what can we learn from consumer confidence (case of ukraine)
Post on 22-Jan-2018
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Ukraine: What can we learn from consumer confidence?
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The approach
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Consumer Confidence Index (CCI) is one of the leading indicators reflecting how people feel themselves in a particular period of time. In short, it is an aggregated index of how people evaluate their current personal wellbeing, their expectations regarding future wellbeing, as well as their short-term and long-term expectations about developments of the national economy. The index is measured based on consumer surveys regularly conducted by GfK Ukraine.The CCI clearly translates into general attitudes and behavior of people towards societal processes and consumer behavior in majority of markets. In general, the higher the index, the more optimistic people are. However, the index dynamics itself does not reflect peculiarities of consumer behavior as optimism or pessimism can have different shades. We tried to look deeper into consumer confidence and analyze factors affecting consumer optimism or pessimism. These might help us to see how the consumer evolves and what can be expected for the future in terms of consumer behavior.
From Consumer Confidence to Consumer Behavior
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Our analysis revealed that more than 90% of the CCI dynamics is explained by consumer reactions to changes in the following indicators or processes which might be directly observed by an average person in the country*:
- real household incomes- consumer inflation- exchange rate of the national currency- political and societal processes, situation in the country overall
While the first three are reflected particularly in the national statistics, it is rather tricky to measure the last one (acuteness of the general situation in the country including politics, society, conflict in the East, etc.). For the sake of our analysis, we assumed that the «hotter» the situation in the country is, the more people are interested in knowing more about it. Therefore, we used Google Trends statistics on Internet searches about news in Ukraine as a proxy for acuteness of the general situation in the country. While the statistics has its limitations, it still clearly reflects and correlates with the development of the situation in the country (Politics and Society Index).
Drivers of Consumer Confidence
* - Type of study: Econometric modelling
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Key results
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Consumer Confidence Index
2009 2010 2011 2012 2013 2014 2015 2016
Source: GfK Ukraine
Slight gradual recovery of Consumer Confidence after deep drop
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2009 2010 2011 2012 2013 2014 2015 2016
Consumer Price Index Real Incomes Exchange rate (UAH vs USD)
Sources: 1) State Statistics Committee, 2) NBU
Index, Jan 2009 = 100 Index*, Jan 2009 = 100 Index, Jan 2009 = 100
* - To show the level of income, the index of real salary was used
… is in line with some stabilization in key economic indicators observed by consumers
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Politics and Society Index
2009 2010 2011 2012 2013 2014 2015 2016Source: Google Trends (number of web searches of ‘news’ in Ukraine)
… and moderate stabilization in political and societal life in the country, especially compared to 2014-2015
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Impact on Consumer Confidence
Real Income positiveConsumer Price Index negativeExchange Rate of national currency negativePolitics & Society Index (= acuteness of the general situation in the country) negative
Drivers of Consumer Confidence: higher income – more optimism, inflation & devaluation – more pessimism, ‘No news is a good news’
Source: FPA
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What was and is the most important for consumer moods (strength of factors impact) Period Explanation2009 During this crisis year, inflation was the most important factor affecting consumers,
followed by the level of wellbeing. Involvement in the country life was moderate.2010 – middle of 2013
Income became a smaller issue, while involvement if the country life reached its minimum. Inflation turned to be an even bigger issue.
end of 2013 -2014
The only period when the situation in the country was even more important than personal incomes. Economic situation became significantly less important compared to the country life.
2015 - 2016
Exchange rate became a more important driver of consumer moods, while the importance of personal wellbeing started to dominate. Importance of inflation declined, while involvement in the country life decreased and stabilized. Compared to 2009, economic turbulences during the past two years reveal different reaction of consumers: smaller importance of incomes vs inflation in 2009 meant that consumers were upset but still having financial reserves, while in 2015-2016 ‘the safety pillar’ started to disappear.
