Revisiting the Value Shopper: Q&A with Iconoculture’s Tim Henderson

Tim Henderson is a consumer strategist and co-author of a July 2008 article titled “The New Value Mindset: Targeting Value Shoppers During the Shopping Recession.” Two years ago, Tim spoke with Perspectives about the value shopper and how both consumers and retailers were behaving in an increasingly price-conscious environment. Recently, we returned to Tim and consumer-trends research firm Iconoculture to find out how value shoppers are adjusting their behavior for today’s economy . . . and how some marketers are succeeding in reaching them.

Perspectives: In your 2008 article, you outlined “four faces” of the value shopper. Have any of those changed over the past two years?
Tim Henderson: The four faces we looked at were the socially frugal shopper, the bargain shopper, the swing shopper and the cheapskate, and they have not changed. Some of the values that drive their shopping behavior may have moved up or down on the value chain – for instance, fear about the economy has moved down for many people – but those categories of shoppers exist in any economic environment, and they encompass various income groups.

Perspectives: As the economy shows signs of improvement, how is this shift impacting consumer shopping behavior?
Henderson: A lot has happened since July 2008. Back then, we had not even gotten into the Wall Street meltdown, but prices were rising on items from groceries to gas. Consumers were learning to cope by focusing on value. Shoppers defined value in different ways, depending on their circumstances, but one common thing we noticed was that value began to equal price for more and more people. Consumers became much more price-sensitive, and we saw more people using coupons, turning to private label and looking for other ways to save money. Gradually, this became part of hardened shopping behavior, and two years later we’re still seeing it. But we’re also seeing some indicators of changing behavior.

Over the past few months, retail sales have been up, and both merchants and industry analysts are cautiously optimistic that the recession has come to an end. However, the recovery of consumer spending will occur in waves – unlike the decrease in spending, when consumers all turned on a dime. This will be a “personal post-recession” period. No matter when the government officially says the recession is over, individual consumers will increase their spending only when they personally feel comfortable about the economy. One of the first categories that may experience a shift is groceries. Some consumers will migrate from discount retailers and private label to traditional grocers and heritage brands. Those who stopped buying organic and green because of the economy may begin going back to those items.

Right now, though, most consumers are continuing the frugal shopping habits that have carried them through the tough economy.

Perspectives: Among consumers who are buying more, what is driving their purchases?
Henderson: Holidays have been a big driver. Since the beginning of 2010, consumers have shown more willingness to spend around holidays, from Valentine’s Day to Easter to Mother’s Day. This is behavior that is heavily laden with emotion, and that made the outlook for summer shopping iffy because there were no big holidays that carry that same level of emotion.

Perspectives: Given current consumer behavior, how can retailers and brands encourage people to shop?
Henderson: With many people still feeling or remembering the effects of the downturn, directly encouraging consumption rings hollow. However, as the economy changes, the value equation for consumers will change, too, and retailers and brands can find ways to play off that. For instance, over the past two years, many U.S. consumers have felt that the “American Dream” is increasingly out of reach. The “American Dream” means different things to different people, but brands might talk about the “hope for a better tomorrow.” This kind of sentiment can help tee up the idea of restoring optimism as the economy recovers.

Companies looking to reach the value shopper should focus on swing shoppers (those for whom life dictates the need for thrift). Of the four faces of value shoppers, they are most easily swayed. To reach them or any other shopper, perhaps the most important thing a brand can do is to become a “merchant of creativity.” Consumers who are shopping less are getting to spend more time with their families doing other things, and they’re enjoying it. Brands and retailers must compete with that. To be successful, they will have to find ways to engage shoppers – either by tapping into the emotion tied to holidays or through packaging or some other part of the shopping experience.

Perspectives: Have you seen any examples of brands doing this effectively?
Henderson: A few. Macy’s, for instance, has been positioning itself as a destination shopping place by setting up visitor centers in some of its stores and offering discounts to tourists. Whole Foods just launched its first on-site, field-to-store garden to supply one of its stores with locally grown produce. And some shopping centers are opening up their parking lots to farmers’ markets, enabling them to offer a shopping experience many people enjoy.

There are a lot of ways to go about being a merchant of creativity, but whatever path a brand takes, it is important to remember that it must stay true to its brand promise.

Speaking Individually: Investor Communications in 2010

Economists say recovery from the global economic crisis is under way, but many investors still need to be convinced. What can corporate communicators say to help restore or create confidence in their companies in the current environment?

Here, David Allan, head of investor relations and financial communications at Ketchum, answers the question.

On May 6, 2010, the Dow Jones Industrial Average lost more than 1,000 points, or almost 10 percent of its value, in a matter of minutes. From April to June, the Dow declined 12.4 percent in just 42 days.

We have all heard the buzz words. Investors are “skittish.” Investors are “on the sidelines.” Should they be? My point of view is yes.

Money is going into mattresses. It is going into gold. It is going into the “safest of the safe” – even with record-low interest rates for cash balances.

