Conclusion – Making Sense of Consumer Trends
- Major marketplace and economic trends
- Social and economic change among consumers
- The varying effect of social and economic change
- The consumer trends research challenge
In this report we have attempted to present two sides of what is a very complex picture. First, we have outlined how changes in the economy and the marketplace have affected consumers. Second, we have described in some detail how the socio-economic circumstances of consumers have changed. Now, we summarize some of our observations on how these two sides of the consumer picture interact and the implications of this for future analytical work on the state of the consumer.
One strong theme that emerges is that consumers are deeply and very differently affected by how the marketplace has changed over the past two decades. While some consumers have seen their incomes and net worth grow, others have experienced very different – some would argue very polarized – outcomes. Individual factors such as employment status, income, education, age and family structure mean that consumers faced with the same marketplace circumstances experience very different outcomes. The effect is that some consumers have more opportunity and choice in the marketplace than others. Some consumers also have to cope with more risk due to the lack of time or ability to adequately assess options. We elaborate on these issues in the next few pages.
Looking first at economic and marketplace change, a few major trends are evident. Strong economic growth, more open markets and high levels of technological change have produced significant benefits for consumers over the last two decades, which have also featured higher average incomes, on the whole. These changes have produced less expensive, more reliable and more convenient goods and services, and the speed with which new products and services diffuse and grow in the marketplace is certainly bringing benefits to consumers at a rapid rate. However, keeping up with these changes and learning how to adapt to them, and benefit from them, is a major challenge for consumers. The skills that they develop to use many technologically complex goods and services can quickly become outdated.
The deregulation and opening to competition of formerly regulated markets, such as financial services, or energy and telecommunications utilities, has brought more options and choice to consumers, but also greater challenges for them in sorting out marketing claims and the potential costs and benefits of these service offerings.
In essence, the modern consumer marketplace is becoming an information-intense, complex and radically changed place. Knowing how to process large volumes of information and understanding the implications of what can be very complex product and service offerings or transactions are important skills for today' s consumer.
The social circumstances of consumers are also undergoing significant change. Not only is the demographic bulge of the baby-boom generation leading to a much older population, with different consumption requirements, but traditional family structures are also changing, with fewer children, a larger proportion of two-parent families in which both parents work, more lone parents and more people living on their own. Many consumers in these groups, particularly two-parent working families, and especially lone parents, have significant time management issues and may have difficulty finding the time to cope with the quantity and complexity of the marketplace information they need to assess.
Consumers are becoming more culturally diverse and more urban. Vancouver, for example, is now one of the world' s most culturally diverse cities, as it has seen the proportion of foreign-born jump from 30.1 percent of its population in 1991 to 37.5 percent in 2001. The challenges and opportunities this presents are obvious: businesspeople are developing new products and services to respond to varied cultural needs, and perhaps benefiting from significant export possibilities; but there are also major challenges in how to protect a less culturally and linguistically homogenous consumer population.
While Canadian consumers are increasingly well educated, the knowledge and sophistication required to meet the challenges of a 21st century marketplace are also increasing. At the same time, significant numbers of Canadian consumers have difficulty understanding the complex information needed to assess the value and risks associated with many important consumer products and transactions, particularly those involving financial and other important service contracts that require high literacy and numeracy skills. For example, four out of ten Canadians between the ages of 16 and 65 do not meet the minimum desired threshold of literacy skills, experiencing significant challenges when trying to complete a basic task such as extracting information from a typical bus schedule.
Consumers' personal after-tax incomes have significantly improved in recent years, but it is clear that income distribution is becoming more polarized, which in turn means that the economic opportunities and challenges consumers face are becoming more varied. For example, income growth has been disproportionately concentrated in upper-income families, while the net increase in the incomes of lower income groups has been much less marked. And those consumers in the lowest income quintile are spending more than half their income on the basics of food, shelter and clothing.
