The Consumer Revolution in the Desire Economy

A radical new breed of consumers is killing discount businesses across the globe and simultaneously making fortunes for entrepreneurs in the Desire Economy. They killed Borders in Australia. They killed Borders in America. And just paid full price for 40 million iPads. The difference between winners & losers is stark.

Every day the media feeds us a diet of contradictory news. One minute we’re told consumers are radically cutting back and in the next breath, Apple is predicting 10 million iPad sales for the current quarter – all at full price, all at full margin.

The millions of consumers in the Desire Economy are radicalizing first-world economies across the globe. They’re rejecting the traditional orthodoxy of price, deal, features and status in favour of design, provenance, quality, authenticity, ethics and brands that stand for something. These radical consumers – 4.5 million in Australia – are big spenders in any economic cycle. Right now 93 per cent of them are in the top third of discretionary spenders in the economy.

So, what’s going on? Are we struggling or are we booming?

We use science to get to the real truth. More to the point, I and my team of social scientists, studied almost a million people on three continents over ten years and looked at 2,000 measures of what they bought, why they bought it, and how that behaviour changed over time. The results are startling.

What is clear is that there is not one consumer market or one economy. There are two fundamentally different types of consumers with extremely different reasons behind what they buy and why they buy it.

How distinctly different? They’re so different they might as well be from two different planets.

Each of these imaginary planets contains people of all ages, incomes and social groups.

Let’s pause for a moment and think about Gen X and Millennials. Everyone is used to hearing the pundits proclaiming Millennials will behave this way or that. However only one factor defines Millennials. That’s right – one! And that’s age. So what the Millennial population segment is really good at telling us is how old someone is.

It turns out that demographic factors like age, occupation, education and even income are nowhere near as important as the demographers would have us believe. Take it all with a grain of Salt.

Using 194 factors to identify who the radical consumers are delivers the forensic evidence  managers need. And in fact, during the ten years of the study, not one man or woman moved from one planet to the other, no matter how much his or her income, or age, increased.

And in this economic climate they’re getting further and further apart.

People on the first planet are driven by the deal. While those on the other planet are driven by a search for the extraordinary – the true sense of the ‘one-and-only’ – and they are willing to pay for it.

Crucially, any business stuck in the space between the two planets will struggle more and more.

On the ‘deal’ planet we have a huge number of people – just over 50% of the consuming population. That’s 9 million Australians. Or 120 million Americans. This planet is pretty easy to understand as the evidence shows. People here are motivated by the typical factors we are trained to expect – discounts, price, features and status.

We call this Planet Traditional.

As economic conditions faltered and slipped into the current hangover period, on Planet Traditional spending was seen as unsafe, so Traditionals of all ages cut back on their discretionary spending … only venturing out when the deal was so good they couldn’t turn it down.

The global financial crisis and its hangover caused the focus on price, features and status to intensify immeasurably.

Traditionals – from the Traditional Economy – aren’t just looking for a good deal, they need an extraordinary deal to make them part with their cash. Offers, deep discounts and sell-outs have increasingly become the currency on Planet Traditional. The evidence shows that this behaviour is very likely to become permanent. You do not want to have the second best offer on Planet Traditional.

To a Traditional the deal is everything, whether it comes from the best price, the most features, or the highest status … or increasingly, all three.

Then … there is the other planet where life is a little bit more complex.

These individuals make their buying decisions on a measurably broader range of factors. This is the $600bn Desire Economy.

The evidence shows the economic importance of this group is surging.

Let’s look at the difference in the confidence on the different planets. Traditional consumer confidence is barely above pre-GFC levels, while the people on Planet Desire are a good 20 points ahead of that – and the gap is widening.

Those very confident Desire Economy Australians earn more, are better educated, dominate entrepreneurial, senior management and professional roles; and are socially progressive.

They research, shop and buy in ways that are significantly different to Traditionals. And the companies that understand them have flourished despite the economic hangover in our economy.

For a consumer from the Desire Economy, while price remains a factor, it is often not the most important in the decision to buy. They need to feel a connection with the product or service, and implicitly see it as a representation of their own individuality.

As a result, they place a premium on a whole range of things that typically wouldn’t even register for someone living on Planet Traditional. Some of the most significant of these include DESIGN – Desire consumers place a value not only on how things look, but how that design translates into the elegance of how the product works.

Next comes AUTHENTICITY – Desire consumers want the real deal – no substitutes – and who they buy from is just as important as what they buy.

