development and moving forward.

We also see a big DIY movement.

I was fascinated to learn that 30 percent

of all homes in America
are actually built by owners.

That includes cottages and the like.
But 30 percent.

So, people are getting their hands dirty.
They are rolling up their sleeves.

They want these skills.

We see that with the phenomenon of raising
backyard hens and chickens and ducks.

And when you work out the math,

they say it doesn't work,
but the principle is there

that it's about being sustainable
and taking care of yourself.

And then we look at the High Line
in New York City,

an excellent use of reimagining

existing infrastructure
for something good,

which is a brand new park
in New York City.

So, what brands can do, and companies,

is pay dividends to consumers,

be a brand that lasts, offer transparency,

promise you're going to be there
beyond today's sale.

Perfect example of that is Patagonia.

Patagonia's Footprint Chronicles basically

goes through and tracks
every product that they make,

and gives you social responsibility,

and helps you understand the ethics

that are behind the product
that they make.

Another great example is Fidelity.

Rather than instant cash-back rewards
on your credit or debit purchases,

this is about 529 rewards

for your student education.

Or the interesting company SunRun.

I love this company.
They've created a consumer collective

where they put solar panels on households

and create a consumer-based utility,

where the electricity
that they generate is basically

pumped back out into the marketplace.

So, it's a consumer driven co-op.

So, the fourth sort of post-crisis
consumerism that we see

is this movement about return to the fold.

It's incredibly important right now.

Trust is not parceled out, as we all know.

It's now about connecting
to your communities,

connecting to your social networks.

In my book I talked about the fact
that 72 percent

of people trust what other people say
about a brand or a company,

versus 15 percent on advertising.

So, in that respect,

cooperative consumerism
has really taken off.

This is about consumers working together

to get what they want
out of the marketplace.

Let's look at a couple of quick examples.

The artisanal movement is huge.

Everything about locally derived products
and services,

supporting your local neighborhoods,

whether it's cheeses,
wines and other products.

Also this rise of local currencies.

Realizing that it's difficult
to get loans in this environment,

you're doing business
with people you trust,

in your local markets.

So, this rise
of this sort of local currency

is another really interesting phenomenon.

And then they did a recent report

I thought was fascinating.

They actually started, in certain
communities in the United States,

start to publish
people's electricity usage.

And what they found out is
when that was available for public record,

the people's electricity usage
in those communities dropped.

Then we also look
at the idea of cow-pooling,

which is the whole phenomenon of consumers

organizing together

to buy meat from organic farms

that they know is safe and controlled

in the way that they want it
to be controlled.

And then there is this other
really interesting movement

that's happened in California,
which is about carrot mobs.

The traditional thing
would be to boycott right?

Have a stick? Well why not have a carrot?

So these are consumers organizing,
pooling their resources

to incentify companies to do good.

And then we look at what companies can do.

This is all the opportunity
about being a community organizer.

You have to realize
that you can't fight and control this.

You actually need to organize it.

You need to harness it.
You need to give it meaning.

And there is lots of really
interesting examples here that we see.

First is just the rise of the fact

that Zagat's has actually moved out of

and diversified from rating restaurants,

into actually rating healthcare.

So what credentials does Zagat's have?

Well, they have a lot, because it's
their network of people. Right?

So that becomes
a very powerful force for them

to make their brand more elastic.

Then you look at the phenomenon of Kogi.

This Kogi doesn't exist.
It's a moving truck. Right?

It's a moving truck through L.A.,
and the only way you can find it

is through Twitter.

Or you look at
Johnson & Johnson's Momversations.

A phenomenal blog that's been built up.

Where J&J basically is tapping into

the power of mommy bloggers,

allowing them to basically create a forum

where they can communicate
and they can connect.

And it's also become a very, very valuable

sort of advertising revenue
for J&J as well.

This plus the fact that you've got

phenomenal work from CEOs

from Ford to Zappos,
connecting on Twitter,

creating an open environment,

allowing their employees
to be part of the process,

rather than hidden behind walls.

You see this rising force in sort of

total transparency and openness
that companies are starting to adopt,

all because the consumer is demanding it.

So, when we look at this and we step back,

what I believe is that
the crisis that exists today

is definitely real.

It's been tremendously powerful
for consumers.

But, at the same time,
this is also a tremendous opportunity.

And the Chinese character for crisis

is actually the same side
of the same coin.

Crisis equals opportunity.

What we're seeing with consumers right now

is the ability for them to actually

lead us forward out of this recession.

So, we believe that values-driven spending

will force capitalism to be better.

It will drive innovation.

It will make longer-lasting products.

It will create better, more intuitive
customer service.

It will give us the opportunity
to connect with companies

that share the values that we share.

So, when we look back and step out at this

and see the beginning of these trends

that we're seeing in our data,

we see a very hopeful picture
for the future of America.

Thank you very much.

(Applause)