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Companies need to plan for slower global growth

Consumer demand
By Paul Hodges on 31-Oct-2012

US consumer spend.pngAs promised, the blog looks today at the business implications of population ageing and slower economic growth. The chart shows official US household expenditure data, by category. The overall message is clear: spending peaks by the age of 55 years, and then falls away quite sharply as people age.

This matters because household consumption is between 60-70% of GDP in most Western countries. Thus US consumers alone are 16% of the global economy. Western consumers in total are 40% of global GDP, equalling the entire GDP of the emerging economies. It is obviously impossible for these countries to replace the spending that is now being lost.

Most executives moved up the corporate ladder during the economic SuperCycle. They will now have to unlearn much of what they have learnt about critical success factors. ‘If you build it, they will come’ is no longer a viable strategic mindset. Over-optimistic market assessments will no longer be rescued by constant growth, and the arrival of ‘pent-up demand’:

• Executives will find themselves buffeted by markets which exhibit ongoing and high levels of volatility, uncertainty, complexity and ambiguity, as the economy transitions to the new normal. In addition, they may well have to cope with continuing waves of unhelpful, though well-meaning, interventions by policy makers: their recent role in raising oil prices is just one example.

• Executives will therefore need to learn new tools with which to sustain growth. Business model innovation will be essential, in order to meet the needs of those market sectors with future growth potential. One example of these is the opportunity to develop new products and services to meet the needs of the New Old 55+ generation.

• Technical innovation will also be essential, as the successful products of the future are likely to be based on ‘needs’, rather than ‘wants’. Affordability, rather than premium pricing, will be key, as markets re-segment themselves into a large ‘value’ sector and a small ‘luxury’ segment, with little middle ground in between. This will be quite unlike the SuperCycle.

The Research Note summarises the rationale for the launch of our New Normal strategy workshops for company Boards and senior executives. These have now been held on 4 continents, highlighting the global implications of ageing for future business success.