And then there’s PROVENANCE – Desire consumers place a high value on things that are individual or unique, with a real sense of being the one and only.

DISCOVERY – the whispered secret is far more valuable than something mainstream to the individual living on Planet Desire: they want to find things for themselves rather than being assailed by aggressive marketing. They value new experiences and want experiences that are on the edge. They’re the first to try new ideas, new concepts and new places. When Desire Economy consumers discover things that match their personal values, they spend freely.

As we heard earlier, 93 per cent of consumers in the Desire Economy are in the top third of discretionary spenders in the Australia.

Now let’s compare that to those who live on Planet Traditional, many of whom earn big salaries and have high net worth. What percentage of Traditionals are in the Big Spender category? 93 per cent like Desire consumers? 80 per cent? 50 per cent? 25 per cent? 10 per cent? NO … it’s 4 per cent. Only 4 per cent of Traditionals qualify as Big Spenders. And yet for most of us, doing business on Planet Traditional is all we know.

The most obvious example of this consumer schism is of course everyone’s poster child Apple … their cutting-edge uniquely designed products and anti-corporate style are a natural fit in the Desire Economy. Their sales skyrocketed here and around the globe, all the way through the recession and beyond.

On Planet Desire, however, there is a natural tendency to smaller, more individual brands, as it’s easier to connect with companies and people than corporations and mission statements.

The craft brewing industry internationally has seen sales rise by 7 per cent this year. Canadian Chip Wilson’s Lululemon, with stores in Victoria, NSW and Queensland, is part of a global Desire Economy trend to yoga and a lifestyle beyond shopping. It’s growing exponentially with an authentic commitment to yoga that Desire consumers can connect to.

I remember a wonderful artisan bakery near my home that was thriving with a wide variety of customers. It flew in the face of conventional geo-demographic modelling. The baker told me that most of his customers happily paid a premium for authentic sourdough or incredible croissants and were driving right across town … old, young, jeans and t-shirts, suits, hip and buttoned down … anyone looking for something exquisite, regardless of price, were there.

Now, we can explain it. We have something as simple as the two-planet premise … and something so sophisticated to be the complete toolbox for business leadership and success, but not one built on observation and trends but a model rooted in the very psyche, the mindset, of consumers. And mountains of deep data thanks to our strategic alliance with Roy Morgan Research.

And I can now tell you from experience – you’re either going to get this concept like a bolt from the blue, or you’re not going to get it at all. And that’s fine. If everyone thought the same we wouldn’t have two planets, we’d have just one.

For the first time, we can see the stark difference emerging in the new economy. Traditionals are building security while the those in the Desire Economy are building wealth and as a consequence have a greater proportion of total assets.

Consumers in the Desire Economy, for example, account for 65% of total assets in Australia – including superannuation, retirement incomes, managed investments, banking accounts, business investments and direct investments. They are 63% more likely than Traditionals to own shares and have an average share portfolio of $110,000 compared to $81,000 for Traditionals.

They own almost three quarters (73%) of all equity in Australian businesses and critically, when it comes to corporate behaviour, one-third of Desire Australians are responsible for major corporate decisions. Compare this with just 9% of Traditionals.

Australians in the Desire Economy dominate the corporate and business decisions that directly deliver profit. And impact our economic future.

What may look like social and market trends to the untrained eye are actually companies and individuals finding a way to connect with the very individual consumers who place a value on the unique, individual and the authentic – and are willing to pay for it.

So, when you hear one day that consumers are cutting back, and the next that they are buying more local produce, personal services or more cool technology … you aren’t going mad. What you are actually hearing are the stories of two very different planets and the people who live on them. The evidence is clear. Consumers have always spent their money based on what they value.

In this post GFC economic reality there is no middle ground. If you’re starting to realize that your business, or the business of your clients, is stuck in the space between the two planets, then you need to find a way out. FAST.

Whatever the size of your business, you need to be offering something that is extraordinary … or you need to be offering the extraordinary deal. Learning the difference is a matter of survival.

Today the first and most important question any entrepreneur needs to ask is “What Planet Am I On?”

There are still fortunes to be made on Planet Traditional … or Planet Desire. For some companies this means breaking up into separate brands to truly succeed. But for most it is going to have to be a straight choice. Making this choice is what becoming a 21st century brand is all about.

This isn’t just academic theory. It’s hard facts, tools and strategies that make a tangible difference in business. And they are crucial to every entrepreneur from tiny to titan.

The key to extraordinary success is being on the right planet – your customers are already there. You should probably think about joining them.