In this edition of Henleymail, a consumer-orientated perspective on responses to the credit crunch; Henley Centre HeadlightVision launches a blog; and an American perspective from our new colleagues at Yankelovich on the differences between Europe and the USA.

Understanding consumer attitudes to debt
By Trevor Harvey

The global credit crunch, which started last August and has continued to dominate economics and finance since then, has had some effect on consumer debt levels. It has made new debt harder to take on, as some mortgage products are withdrawn from the market. But it has also increased the amount of unsecured debt in the economy, as people fall back on their credit cards to try to get through short-term financial problems. The lens of the credit crunch has put a new spotlight on the willingness of British consumers to take on debt.

According to the Bank of England, unsecured consumer debt in the UK doubled between 2000 and 2005. The rise in consumer debt has, to a large extent, been driven by mortgage debt, at around 10% per year, while credit cards and personal lending have grown at around 5% per year - more modest, but still above the rates at which income has increased. Savings, meanwhile, which were low to start with, have remained largely static over the past decade.

In short, personal debt has become acceptable, indeed expected, in the UK. At the same time the market for what might be called ‘debt-related products’ has also boomed - from debt consolidation to debt banishment, through IVA and bankruptcy.

There are three profound drivers of consumer debt:

• The continued rise of celebrity and reality TV means that the sense of entitlement to life’s luxuries continues to grow;

• Lower prices across many sectors of consumption have shifted expectations, and ‘value’ culture has become engrained: more for less means we’re demanding more for our money;

• Accelerated culture is reflected in consumer attitudes towards spending (versus saving) which have been shifting towards ‘live for today’ rather than ‘save for a rainy day’.

But this isn’t the whole story. At the same time, there are three drivers which are pushing in the opposite direction:

• There are signs that a reappraisal of our culture of consumption is beginning to occur – in both attitude and action. HCHLV’s Planning for Consumer Change data indicates that 22% of people are uncomfortable with the amount of debt they have, and there has been a decline in the number of individuals with IVAs and bankruptcies;

• The increase in the number of TV programmes that help people deal with their money worries has highlighted the popularisation of frugality;

• The emergence of new values as evidenced in the way that environmental and ethical concerns have migrated into the mainstream.

In its long-term analysis of UK consumers, we observed that some people are very engaged with finance and others are indifferent, and that while some people are quite sophisticated (and risk-taking) in the way in which they manage their money, other people are much more conservative. These dimensions are the basis of our long-standing Financial Services Segmentation (Fig. 1), first developed a decade ago.

Figure 1: HCHLV Financial Services Segmentation

Confident Investors are classic financial hobbyists. They tend to be more affluent and informed, and they have a lot of financial products. They are also early adopters of new products and providers.

Free-Thinking Independents have little interest in finance. They prefer spending to saving and are attracted by simplified and highly branded offers, often from non-traditional providers, if they already like the brand.

Apprehensive Traditionalists have little interest or knowledge about finance and tend to stick with traditional, well-known suppliers.

Pressured Providers are engaged with finance because they have to be – many are bringing up a family and ‘providing’ is the watch word. They are uncertain about money and haven’t much time to research the options for themselves.

In tracking this segmentation since 1998, the most noticeable change is the decline in Apprehensive Traditionalists and increase in Confident Investors, reflecting increased engagement and sophistication in a wider population.

Figure 2, below, shows how the mainstreaming of debt has been concentrated in two segments: Pressured Providers and Free-Thinking Independents.

Figure 2: The Effect of the Mainstreaming of Debt

Pressured Providers struggle because they are under pressure to make ends meet and need help (I spend because I have to). Free-Thinking Independents struggle because they’re into spending every last pound – spending is their driver (I spend because I want to.) They are more likely to be experiencing significant financial difficulties; the majority of them struggle with financial commitments at least some of the time.

There are clear consequences for behaviour when paying credit card bills – at best, Pressured Providers have an average attitude to paying on time. They’re engaged but lack the means to be debt-free. At worst, Free-Thinking Independents run up a balance they can’t pay off. For this reason Free-Thinking Independents will focus on the cost of carrying a balance (which is why they are attracted by 0% balance transfer offers, and, to a lesser extent, the interest rate).

