Brief descriptions of a selection of topics we are currently discussing with clients.
While Attention Is Elsewhere
With the global health and economic pandemic, along with protests and social unrest, consuming both media and individuals’ attention, there are important facts and events that can fall below the radar. Over the past few months, there have been ongoing signs of increased military aggression around the globe, environmental degradation and the buildout of 5G, all of which will have important implications moving forward.
The Coming Waves of the Economic Pandemic
The virus infections and subsequent lockdowns are likely to lead to waves of economic impacts from several major sectors, which will have ripple effects out into a myriad of industries and companies. State and Local Governments, Non-Profit entities, Pension providers, Entertainment, Travel, Restaurants, etc., are likely to roll across the economic landscape in delayed and interlocking impacts on suppliers, services, technologies and real estate, to name but a few. The timing and impacts will be important as determinants of the benefits and losses incurred. We have a view of how to assess that scenario.
Capital Markets Distortions - Another Version of "The Roof is on Fire"
The economic and markets effects of the aftermath of “the great recession” has led to some asset price inflation and persistently low interest rates. The distortions in markets in early-stage private companies, real estate, leveraged loans and negative bond yields, has resulted in floods of capital, from non-traditional investment groups, seeking required investment return. A number of those investment assets have rolled over and are starting to reveal risks.
(Update) The New Economy
The economy has many leaders, experts and economists confused, and it is confounding individuals and politicians as well. What most government and corporate leaders are missing is how to look at the economy. As we have written and discussed over the past two years, the American economy is heading toward a New Economy, and the many miscalculations and the extensive confusion are caused by the period of transition from the historical model to something new. Governments dedicated to lowering taxes are having to raise them; corporations focused on growth are having to dig deeper into efficiencies to realize profits; and individuals are turning to financial devices of their own to make ends meet. At present, the country’s models, processes and concepts are essentially out of line with the emerging set of conditions.
The Anxious American Life
Secular forces have helped create a New Economy in the United States - an economy with less job and income security and more wage and cost pressures than citizens had experienced in the past. Meanwhile, the pervasiveness of digital technology and digital media have created additional sources of distraction and pressure. These combined stressors have produced diffuse, long-term anxiety throughout American society. This anxiety is driving some individuals to practice unhealthy and dangerous coping mechanisms; yet others have sought more healthy and sustainable ways to adjust their lives and soothe their anxiety. Finally, some are going a step further, saying “enough is enough” and looking to change society in ways that would help reduce this pervasive anxiety.
Social and Consumer
In late 2018, we started discussing a context that we called “Changing Places (and Spaces),” in which retailers and other businesses with physical real estate were changing the size, configuration and utilization of spaces and offering new kinds of experiences in order to align with the needs of the digitally trained consumer. In essence, they were rethinking how they needed to change their available space to remain a viable, sustainable business. Now, with a global pandemic making some indoor gatherings impossible and others risky at best, countries, cities and companies are rethinking how to best utilize spaces available to them in order to keep citizens, employees and customers safe and to create sustainability both in the short and long term.
The Brain and The Virus
Permeable borders have reached a new level with the coronavirus’s transgressing the human body. This latest crossing of a border by an “invader” that is little understood and for which humans have no natural immunity has provoked different reactions among individuals, with one group wanting to “fight” the invader and act like it is beatable now and another group preferring to take “flight” from it by depending on social isolation and medical science. To understand the tension in the fight-or-flight response, we need to look at what we know about the brain; how the brain is being stressed by both fear of sickness and death and fear of economic ruin; and how the brain responds to uncertainty, confusion and loss of control. One thing that emerges is that the current situation, which is challenging for both the fear/irrational and rational aspects of the brain will cause errors in thinking and decision-making. Where will the brain take us in the months and years ahead?
Experience this, experience that, experiences are everywhere. Retailers, service providers, manufacturers, marketers and seemingly everyone else have been trumpeting that they offer an experience. Why? Over the last ten years, numerous consumer dynamics have aligned to make “experience” one of the most used (or overused) words of the decade. This topic is a conversation about its appeal, its hype, and what will be desired moving forward.