In terms of assets, a significant determinant of consumer net worth may be home ownership, a form of self-imposed saving and, at least in recent years, an appreciating asset. In contrast, consumers who are renters seem to experience significantly reduced opportunities to build their net worth. In contrast, debt and the ability to manage it is an issue for many consumers. Net indebtedness has been steadily growing, with debt-to-income ratios rising in the last 20 years, from 75 percent to over 100 percent of annual income. The rapid growth of unsecured debt, which can also be expensive debt to service, is particularly disturbing, especially when it exists among consumers with few tangible assets.
What is critical to assessing the current state of the consumer is not simply describing how various trends in the marketplace or changes to the socio-demographic circumstances of consumers have evolved, but to show the interplay between the two on specific groups of consumers. It is here where we see how factors can interact with each other to produce effects that magnify the benefits or challenges that certain groups of consumers face today. A few illustrative examples of this kind of analysis, which are not meant to be comprehensive, follow. As will be clear in the descriptions below, while these demographic categories share a number of common traits, there can also be significant differences among consumers within each of these categories.
The senior consumer
Seniors are a growing category of the population who, due to their increasing numbers and wealth accumulation, are likely to be able to exercise growing power in the marketplace. We are likely, therefore, to see the emergence of new products and services tailored just for them. Elderly families are generally much better off than they used to be.
Today' s seniors are more likely to be living on their own and may be less able to count on daily family support. They have to make many complex and potentially unfamiliar financial and purchasing decisions on their own.
As a group that is already very susceptible to fraud and unscrupulous marketing ploys, seniors may also be a very vulnerable consumer group in the future. In addition, many services they increasingly rely on either because of failing health and/or the lack of family support (e.g. market-purchased medical services) can be expensive.
Rapid technological change that is characteristic of today' s marketplace produces a number of challenges for senior consumers. While many new products and technologies are responding to seniors' needs – such as new and more sophisticated assistive devices that can facilitate independent living – a lack of familiarity with, and reluctance to use, new technologies (e.g. electronic banking or new self-service facilities in retail outlets) significantly reduce seniors' ability to benefit from many of these new technologies to the same extent as the general population.
The pre-retirement consumer
In general, this consumer group is well placed to take advantage of the opportunities presented by a rapidly changing, knowledge-intensive marketplace. With grown-up families and smaller mortgages, this group tends to have significant disposable income. At this stage of life, consumers frequently look to "big ticket" items such as travel or home renovations, items that have traditionally been the subject of many consumer complaints.
For these consumers, the diversification of products in the financial services market has been particularly beneficial, given their financial status. They are also, therefore, more likely to encounter difficulties associated with complex investment decisions. While they are financially able to access advisory services (for example, investment counselling), this also means that they can be particularly vulnerable to poor financial and investment advice.
Two-parent families with dependent children
This group tends to be better educated than previous generations, with reasonably good skills for navigating the marketplace. On the whole, these consumers experienced average or better income growth in the late 1990s, a trend driven by the growing proportion of dual-earner families. Since they are at a stage in life when buying a home is important, many may have benefited from low interest rates to enter the housing market and thus have at least started to accumulate positive asset balances.
However, with both parents working, they often have to cope with a high cost of living, due to the need to purchase services such as child care and meals outside the home. They may also face commuting costs such as running two automobiles. Like lone-parent consumers (see below), this group is also under severe time pressure, due to the need to maintain two careers and care for young or school-age children.
For older parents with adolescents, managing post-secondary education costs is a major concern, as is time stress resulting from being a "sandwich generation" – supporting elderly parents as well as their adolescent children. This means little time to deal with the marketplace and fewer financial resources with which to buy advice – a situation that can make these consumers particularly vulnerable to long-term money management mistakes. The fact that this group has experienced a decline in net worth over the last 20 years adds to these concerns.
The consumer as lone parent
Consumers in this group have at least one dependent child. They face many of the challenges of the consumers in two-parent families, but with fewer resources to cope.
While income growth for lone parents has been strong in recent years, they are nevertheless much more likely to be in the lower income quintiles and are far more likely to be spending the bulk of their income on the basics of food, shelter and clothing, with reduced discretionary spending.
They are also more likely to find themselves in arrears with respect to bill payments. And, since they are less likely to be home owners, they have significant problems building up an asset base. As a result, much of their debt tends to be of an expensive non-secured type.