Opportunities exist in both segments, but their needs are hugely different, as are the risks to the financial services business. Pressured Providers require help and guidance, and need debt to survive. They are consumers who will engage for advice on money matters, and with the right nurturing will provide long-term revenue. Free-Thinking Independents are more interested in doing their own thing – especially when it comes to taking credit and using it. They represent high margin but high risk to a financial services business. Gaining and keeping their attention and minimising the risk to the business are the key considerations.

Trevor Harvey is an Associate Director at Henley Centre HeadlightVision. For more information, please contact HCHLV Director Sarah King (020 7955 1845, or sarah.king@hchlv.com). A longer version of this article appeared in World Advertising Research Center, subscription required, free trial available.

In the news

Henley Centre HeadlightVision blog launched: Since the last edition of HenleyMail, we have launched a company blog, which is designed to share our views and reflections on current trends and other conversations which go on within the company. It can be found at http://blog.hchlv.com. Typically we post new items between two and four times a week. At time of writing, the most active posts are ‘Dubai and the cities of the future’ and ‘The power of we’ - on Australia’s public communications.

Marketing in tight markets: Chief Executive Siân Davies spoke at the Marketing Society’s Retail Forum about how consumers responded when the economy tightened. In her presentation she drew on Yankelovich’s recent American study, Dollars and Consumer Sense which used the concept of ‘value planning’ to look at the types of trade-offs consumers make when they have less money. We’re going to repeat the research for the UK market later this year.

What the Millennials want: HCHLV innovation Director Yannis Kavounis presented new research to clients on the different attitudes of Millennials - the emerging group of 16-25 year olds. In a line: they value authenticity and innovation. From a business point of view, they expect you to be work hard at being imaginative, and they expect you to be honest with them - but they will reward businesses who succeed in this. There’s more on the HCHLV blog.

Sharing data with the government: The most recent event held by the IIPS - the public sector think tank we run with our sister company BMRB - looked at research into the willingness of citizens to provide data to the government. The data suggests a complex story. 64% say they are ‘concerned’ about ‘how personal data held about me ... is stored and used’ (perhaps not surprising given how much seems to have gone astray recently.) But a larger proportion - 68% - are still happy to provide personal information if it leads to better service. More on the HCHLV blog.

Liverpool Street Freeze: In the spirit of experiential research, a couple of HCHLV researchers joined in the recent ‘freeze’ at Liverpool Street station, when time apparently stood still on the concourse for four minutes. As Denise Hicks, one of the HCHLV participants, reported, “What surprised me was the inclusivity and breadth of the nature of participation. Alongside the creative types with oversized headphones sat elderly women mid-page turn of their paper, city types with briefcases mid-swing and construction workers pre-coffee gulp.

"As I stood, during the Freeze itself, there was a strange sensation of being connected to so many people around, all with the same purpose and sense of breaking the rules, doing something different, and yet you're still anonymous to one another. It's refreshingly uncomplicated in a world of hi-tech and complex 'connections'.” Read more on the HCHLV blog.

Merging with Yankelovich

an interview with CEO J. Walker Smith Readers of the blog - or of the marketing press - will know that we merged with the US consumer trends company Yankelovich at the end of January. Henley Centre Director Andrew Curry caught up, at least virtually, with Yankelovich’s Chief Executive Officer J. Walker Smith to ask him about the company, his views on the big American trends of the moment, and of course on the differences he’s noticed since the merger between American and European consumers.

Yankelovich is 50 years old and a leader in the US in consumer trends and analysis. What are the benefits to the company of a merger with Henley Centre HeadlightVision?

We are very excited about our merger and the possibilities associated with it. What is so remarkable is that Henley Centre HeadlightVision and Yankelovich share the same strategic focus yet pursue it in different ways. This makes our companies a natural fit – shared vision, little overlap, many synergies. From a Yankelovich perspective, the chance to go global is the biggest opportunity, combined with the ability to add new capabilities to our traditional MONITOR business of syndicated tracking research and topical trends surveys. Not only do the shared interests of the two companies make this a good fit, but the added scale and expertise of our combined organisations make it possible to do much more than before.

You're based in the 'Research Triangle' area of North Carolina rather than in one of the big cities. Why?