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Politics & Society Index Real Income CPI Exchange Rate
2009 2010 2011 2012 2013 2014 2015 20162009 2010 2011 2012 2013 2014 2015 2016
Relative importance of factors in driving CCI
Source: FPA
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The sum of absolute impacts of all factors on consumer confidence reflects to what extent consumer moods are vulnerable to changes of factors. In other words, the bigger the reaction of consumers to factors changes, the more ‘nervous’ they are, the more quick and sharp they are in their reaction to changes in the environment. On the opposite, the smaller the indicator is, the more ‘calm’ consumers are (e.g. the same income decline will upset them less as measured with CCI).Lets call the indicator Consumer Unrest Index (CUI)
Understanding societal unrest: explanation
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0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
sum elast and sobitia
2009 2010 2011 2012 2013 2014 2015 2016
Consumer unrest: Downward trend but still very high
Consumer Unrest Index
high
low
Source: FPA
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Consumer confidence is affected by the acuteness to the situation in the country overall (public issues) and things which are relevant personally for the consumer (private issues). Normally, people care more about their private interest & are more vulnerable to changes in private issues.In other words, decline in a personal income (private) will upset majority of people more than general events in the country (public). What is more important is relative importance of public issues vs private issues (to what extent people are skewed towards pursuing private interest vs public interest). Lets call the indicator Private Interest Index (PII) PII = (absolute impact of income changes on CCI) / (absolute impact of Politics & Society Index on CCI).
Consumer dilemma: private or public interest (explanation)
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doxod/news
2009 2010 2011 2012 2013 2014 2015 2016Source: FPA
During 2009-2013, consumers cared the most about their private interest. 2014 – more worries about the country, starting 2015 –gradual reversal to private
Private Interest Index
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High unrest / private interests less important
Probably typical when some turbulences in the country occur and people get
involved in public life partially sacrificing private interests (change their attitudes)
High unrest / private interests more important
Probably typical when some turbulences in the country occur, but people are not
willing to change their attitudes
Low unrest / private interests less important
Probably not a frequent situation
Low unrest / private interests more important
Probably typical when people are rich and satisfied OR disappointed and concentrate on personal situation
Understanding consumer reaction to turbulent times (explanation)
Consumer Confidence driven by(Private Interest Index)public interests private interests
Consu
mer U
nrest I
ndex
lowhig
h
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1Q 2009
2Q 20093Q 2009
4Q 2009
1Q 2010
2Q 20103Q 2010
4Q 2010 1Q 20112Q 20113Q 2011 4Q 2011
1Q 20122Q 20123Q 2012
4Q 2012
1Q 20132Q 20133Q 20134Q 2013
1Q 20142Q 20143Q 2014
4Q 2014
1Q 2015
2Q 20153Q 2015
4Q 2015
1Q 20162Q 2016
0,10
0,20
0,30
0,40
0,50
0,50 1,00 1,50 2,00 2,50 3,00 3,50
Y2009
Y2008Y2010
Y2011-Y2013
Consumer 2009: lots of worries, quickly calm down, no changes in general vision and behavior
Consumer Confidence driven by(Private Interest Index)public interests private interests
Consu
mer U
nrest I
ndex
lowhig
h
Source: FPA
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1Q 2009
2Q 20093Q 2009
4Q 2009
1Q 2010
2Q 20103Q 2010
4Q 2010 1Q 20112Q 20113Q 2011 4Q 2011
1Q 20122Q 20123Q 2012
4Q 2012
1Q 20132Q 20133Q 20134Q 2013
1Q 20142Q 20143Q 2014
4Q 2014
1Q 2015
2Q 20153Q 2015
4Q 2015
1Q 20162Q 2016
0,10
0,20
0,30
0,40
0,50
0,50 1,00 1,50 2,00 2,50 3,00 3,50
Y2011-Y2013
Y2015
Y2014Y2016
Y2008
Consumer 2013-2016: long journey to public involvement and back? Or consumers will remain different?
Consumer Confidence driven by(Private Interest Index)public interests private interests
Consu
mer U
nrest I
ndex
lowhig
h
Source: FPA
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Implications for markets and marketing
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Implications for markets and marketing1. Consumers carefully decide how much and on what to spend their budget. No waste of money. 2. According to macroeconomic forecasts household income will grow slowly meaning that the same
trend will be observed in the majority of markets.3. Impact of inflation on consumers decreased meaning that there are will be no further dramatic
shifts among price segments. Still, the cheapest is not the best.4. Price competition is not a panacea: even if the total consumer demand declines, when choosing
among brands consumers will be looking for the one satisfying their individual (private) needs the most (there is a need to persuade the consumer).
5. Compared to 2015, consumers are becoming more calm, but still very attentive and fast in their reactions to changes or events including those in the markets.
6. Given that consumer demand will gradually improve, it is good time to invest in strategic brand development to gain in the future.
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Maksym MashliakivskyForesight & Predictive Analytics
+380 67 657 6422+380 44 223 6557
Maksym.Mashliakivsky@foresight-pa.comwww.foresight-pa.com
Thank you for your attention!
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