Introducing the Connected Spender – Implications
This report was developed and published by the Demand Institute, a non-profit think tank jointly operated by The Conference Board and Nielsen.
In this report, we have shown how traditional income-based approaches to market prioritization miss the most potent group of consumers—the Connected Spenders. Given that global economic growth is slowing and household incomes have stagnated in many economies, it is more important now than ever to identify the best consumers and find ways to capture their demand. The Connected Spender framework does just that. This chapter offers some ideas for how consumer-facing businesses can apply these lessons.
APPLYING THE CONNECTED SPENDER CONCEPT TO SPECIFIC BUSINESSES
Consumer-facing businesses that want to grow sales at rates faster than GDP and population growth should use the Connected Spenders as a first lens for making investment decisions. Following Connected Spenders can tell companies what countries to emphasize and what conditions they should monitor in those markets to capture their share of Connected Spender demand.
To use this approach, each business should begin by determining whether it is well positioned to achieve growth and profitability objectives by serving Connected Spenders. Connected Spenders are not necessarily the best customers for all goods and services. Their buying behavior , does, however, make them an attractive market for many offerings:
- Connected Spenders are the biggest purchasers in certain discretionary categories, such as electronics, travel, and dining out.
- Connected Spenders are willing to pay for quality across all categories, even basic ones. Take grocery categories as an example. They will be the target for premium variations and innovative store concepts—for example, ones that combine grocery shopping with in-store cooking demonstrations or other activities—or for the latest exotic and high-quality ingredients.
- Connected Spenders prefer cutting-edge and state-of-the-art technologies. In financial services, they are likely to be early adopters of the newest cashless payment methods or online banking products. In electronics, they will be the most likely consumers to upgrade smartphones to the latest model every year or so.
Thus, any offering that puts an innovative and creative spin on an existing product will catch the eyes of Connected Spenders.
CHOOSING GEOGRAPHIC MARKETS
Any consumer-facing business looking to execute an e-commerce strategy in a new market should consider Connected Spenders as the primary customer. These consumers have the built-in advantage of already being online—necessary for e-commerce strategies—and are avid online shoppers who are more likely to research and complete purchases online than other internet users.
Then, to inform decisions about where to invest, businesses can use the significant variation in Connected Spenders’ presence and spending habits across different markets. The opportunities will differ between mature economies, many of which already have a well-developed population of Connected Spenders, and emerging and growth economies, where growth is likely to outpace mature economies over the next decade. The best choices for capturing the Connected Spender opportunity also will depend on a company’s products. For example, higher-priced products will continue to attract more consumers in mature economies despite faster growth in emerging markets.
Opportunities in emerging markets. Multinational corporations (MNCs) that already have an online presence in mature markets but are considering expanding into emerging markets should use the Connected Spenders framework as a way of prioritizing new investments. Growth in internet use and e-commerce is shifting to emerging and growth markets, with an estimated 2.2 billion new consumers in such countries expected to join the online masses in the coming decade. But not all markets are growing at the same rate. Indonesia, Nigeria and Pakistan, for example, are likely to gain significant numbers of Connected Spenders over the next decade. These three nations are on track to be among the ten largest markets for Connected Spenders by 2025, with a combined 210 million Connected Spenders.
Countries such as these may represent better growth opportunities for e-commerce than other emerging markets—a finding not derived from other commonly used market prioritizations, such as the middle class. And these markets are relatively untapped because they have not received the same level of attention as Brazil, China and India. They are attractive markets for MNCs looking to establish a presence for the long term, particularly for suppliers of lower-priced products, although companies will have to invest in market education in such places. Understanding which emerging markets will produce the most Connected Spenders can help consumer-facing companies focus investments most productively.
Opportunities in mature markets. While the level of engagement among Connected Spenders is just as high in emerging markets as in mature markets, differences in income will dictate that products with higher price points are likely to be the most successful in mature markets. These markets will continue to generate the most Connected Spender sales over the next decade. Although growth rates are higher in emerging markets, where economies are growing faster, they are measured off of small bases. In 2025, the average Connected Spender in a mature market will still spend 10 times as much as the average Connected Spender in an emerging market. This is not to say that marketers of expensive products should ignore emerging markets entirely. Rather, they should be more selective and focus first on emerging markets with higher levels of income or on pockets of high-income consumers in emerging markets.
Mature markets may also offer an advantage in terms of the market education required to reach Connected Spenders, as consumers in these markets have more experience in the modern consumer economy. The downside is higher levels of competition from other consumer-facing businesses.
CAPTURING THE OPPORTUNITY
Connected Spenders are a massive opportunity for consumer-facing businesses. Over the next decade, they will spend a total of $262 trillion on goods and services. That opportunity is present, at least partially, in all economies around the world. The steps businesses should take to capture it, as well as the conditions they should monitor along the way, will vary crucially according to a given market’s stage of Connected Spender growth.
First stage of Connected Spender growth. Nearly all the world’s new Connected Spenders over the next decade—1.4 billion out of 1.6 billion—will come from markets in the first stage of Connected Spender growth. For economies in stage 1, the most important driver of rising Connected Spender populations is greater internet access. For example, we forecast that between 2015 and 2025, internet access will grow from 53% of the population in China to 78%, from 21% in India to 56%, and from 21% in Indonesia to 61%.