In March, my broker had a longtime, sophisticated client go to “all cash” when the Dow was around 6,500. That poor investor lost a lot of money – and money that would have – and has – come back. It’s a poignant example and one that illustrates investors’ intense frustration with the stock market.

If you are an investor relations officer or corporate communications professional, 2010 would have to be one of the toughest years ever to be telling the investment thesis for your company’s stock. With that in mind, here is some advice for communicating an individual equity story in the current environment:

• Tell a total return story. If you are lucky enough to have a good total return story of share-price appreciation plus dividends, shout that story from the rafters.  Tell that story wherever more than two people are gathered. Passbook savings rates are appalling, treasuries don’t beat inflation, and bonds aren’t foolproof.  The equities of well-run companies can – and should be – a compelling investment. Now is the time to raise the volume of your company-specific strengths above the noise of the macro economy.
• Talk about your economic moat. If you are “insulated” against shocks to the economy, investors want to hear how. If you could make money during a recession, say why. Famed billionaire investor Warren Buffet said he likes to invest in companies that “are economic castles with unbreachable moats.”  And Morningstar has since developed (and measured) the “economic moat” that keeps out competition and guards against other forces that can destroy profits.   Against the teeming horde of troubled economic times, how wide is your company’s economic moat? Also, ask this question: Is your company really under siege in the castle? Companies with strong balance sheets and cash flows that find a way to invest in the future even during bad times usually bounce back stronger and more quickly than companies that just pull up the drawbridge.
• Sustain the sustainability. Corporate social responsibility (CSR), socially responsible investing (SRI), and environment, social, governance (ESG). These are our initialisms du jour. A lot of investors tire of hearing these terms, especially when you can make excellent returns in tobacco, weapons, gambling and adult entertainment. But sustainability is here to stay. I am currently doing battle with my health insurance company, which has raised my premiums and reduced my coverage while returning $1.3 billion to its shareholders. Rewarding shareholders at the expense of the customer is not sustainable long-term, and I will be betting against them.

In one of the broadest and longest stock market pull backs, now is the time for public companies to tell a story of total return, demonstrate insulation against economic shock, and prove the sustainability of the business model. If you are an IR officer or corporate communications pro whose company offers the lowest-cost brands in your sector – the “value” brands – tell that story today. If your company is in a sector that requires the recession to truly and emphatically be over, then provide investors now with the leading indicators for the eventual “lift” in your company’s performance. 

Lessons Learned from the Recession: Q&A with Standard & Poor’s Chris Atkins

The meltdown in subprime mortgage securities was a significant factor in the global financial crisis. Everyone had questions about how it could have happened, and the media predictably looked for a simple explanation. One that many settled on was that the complex transactions that allowed banks to package bad mortgage loans and sell them as securities flourished primarily because credit rating agencies erroneously gave solid ratings to high-risk securities. But that explanation was oversimplified and, in some reporting, it was dead wrong.

Chris Atkins, head of corporate communications for leading global credit rating agency Standard & Poor’s, often had the task of correcting misconceptions among the media. Here, he shares some of the lessons he learned along the way and how they have helped change the way Standard & Poor’s communicates in good times.

Perspectives: You’ve had to correct some misconceptions among the media about the role of credit rating agencies. What lessons did you learn about doing this effectively?

Chris Atkins: Prior to the financial crisis, Standard & Poor’s corporate and government ratings had received a lot of coverage in financial media, but structured finance ratings for such things as residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) had been largely overlooked. As a result, when issues related to RMBS and CDOs first came to light, most reporters did not have a deep knowledge of structured finance because they had not covered it before. This was true even at the Wall Street Journal, and I hardly need note that general-interest newspapers around the country were utterly unprepared to explain what was happening on Wall Street to their readers. Inevitably, when you’re dealing with people who don’t fully understand the nature of what they are writing about, there will be mistakes. Adding to that was the fact that the sources reporters turned to for comments on structured finance did not always fully understand it either.

Misconceptions not only included a lack of understanding of securitization, but even a fundamental lack of clarity as to what a credit rating is. (For the record, a credit rating is the rating agency’s opinion about the likelihood that a borrower will repay a debt on time, in full and with interest.) Attempts to compare credit ratings with the “Good Housekeeping Seal of Approval” made good copy, but bad facts.

Almost immediately, the harshest criticism was directed at our business model, in which we are paid by the issuers whose securities we rate, much the way one pays a doctor to perform an examination, the results of which are, one hopes, truly reflective of his findings. Media were quick to highlight the “conflict of interest” without noting other salient facts – including the existence of firewalls between analysts and business managers (not unlike the firewall between editorial and advertising at a newspaper) and that the issuer-pays model allows us to publish our ratings for free in real time on our website, a huge benefit to investors.

Responding to these criticisms was often difficult – particularly in a broadcast environment – because our critics (and they are legion) found that they could easily lambaste us with sound bites. “You’re in Goldman Sachs’ pocket!” was a popular one.  Unfortunately, since “We are not!” was not an effective smackdown, our answers did not lend themselves to sound bites, and evidently exceeded the attention span of CNBC’s interviewers. No, broadcast was not the way to go.