Chapel Hill, North Carolina is right in the middle of one of the epicentres of intellectual firepower and creative expression in the US. The Research Triangle area in which Chapel Hill is located is home to three nationally recognised universities (the University of North Carolina, N.C. State and Duke), numerous high-tech companies including SAS, the largest privately held software company in the world, and scores of start-ups with the usual retinue of venture funds, law firms and ad agencies. Many writers and artists live in the area and the drive to Washington, D.C. or Atlanta is not too far. People love the area for its laid-back mix of smart ideas and Southern hospitality. It makes sense for us to be located in a place like this where the creative class is strong, vibrant and growing.

Looking at the United States right now, what are the biggest changes you see in terms of consumer trends looking forwards over the next five years or so?

We talk with our clients about three overarching dynamics – empowerment, purpose and health. Empowerment is simply the fact that unprecedented access to information is putting consumers in charge of the marketplace. Purpose is a newfound priority on the quality of life not the quantity of stuff, and so people are actively seeking more meaning and fulfillment in their lives. And multiple pressures, some demographic, some regulatory, some economic, are putting a premium on better health, particularly better preventive health which is one of the key initiatives in our business right now.

Having spent some time in the UK since the merger was finalised, what do you see as the biggest differences - in terms of trends and consumer behaviour - between the US, the UK and Europe?

It’s always dangerous to draw too many parallels because the local dynamics behind similar-looking trends often make for very different marketplace phenomena. But there is one big difference worth noting. Green is a much bigger priority in the UK and Europe than in the US. American consumers aren’t anti-green but most are indifferent. The consequences and benefits of things related to the environment just don’t have a lot of personal relevance to Americans and so they focus more on other things that do. Getting Americans to care more about sustainability and the environment will be a challenge but it is essential. Yankelovich completed a special study called Going Green on this topic last year. The focus of that research was less about the attitudes of American consumers and more about how to move people up the green continuum. We developed a Marketing Action Framework to show marketers (and policymakers) how to shift opinions and, most importantly, behaviours in a green direction. This is a priority for us, so we are repeating our green study again this year.

And finally, what are you working on personally at the moment?

I am now in the middle of completing a study we did on advertising called When Advertising Works. It will be released on June 18. We asked respondents to recall ads that made an impression on them for each of 16 different media platforms, including all of the traditional media and many of the new media vehicles such as cell phones, video games, video-sharing web sites, social networking sites, email, and more. For each ad recalled, we then asked respondents questions to describe in detail the situations in which they saw that ad. We will have highly specific descriptions of the kinds of situations in which ads make an impression on people. I think this will turn out to be a unique perspective on advertising and media; many studies have been done about advertising creative and media effects, but no research has been done about the situations that often determine whether advertising or media actually make an impression. When Advertising Works will fill this gap with insights about the situations most conducive to advertising breaking through and making an impression. The first topline results from this study that I saw today already show some interesting results, and I think this will be a breakthrough study.

J. Walker Smith is the Chief Executive of Yankelovich. To find out more about the company, visit www.yankelovich.com. You can see its (free) weekly US insights briefing, Monitor Minute, and sign up for Monitor emails. For more information on the Yankelovich report, When Advertising Works, call Simon Kaplan (+1) 919 932 8858, or email sales@yankelovich.com.

Quote … unquote

“There are lots of middle-income people and there are plenty of highly educated people who are socially middle-class. But lots of these people now can’t afford their own homes, or can’t afford to live where they would like to live. So one of the characteristics of class has been eroded.”

Michelle Harrison, Director, quoted in The Times on the changing nature of class in Britain.
More on the HCHLV blog.

____________________________________________________
© The Henley Centre HeadlightVision Ltd 2008
Henleymail is published by HenleyCentre HeadlightVision, 6 More London Place, Tooley Street, London SE1 2QY.
Copying, redistribution and display is permitted under a Creative Commons licence for non-commercial purposes, provided articles are properly attributed. Please notify us of any such re-use by emailing Henleymail@hchlv.com.

To subscribe to Henleymail please visit http://www.hchlv.com/register . To unsubscribe or change your email or other details, please visit http://www.hchlv.com/login. Comments, feedback, or problems should be sent to Henleymail@hchlv.com.