- Educating consumers. In these markets, consumer-facing businesses can help build a modern consumer culture. Not only will newly minted Connected Spenders be new to the internet, they will also be new to making choices about discretionary spending. Companies can benefit from educating consumers, particularly in categories like electronics, vacations and entertainment, which resonate so strongly with Connected Spenders in mature markets but may be foreign to newest members of the cohort. Connected Spenders enjoy learning about new products through advertising, and marketers should take advantage of that in devising strategies for reaching them. In these markets, advertising efforts should focus on communicating the tangible features and benefits the products have to offer and should not assume that consumers are knowledgeable. These consumers are highly engaged, and they are ready and willing to fully participate in the modern consumer economy. They just need a guide.
- Monitoring growth. Growth in the Connected Spender population in stage 1 markets will also be determined by changes in economic conditions. Companies therefore should monitor these trends carefully. If economic growth in an emerging market falls below the expected trend, household income growth and the buildout of internet infrastructure will be affected. Government policies also play a crucial role in economic growth. Building internet infrastructure and enabling free access to information enhance growth. Deemphasizing investments in digital infrastructure and cracking down on how consumers can access or use that infrastructure pose threats to Connected Spender growth. Companies therefore should monitor government actions, particularly in countries like China, where the government plays a large role in the overall economy.
- Watching technology trends. Consumer-facing companies should also pay attention to how technology and e-commerce are evolving in specific markets. In many emerging economies, consumers likely will leapfrog to internet access by smartphone and may never use personal computers. This affects how companies will engage with Connected Spenders. Consumer-facing businesses should make sure products and shopping experiences are optimized for the internet access methods of each market. In China, Connected Spenders use smartphones and shop in modern retail stores, so omnichannel experiences that integrate their online and offline shopping habits will be an important way to engage such consumers. In Nigeria, retail channels are less developed, so the same experiences would not be as successful. There, demand may be focused more on traditional mobile commerce and integration with a few retailers.
Second stage of Connected Spender growth In markets that are in the second stage of Connected Spender growth, consumer-facing companies can win by tapping into the unique requirements of Connected Spenders. In these places, nearly all consumers have internet access, and most of the population has the wherewithal for discretionary spending. Therefore, the challenge is to motivate Connected Spenders. This can happen in two ways:
- Marketing and advertising. Here, the key theme is digital. The first place to reach Connected Spenders is online. They are eager consumers of online advertising, especially ads they view as particularly relevant for their preferences and situation. They browse the web and consume media on mobile devices much more frequently than non–Connected Spenders. To reach Connected Spenders, consumer-facing businesses should employ the full range of digital channels for advertising, from company websites to streaming video services. Connected Spenders will not be put off by an ad, as long as they consider it educational or highly relevant. The challenge, therefore, is to increase the personalization and relevance. The reward will be more engagement with Connected Spenders.
- Innovation. Connected Spenders like to be on the cutting edge in all product categories. Most are willing to pay more for the latest and highest-quality version of products. This also applies to services and shopping experiences. For example, new retail formats that allow for more online interaction or in-store events—for example, fashion shows in department stores, or meet-and-greets with famous chefs in a grocery store—may appeal to Connected Spenders. There is no rigid structure to follow, and creativity is crucial.
Growth of Connected Spenders in stage 2 markets will depend on a different set of economic conditions than in stage 1. While income levels in these economies are high, so is economic anxiety in many places. To understand how the Connected Spender population is growing, companies should pay careful attention to factors that affect consumer confidence, an important characteristic of Connected Spenders in these markets. Consumer confidence is based on many factors, but expectations for rising incomes are particularly important. So, if the data show falling unemployment rates and rising wages, household incomes will be rising and perhaps tip more consumers into the confident Connected Spender category. So would tax cuts and other policies that allow households to capture a larger share of economic activity. But a recession and rising unemployment, or increased uncertainty about future prospects, would cut into Connected Spender growth.
The path of the economy is something consumer-facing companies cannot influence. But they can double down on engagement to get the most traction with Connected Spenders. Financial-services companies, for example, can provide innovative products—such as new forms of cashless payments we described in a past report—that allow more consumers to engage in the digital economy more easily. Retailers can improve the omnichannel experience. For example, existing technology would allow a shopper to look for an outfit with a smartphone, use a virtual try-on app to see how it would look, and then order the items to be picked and waiting when the shopper arrives at the store. Further opportunities to strengthen customer relationships come from the internet of things: An early example is refrigerators equipped with sensors that record the supply of food products inside and send the data to software that builds shopping lists and suggests menus. Connected Spenders will be the first to try these innovative products.
Innovative manufacturers can meet their growth objectives by improving their products and tailoring them to the demand from the new generation of Connected Spenders in the markets they are well-positioned to serve. To learn more about the significance of Connected Spenders as a consumer group, read The Rise of the Connected Spender. To learn more about the demographics and buying habits of Connected Spenders, read Who Connected Spenders Are and What They Value. To compare the advantages of focusing on this group rather than an income group, read Why Not Focus on Income? For details on our methods, see the Research Methodology.