Observations in a Year of Recession from Continuum on Vimeo.

I found this collection of illustrated factoids pinned to a piece of foam core in the back corner of our studio the other day. I was drawn to their simple and effective communication style, as well as the diversity of the observations. Upon tracking down the illustrator (Rose Manning), I asked if I could use them. I wasn’t quite sure what for, but in the end, I took them and set them to a bit of music. Titled “Observations in a Year of Recession”, the three minute video seems to capture aspects of what the last year has felt like for many of us. Beyond the headlines of government bailouts, Wall Street failures, and falling home prices, the factoids focus on how this transition has affected the people who make up our economy, not just the businesses. I shared the video with a few friends and a simple question kept coming back – Is there a bigger picture to be drawn from these observations?
I suspect there are many implications one could read into this collection of tidbits. Here are two of mine:

1) TIME FOR DISRUPTIVE INNOVATION
I believe people will be more receptive than ever to disruptive innovations. In a recession, we are more actively making value-based purchase decisions. We are more conscious than ever about how we spend our money. This is not simply about finding the lowest price; people are seeking out the strongest value proposition. We are re-prioritizing purchase decisions based on what’s most valuable, rationally and emotionally. In today’s economy, people are willing to trade off some level of quality for a better value. This is one of the classic market dynamics in which disruptive innovations can flourish. The market is primed for new, better-value solutions.

Now is the time to explore opportunities to recalibrate a category, or create a new one, through the introduction of disruptive innovations. By offering a better-value product or service, in a way that the market does not expect, new market leaders can be established. On example that comes to mind is the netbook. I don’t think there could be a better time for a full court press of netbooks into the mainstream. Consumers will be more receptive than ever to a lower cost option, even if that cost comes with a decrease in performance.

2) MANAGE YOUR VALUE PROPOSITION
As people seek out the strongest value proposition – the brands that have diligently focused on value are being rewarded. McDonald’s, who has had a relentless focus on value, is being rewarded with strong growth during this economic downturn. Similarly, WalMart has benefited, as its value proposition is more in tune with today’s economy. And I don’t think this is just about low prices; each of these brands has worked diligently to improve their offering. As a result, I fully suspect at least some portion of the added market share they pick up today will likely stay with them as our economy rebounds.

In today’s market, the focus has to be on optimizing your value proposition. More than simply reducing your price, every brand needs to find the right combination of price and quality. And if you’re going to demand a price premium in the market, much as Apple does, you must be sure your offer is appreciably differentiated in a manner consumers can relate to and in a way that they value. This seems obvious, but as we see the onslaught of store brands winning market share from traditional brand leaders, it is a stark reminder of how an open market works.

I hope to hear about insights and implications others can tease out of these observations, or from your own experience through the last year.

A steady stream of headlines prophesize doom and gloom: We’re falling off an economic cliff. We’re in the midst of an economic war. Our debt-ridden, over-consuming, under-producing way of life has suffered a fatal shock. However we define the current crisis, one thing is certain: When the dust settles we’ll be in a place that probably won’t look like Kansas anymore.

We wanted to move beyond the headlines to see how this crisis is playing out in the lives of real people. And more, what this could tell us about the new emerging order. Do the behaviors we’re seeing—which may be typical for recessionary times—represent a momentary change or do they signal a deeper shift in people’s values? If so, what does this mean for how we think about creating the things—the products, services, strategies, experiences and businesses—for this new normal.

So we revisited people we have come to know over the years through our work. These families welcomed us back into their homes. We sat at their kitchen tables to talk beyond the grim statistics of wealth destruction—the eye-popping $10.2 trillion that has evaporated in this country over the past year—to tell us what they’re doing to navigate through this crisis: To make ends meet.

In a period when people arguably have more time and less money—and this less money is being asked to do more, a considered and complex calculus around consumption is driving spending behaviors. This is evidence in small ways, by the increase of “orphan items” retailers are seeing—items picked up in one section of the store and then abandoned in another as people go through the process of asking “Do I really need this?” Under this intense scrutiny, products need to serve a real function. This does not mean products have to be frugally functional, stripped down to the bare basics. Rather, they have to work harder to connect to people’s values—to what they really care about.