Print was a different story. With a print reporter, we had the chance to provide the background and context that helped produce a balanced story more often than not. But even with that approach, many articles still appeared with misinformation, often provided to the reporter by sources who did not reveal their vested interest in commenting. As just an example, a source who was frequently quoted and very critical of the rating agencies turned out to have a significant short position in the stock of McGraw-Hill, S&P’s parent, something not mentioned in the story. To date, we have had nearly 45 op-eds and letters-to-the-editor published, and a number of “corrections” – much-loathed by reporters and editors alike – in newspapers around the country. 

Perspectives: You have noted that S&P was more proactive than some of your competitors.  Why did you choose to “stand apart?"

Atkins: When media first began reporting on these issues and misinformation appeared about credit rating agencies, all of the agencies made an attempt to respond and provide context. But as the attacks became increasingly ad hominem, our competitors evidently chose to batten down the hatches and ride out the storm. Had we done the same, there would have been nobody trying to set the record straight. Certainly we did not have a corps of supporters in the marketplace rallying to our defense. We made the decision that we were better off trying to fill the void, even if it meant exposing ourselves to a cheap shot from time to time. I think it paid off. I’ve had a number of reporters say to me that Standard & Poor’s fared better in their esteem by consistently engaging with the media. Fortunately, we had a management that got it – even when one or another of those cheap shots was leveled at them!

Management also understood the need to communicate beyond the media. Early on in the crisis, we started holding a weekly steering committee meeting, which includes the president, the COO and representatives from legal, government affairs, regulatory affairs and communications. Everyone soon recognized that what happens in one arena quickly affects developments in another. Whether it’s a judge’s decision in a court case; a new provision submitted into legislation; or a catastrophically bad story in the Washington Post, it is all interconnected. When this group convenes, we leave the org chart behind and become part of a multidimensional team. I can’t imagine ever going back to the silos that existed before.

Perspectives: Have business reporters or the media in general gotten smarter about structured finance and other credit topics? And how do you expect that to affect the way you communicate with them?

Atkins: The general level of understanding and awareness of structured finance has improved in the business press but not in general publications. The daily coverage we’ve gotten in the last year has been much more balanced, but we still hear from reporters who want to write the “so whatever happened to those credit rating agencies” story, and I have to remind myself that if you’ve come in to review a movie and arrive during the end credits, you’re probably not going to have much context upon which to build. We have to start at the beginning. For example, it is impossible to write about securitization without understanding the concept of credit enhancement. That’s the process that issuers use to provide a surplus of funds in a security to absorb any likely losses and protect the AAA tranche. Without understanding credit enhancement, a reporter is likely to believe that we just took a sack of crappy mortgages and waved a triple-A wand over it. The problem is that few reporters want to admit they don’t get it. So, I’ve learned to start the conversation by saying something like, “A lot of people get confused about credit enhancement. Do you mind if I walk you through it?” Invariably, reporters say, “Sure, go ahead.” And you can see it in their eyes. Once they see that something they knew to be true was completely false, they begin to question other “facts” they brought with them.  Once we get to that point, I become fairly confident that the story will be better.

Perspectives: You mentioned previously that credit rating agencies had no supporters in the marketplace who were willing to defend them against criticism in the aftermath of the mortgage crisis. Yet every organization has stakeholders who might speak for you or against you. What lessons, if any, did the recent crisis teach you about communicating with stakeholders in good times and bad? And how do you expect communication with your various stakeholders to change over the next year?

Atkins: I joined Standard & Poor’s in 2006, about a year before the first of our significant downgrades of mortgage securities that signaled the start of the global financial meltdown. Prior to my arrival, S&P had not taken a disciplined and organized approach to outreach to influencers and stakeholders. When I arrived, business was good and nobody seriously imagined that we would one day find ourselves at the epicenter of the biggest business crisis since the Great Depression. So the outreach never got going. Clearly my job would have been less challenging if we’d had a core group of influential people with whom we had nurtured a relationship over time – people who, if not comfortable publicly supporting S&P, might at least have thought twice about trashing us.

We learned from that. Over the past two years, we’ve embarked on a program to identify people globally – from academics to senior finance people to legislators – who we are engaging in ongoing dialogue about the rating agencies and the global economy in general. We meet with them individually and in small groups. We’ve hosted a series of dinners around the world where we invite eight or nine people to ask the tough questions, and we answer them. We think we have made some friends, but time will tell.

We also understand that we must do this all the time, not only when we are being scrutinized by the media. With the pressure to build, and in some cases rebuild, our business, there is sometimes a temptation to pull back on this effort. But we won’t, because on reflection, we all know that there will be another crisis someday – probably not about subprime mortgages, but something will go bad somewhere – and that’s when we’ll be glad that we took the time and effort to cultivate these relationships.