The New Necessities: What Products and Services Can Consumers Not Live Without?
On a recent weekend, more than 4 million Americans -- that 's just more than 1% of the country -- pledged between $1,700 and $2,600 to their various cell providers over the next two years. For this tithing, they get an iPhone 4S, which is a reasonable-but-not-groundbreaking upgrade from the previous model.
Jobless rates remain high, housing prices and demand remain low, and the world's financial markets are teetering. Yet when it comes to this sleek new phone, none of that matters. Consumers must have it. Now.
Brands in every category dream of this kind of loyalty, and Apple just dangled $60 million in front of its CMO because it recognizes the value of marketing in creating demand for new, often pricey, product categories.
It's an urgency felt by people like Liz, in Champaign County, who's part of Ad Age 's American Consumer Project. Liz moved quickly from wanting to needing her iPod. For her and her college friends, when it was released it "changed completely how we lived our everyday lives. My freshman year I walked across campus with no music. By my junior year I thought I was going to just die if I had to walk five minutes between classes without listening to something."
But affording new products means making trade-offs. When the pool of income stagnates, every win for one market segment is a loss for another. The massive upheaval in the marketplace caused by demographic and economic changes is creating challenges and opportunities. Consumers are rethinking everything.
The biggest threat to an auto brand might be the monthly cable bill. The fast-food industry might get a boost from bad weather in Georgia, which causes the price of peanuts (and therefore peanut butter) to skyrocket. Laptop sales can be hurt when women of a certain life stage instead commit cash to garish bridesmaid dress after dress.
For marketers, the question becomes: How do you move your product from a "want" to a "need" and then keep it from slipping back into a "could live without"?
This past summer Ad Age worked with Ipsos Observer to ask 1,000 Americans about nearly 40 items or services. For each item we asked them to choose among the following statements: I have this and need it; I have this but could live without it; I want this; I don't want it.
There were only a handful of items majorities of their owners said they could live without -- things such as a home gym, a George Foreman-like indoor grill or a Blu-ray player. Majorities could also live without services like newspaper and magazine subscriptions and satellite radio. And if they need it, they already own it -- products like irons, microwaves, coffee pots and broadband internet.
One thing that 's increasingly a "need"? Connectivity. The percent of consumers who reported expenses on "Computer Information Services" -- which would include broadband and wireless internet services -- more than doubled in the last decades to 60% of households, according to unpublished data from the Bureau of Labor Statistics. Among the lowest 20% of earners, it more than tripled, with 30% of households spending on internet services. And the strong growth in the past five years indicates it's a recession-proof expense. Even greater spending increases are seen in usage and expenditures on cellular-phone services. Home-telephone services dropped slightly, but not enough to balance out the rising cost of mobile.
So what gives in the discretionary give and take? In the last decade the BLS saw spending on apparel plummet 30%, and transportation drop 22 % as people cut back on new-car purchases and to some extent maintenance or acquiring and upgrading second cars. Spending on food also fell, largely due to consumers cutting back on dining out. Health care, a clear "need" and growing cost center for aging Americans, rose 16%.
As we talk to the families in our American Consumer Project, we see their definitions of these terms.
In Leavenworth, Kan., Jay grew up with a strict definition of need. "We didn't have cable, didn't have a phone, didn't have a car until I was in high school."
While he was in college, his mom bought him a $1,000 Oldsmobile with her tax refund. When he got his first job, all he wanted was a new car, so he bought a Volkswagen Jetta. "It was silver, tinted windows, it had the disc changer, black leather seats. It was decked out.
"After a few years, I realized it's idiotic that I'm paying this much for a car. I'm not that cool. You know, you get older and smarter," said Jay , age 30. "So I was like, "just get the most boring car you can get.' I traded that in and I got a [tan] 2007 Hyundai Elantra, and I have one more year left to pay it off."
Sandra, a single mom in East Baton Rouge Parish, La., is always looking at the prices of items, but also looks at how they will get used by her two daughters, ages 18 and 4. "If it's going to be something that benefits all of us, then it might be something we should get now instead of waiting for the price to drop."
There are a lot of items on this survey in her "want" category, but she can't cut back enough on her "needs" to justify them. "I don't think I could live without the internet," she said. She uses her broadband to do some work from home, as well as to keep up with the news and sharing pictures of her kids with her sister in Texas via Facebook.
Leo Burnett has been studying the impact of "want" and "need" as part of its continuing look at marketing in a down economy. In a diagram of wants vs. needs, it teased out items that were "functional" vs. "emotional" and also looked at those goods and services consumers had cut back on (from energy drinks to music purchases to salon hair treatments). It looked at products or experiences that consumers wanted to start spending on again (going to the movies, buying shoes and donating to charity, among them) and found several items (trash bags, public transportation, laundry detergent, among others) to be those that customers couldn't bear to cut back on. It makes sense that most of the items on which consumers were still spending fulfill mostly functional needs, but we see some "new necessities" on that list as well. People couldn't cut back on the technologies they use daily, whether that 's a flat panel TV or a smartphone, and the little items like candy, books and greeting cards that just make day-to-day life a little easier at marginal cost.
Another theory to emerge is that cutback-weary consumers are starting to be motivated by a need to "escape" the recession with products and services that fulfill a more emotional role.
"Broadly speaking, I think Americans are willing to have fun again. You've been forced to live your life by the rules of necessity," said Stephen Hahn-Griffiths, Burnett's chief strategy officer. No one cut back on the items that were both functional and needs. "If you cross the chasm into "indulgence,' you haven't given yourself permission to purchase," he said.
Looking at a chart like this, it's easy to see the strength of a Groupon-like company. By lowering the prices of "want" items, it gives consumers the mental permission they need to indulge.
And sometimes wants and needs aren't measured in monetary metrics. For Michael, a 31-year-old affluent African-American living with his partner in Manhattan, want takes a different form. Trade-offs become more time- and space-based than cost-centric. He'd like to get a pet, but doesn't have the time to take care of it. And while a stand mixer would get a lot of use when he entertains, it would have to supplant the microwave because there's nowhere else to put it. He recognizes that even when he's spending money on food and drinks it's driven by an emotional need.
"When I'm buying food and drinks, and basically blowing my money on that every month, what I value is spending time with my friends."When he's entertaining at home, he likes to cook with fresh (sometimes delivered) ingredients, nice wine and quality meats. "I realize I'm wasting my money, and I could have my friends over and have a good time ordering Pizza Hut and drinking Bud Light, but I think that 's where I get caught up in the emotional needs."
For the next year, Ad Age is working with Esri and the Patchwork Nation to examine the impact of demographic and economic change on the American consumer. We are tracking 11 families in 11 representative counties to see how their experiences differ. For more on the families and the county segments, see AdAge.com/consumer.