[Note: On our homepage, you’ll find several videos of our interviews with people—here’s a brief encapsulation of what we’re learning…]

The Great Migration We see this in our conversation with Rebecca, a cost conscious mom, who has devised a clever solution to her “diaper dilemma.” Rebecca, like many, has already made the “migration” from higher cost to lower cost supermarkets in search of discounts. But she is also migrating across product types in search of products that are “good enough.” She is carefully customizing product mixes to find solutions that work better for her.

For example, diapers are an expensive part of her household budget. She now makes a separate shopping trip to buy generic diapers to use during the day. But the important “overnight” diaper is still reserved for Pampers. The fact that Pampers doesn’t leak and will keep pajamas dry—and Rebecca’s laundering load to a minimum—would seem the obvious value to address. But it’s only half of the story. What Rebecca really believes is that uninterrupted sleep means that her child is getting the restorative rest she needs in order to develop properly. It is this, her child’s well being, that Rebecca truly values. It is why Rebecca will endure the frequent diaper changes with generics during the day; but will not forgo the “luxury” of a more expensive diaper when it comes to nighttime sleep. Even when times are tough.

Indulging Indulgences The challenge then becomes how to broaden a products definition of value—and understand a deeper purpose it needs to meet. The instinct for a company may be to slash prices in response to an emerging frugality: We’ll survive through price cuts, the logic goes. Again, it is not this simple—as we see that even in trying times, indulgences still play a vital role.

Edna is a coupon connoisseur who lets sale prices drive her purchasing. Edna is keenly aware of the price of everything. Pineapples are “a luxury” at $4.99; but a steal on sale for $2.99. But in the next sentence she talks about the $3,500 television she and her husband just purchased. Still, she contests, “we don’t spend extravagantly.” In Edna’s considered, if not confusing, calculus her TV is worth 1,140 pineapples—rattling assumptions about how frugality and thrift are being expressed. But for Edna, the five TVs in her house are an expense that offsets every other entertainment need for her family. It’s a way for them to spend time together—the true value she seeks. And so, it’s a justified expense. This “change purse” versus “blank check” mentality may not seem rational—but it is increasingly pervasive.

It reminds us that in a time when frugality and thrift are the “new black” and one of the few things on the rise is the sale of penny candy, there is still plenty of room for indulgences. Jeannie delights in her expensive pod coffee maker (sales of which were up 31% in 2008) and knows the exact price per capsule. She then rattles off the commercial jingle “each cup is specially brewed for you.” It’s served just for her.  Does this explain why she lugs out the “old school” drip pot to serve the crystal coffee brew when company comes? Her indulgences—once the facials, manicures and pedicures that kept her content—may be smaller now and have been brought into the home; but are just as treasured and solely for her.

Edna and Jeannie demonstrate that people are compartmentalizing purchases and dramatically overestimating the difference between small amounts and underestimating the difference between larger ones. The reality of what people can and cannot do without is not so obvious and much more complex these days. Even the most basic product may serve a broader purpose than is assumed. The importance is to understand what roles these products are really filling—and how to remain relevant in that context.

Brands versus Generics The need to remain relevant and recognizable plays itself out in the perennial contest between brands and generics. If two-thirds of people see no difference between brands and generics, why do moms like Rachel and Jeannie go to deliberate and considered lengths to “keep face” with their children around brand food purchases—even in light of one mom’s imminent home foreclosure? Why does Jeannie put bags of generic cereal in CoCoa Pebbles boxes? Store brand mac and cheese bags in Kraft boxes? Why does Rachel still buy brand food products for her older children; but for her 2 year old, “who doesn’t know the difference anyway,” generics will now do?

Conspicuous consumption has given way to a more pragmatic and considered calculus. In times when little feels “in control,” complex mental models drive spending. And a sense of control is important.

What new “calculus of consumption” behaviors are you seeing?

Lucky Break

Gufflumpgufflumpgufflump. OMDG this can’t be happening, I thought.  I was on the uphill portion of a bridge to Cape Cod when my very new Mazda 3i started bucking.  Quick glances: plenty of gas, temp was fine, battery ok.   By the way,  I don’t have a house on Cape Cod.  I mooch off other people’s houses.  On this particular Saturday, we were going to visit friends who themselves were mooching their friend’s house.  That made us moooooches.  I turned to my wife, “Call info and find a Mazda dealer on the Cape, whatever this is, it’s bad.”

