Editor's Note: Harvard Business School professor John Quelch writes a blog on marketing issues, called Marketing Know: How, for Harvard Business Online. It is reprinted on HBS Working Knowledge.
Watch out for a new brand of consumer in 2008: the middle-aged Simplifier.
She finds herself surrounded by too much stuff acquired. She is increasingly skeptical in the face of a financial meltdown that it was all worth the effort. Out will go luxury purchases, conspicuous consumption, and a trophy culture.
Tomorrow's consumer will buy more ephemeral, less cluttering stuff: fleeting, but expensive, experiences, not heavy goods for the home.
The economic boom of the 1990s fuelled consumption and democratized access to a wider than ever spectrum of goods transforming former luxuries into "must-have" necessities. Millions played the lotteries or aspired to what they viewed on "Lifestyles of the Rich and Famous." As they grew richer, pressure increased on those below to trade up. And, as they traded up, pressure increased in turn on the well-off to buy even more—the second home, the big screen TV, and the latest sport-utility vehicle. Enter the big houses that measured success in thousands of square feet of floor space, topped by the 40,000-square-foot, $50 million palace that Bill Gates has built outside Seattle. In 2006, 35 percent of new homes exceeded 2,400 square feet in floor space compared with 18 percent in 1986. Ironically, these mansions, many owned by businesspeople on the road half the time, grew in number as the size of the average American household declined.
The new economy has made it even easier for consumers to get rid of their stuff.
These huge houses had to be filled with more stuff, good news for the home-appliance and home-furnishing industries. Even grocery manufacturers benefited. Larger homes with bigger refrigerators can absorb more inventory. Flat birth rates in developed economies have put pressure on durable consumer-goods companies desperate for top-line growth. Product quality improvements mean these goods break down less often. So durable-goods sales depend on two things: the launch of new, higher-priced, higher-featured, often customized products that persuade consumers to trade in their existing appliances before they break down (think cellphones), as well as household penetration of products such as fax machines and printers previously used only by businesses.
As the world economy slumps, one consumer segment will grow faster than ever.
The Simplifiers have four characteristics:
- First, they perceive that they have more stuff than they need. Sure, they may collect something specific like porcelain figurines as a hobby, but they are the opposite of the pack rats who fill their attics and basements with "you-never-know-when-you-might-need-it" stuff.
- Second, they want to collect experiences, not possessions. And they give experiences rather than goods as gifts to friends and relatives. Experiences may seem ephemeral. They cannot be inventoried except in the form of "Kodak" moments; but they do not tie you down, require no maintenance, and permit variety-seeking instincts to be quickly satisfied. Dining out, foreign travel, and learning a new sport will prove more resilient than expected in the face of recession.
- Third, their stuff embarrasses them. Their Range Rovers no longer tell the world that they are sophisticated town and country socialites. There are simply too many of them on the road to offer much social status. Worse, they now signal the irresponsible selection of a gas-guzzler.
- Fourth, they have wealth that is so assured that it no longer requires conspicuous display. They lease their cars, rent other people's holiday homes, and would happily outsource other aspects of their lifestyles. They reject the marketer's continual pressure to spend more money on possessions rather than on education, health care, and other social goods.
These are the consumers who are now trading in their sport-utility vehicles. They include the empty-nester baby-boomers, less confident than before, who are tired of heating unused spaces in cavernous mansions, now preferring smaller houses with architectural character and intimate spaces, more charm, and less maintenance. Their families are scattered, unable to share conveniently the family holiday home and often unwilling to inherit the burden of something they will never use. The new economy has made it even easier for consumers to get rid of their stuff. The high-tech equivalents of the yard sale—electronic auction sites—bring Simplifiers together with those who are yet to catch the habit.
This growing segment of Simplifiers presents a challenge to marketers. These are well-off people who value quality over quantity and who do not buy proportionately more goods as their net worth increases. Their increasing reluctance to consume will dampen expected demand growth in developed economies further and therefore slow economic recovery, requiring consumer-goods multinationals to further focus their efforts on emerging markets where stuff will still be king.
This post is based in part on Professor Quelch's Economist article "Too Much Stuff."
Join the discussion on Harvard Business Online.