Time stress for this group is an obvious problem, given the daily difficulties of trying to raise a family alone. This makes assessing marketplace choices in any thorough way difficult. This situation is compounded by limited income, which does not allow lone-parent consumers the financial latitude to buy services or convenience products that would give them the time to better assess complex purchases and manage their personal finances.
Those lone-parent consumers who are not able to afford private transport often face the added difficulty of not having the mobility to shop around to get the best prices or access the large retail complexes (e.g. big box power centres) that offer wide product selection and low prices.
Young adult consumers
On the whole, young adults are well educated, media savvy and technologically literate, and are most likely to be at ease with, and feel able to navigate, the knowledge-intensive high technology marketplace.
But young adults just entering the marketplace are making major purchases with much higher pre-existing debt loads than the previous generation' s, in particular due to high student debt. These high debt levels and long periods in post-secondary education also make it difficult for this group to establish new households; as a consequence they are starting their process of asset accumulation at a later point in their lives than in the past. The proportion of 18-28-year-olds still living with their parents has almost doubled, from 28 percent in 1981 to 48 percent in 2001.
As the above shows, the range of issues the various consumer groups face is quite broad, and while all consumers face opportunities and challenges in functioning in today' s marketplace, the mix of issues is very different depending on the group. Even within groups, the outcomes can vary significantly depending on individual circumstances. For example, a lone parent' s high level of education could significantly alter the outcomes he or she faces (because of likely higher income levels and better ability to understand complex consumer contracts) compared to a lone parent with limited education. Likewise, a two-parent family with children that recently immigrated is not likely to face the same economic opportunities, or to cope as easily when interacting with the marketplace, as other two-parent families.
Throughout the Consumer Trends Report, we have identified a number of opportunities for research to further the analysis of what is happening to consumers and today' s marketplace. But the report can only provide a brief overview of the emerging issues. It is clear that there are many gaps to be filled, both to improve the data currently available and to develop new sources of information. There is also a significant secondary research agenda that needs to be addressed to interpret the data and assess their meaning.
One particular opportunity may be to develop a core set of consumer indicators that could track how well consumers are faring in the marketplace over time, and that could form a set of lead indicators of emerging issues. As such, these indicators could cover not only social and economic trends affecting consumers, but also trends in the performance of the marketplace; for example, reporting on complaints trends.
Apart from the question of more primary and secondary research, there is the important question of the focus of that research effort. In the course of this report we have stressed the need for a better understanding of a number of social and economic variables that affect consumers, including, simply by way of example, such important issues as the following:
- With respect to how the economy and the marketplace impact consumers:
- What is an effective level of competition in the marketplace that is necessary to protect the consumer interest, given the growing size and scope of large retail conglomerates?
- With services constituting a growing share of consumer spending, can consumers effectively assess the value and risks of service offerings, given the complex conditions and variety of contracts that surround their delivery, and the fact that services are intangible and often difficult to assess until they are used?
- In what ways have new technologies improved consumer welfare, particularly in terms of how they change what is offered in the marketplace and the way goods and services are marketed and sold?
- With respect to the social and economic circumstances of consumers:
- How well are consumers handling their finances and avoiding financial difficulties, given the growing number and variety of debt financing instruments available?
- How well are both "have" and "have not" households faring, given that the ability to manage in the new marketplace is increasingly not only a question of income but also of other important social resources, such as education and literacy, and having the time to make meaningful decisions?
- What changes to the marketplace can be expected to address the growing aging population and what new consumer protection issues will arise?
- With respect to how consumers function in the marketplace:
- What information is, and should be, available to consumers to allow them to make decisions that further their own welfare and protect their interests? How can such information be made both more understandable and accessible?
- To what extent do consumers have the ability to obtain effective redress in today' s marketplace? Do consumers have sufficient ability, and the instruments at their disposal, to voice their concerns individually and collectively when they feel their interests have been compromised in the marketplace?
The above list is far from exhaustive, and part of the challenge of creating a consumer research agenda, apart from the need to engage a wider variety of stakeholders and to do more work, is to come to some consensus on what are the priority areas for research and what are the key research questions.