We bucked over the bridge, breathed, and then bucked all the way to Hyannis Mazda, on a bleak stretch of road.  If Hyannis is where the Kennedy’s live, then it must be a big town, because there was no appropriate housing for Kennedys in sight.
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Marie from HMS is nice.

Driving up the Garden State Parkway, enduring brutal summer beach traffic, we were forced to pull into a rest stop.  This is a rant-free blog column, so I won’t get started on the condition of the bathrooms or the gall of able-bodied people galavanting out of cars that were plated for and parked in handicap spots.  But I would like to put out a commendation to Marie, a uniformed employee of HMS Host Corporation which runs the rest stop, including the gift shop.  We collect snow globes, even on beach trips.  When my daughter brought her preferred snow globe (and a keychain) to the counter, Marie said, “You picked a great one.  That’s my favorite snow globe in the store.”  Then she offered a very kid-savvy option, “I’ll wrap up the snow globe so it’s safe, but would you like to hang on to the keychain yourself?”  Of course.  Walking out of the store, into the hot and crowded rest stop, destined for hours of crawling up the Parkway, my daughter was bouyed by the extra attention and glowed, “She’s really nice.”

Rule #4 of great service: Be nice to the kids.

Hilton housekeeping says, “Hello.”

None of the coolio hotels we like for our New York getaways could accommodate four guests in one room, but the Hilton on 53rd St fit our family and our budget.  Leaving our room on the first morning, we got a nice big “Hello” from every member of the housekeeping staff whom we passed in the hallway.  These employees were busy doing their work, but not too busy to look up, share a smile and wish us a good day.  By the end of our stay, we got to be fairly chatty together.  I don’t know if Hilton trains all of its employees to stop their work and greet the guests or if these folks were just personally inclined to put something extra into their job.  I do know that it made a difference for me.  Rule #3 of great service: Say, “Hello.”

Yolanda sees the other side

I was coming home from from a visit to the Center for Creative Leadership, which teaches C-levels, admirals, and strivers of all levels to lead others better by first understanding self. The approach is humanistic but entirely without fluff — every principle is backed by decades of supporting data.

Flying from Greensboro to Boston, the only good flight is on Delta — unless it’s cancelled like mine. Along with my travelmates, I scrambled onto an already-boarding two-leg flight by US Airways. I arrived in Philly and found the connecting gate to be overflowing with misery. The preceding flight to Boston had been boarded, then held on the tarmac, and then returned to the gate. The customers were variously folded, splayed and contorted in seats that were designed for the short rests of the previous era of air travel — regulated, expensive and punctual. The previous flight was defunct, and it became clear that those passengers were to be given my plane for their ride home. My mates left for the bar, and I stayed at the gate, determined to join these ragged souls on the next plane to Boston.

One US Airways employee was at the gate desk, occasionally looking around at the scene but never at any one person, and typing into his screen prodigiously. The plane arrived for boarding. Travelers shoved their way to gate door. A few customers were not passing through but were instead lingering near the desk and leering needily at the US Airways employee, whom I shall now name Sir System. Sir System was expert at the operations of the gate computer, and he was assiduous about the order of boarding. Glued tightly to Sir System’s counter was a customer whom I shall name Nigel (Nice Intelligent Guy with English Lilt). As a customer, Nigel had everything going for him. We was tidily groomed, had a pleasant face and wore a gentlemanly overcoat. Nigel was, I imagined, an ex-pat of many years, as he spoke with the perfectly diluted English accent that Americans equate with social refinement. But Nigel was not happy.

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UPS driver breaks rule and charms my wife

Our new carpet arrived from Pottery Barn. My wife convinced the UPS guy to carry it into the house…and up the stairs…and into our bedroom. I’m breaking into a sweat just thinking about it. Remember that study about how women dig the brown uniforms? Confident that my wife gave no invitation, I must ask myself, why would the driver do that? He must have broken both corporate and union rules. UPS drivers are Teamsters, not movers. But they are people.

UPS asks, “What can brown do for you?” One driver realized the answer: he could carry that heavy rug for the nice young lady. Breaking a rule is a great way to win a customer’s loyalty. Rule #1 of great service: break a rule for the customer.