This Is (Almost) 40: Update On A Different Adulthood
For years, many expected that Millennials would act and spend similarly to previous generations once the economy improved. Yet many years into an economic recovery and bull market, Millennials and other young adults have their own perspectives on how to live. As we have written, long-term structural changes have blurred the lines between childhood and adulthood, resulting in a way of living that is not simply “delayed adulthood” due to the aftermath of the Great Recession; rather, it is an adulthood that has become downright “different.”
IF Dynamics and the Consumer Landscape
The Digitally Trained Consumer, The New Economy and the rethinking of Identity have led to numerous dynamics currently impacting and changing the consumer, retail, the financial industry and more.
So Much is Becoming Too Much
The New Industrial Revolution and the Battle for Consumer Time have led to an overwhelming amount of products and media from which to choose. There are now so many reviews to help with product and media decision making that they are actually contributing to the overload and indecision. The overload has now become so significant that it is starting to change consumer behavior as it relates to deciding what products to buy and what media to consume.
Less of This and More of That
Consumers are becoming comfortable with buying and having less, even as they seem to be finding things that entertain them more. In the decades following the Second World War, during which time the Dispersed Wealth Grand Narrative held sway, Americans pursued growth at any cost - more clothes, larger houses, bigger profits, more energy, more comfortable cars and on and on. “More” was a mantra, and costs in terms of personal lives and the environment became substantial. As that Grand Narrative fades into history, new ways of thinking and operating are surfacing, and as a result, a new dynamic has emerged between less and more. An increasing number of individuals and companies are shifting the kinds of things they want less of and the kinds of things they want more of, and that shift is becoming a critical in consumer markets.
Companies Doing Good 2.0
From Google employees marching about sexual harassment, Kroger planning the elimination of plastic bags, Dick’s restricting gun sales, State Street pressuring companies for female board participation and Spotify downplaying hateful music, companies are looking for ways to “do good.” An examination of how and why workers and management, as well as some of the investment institutions that own company shares, are nudging various enterprises to take up certain altruistic actions, particularly in light of perceived government inaction in these arenas.
Brands, Branding and Changing Market Dynamics
The terms “brand” and “branding” are getting more widely applied, creating confusion among consumers, who seem less and less interested in purchasing “overpriced” branded products. Thus, the rising appeal of private-label or store brands – which can be lower priced and are “good enough” for a busy consumer. With the advent of consumers armed with product information and reviews from pros and friends (and “friends”), online buying possibilities, store brand availability and the related decline in number and shrinking in size of retailers, brands face many challenges. Several old beliefs about brand names – Brand Names Sell Products, Brand Names Attract Consumers, Brand Names Enable Product Extensions and Brand Names Provide Stability – are proving harder to realize. In all, the function of a brand name is changing; its claim of superior quality is weakening; its higher prices are being challenged; new competitors are coming from everywhere; and its once stable place in the market is becoming less tenable.
Society, Reason & Emotion: Decision-Making & The Brain In Today's Context
“Our point is not that people are ignorant. It’s that people are more ignorant than they think they are.” That is how psychologist Steven Sloman and cognitive scientist Philip Fernbach explain the results of their research. Meanwhile, back in the 1950s, famed psychologist Leon Festinger described how individuals with convictions think: “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.” Together these pieces of research provide insight into how humans deal with contemporary society with its widespread uncertainty and resulting anxiety. The human brain does not like uncertainty, and so it seeks out information that confirms what it already believes (and issues a shot of dopamine when confirming information is found to make that belief feel good). When the mind has reached a decision, it does not want to change because such challenges are seen as threats to one’s personal identity. These kinds of realities make decision-making more difficult to do objectively. We have some lessons learned that could guide the decision-maker interested in overcoming society’s and most people’s current biases…and ignorance.
Alliances, Agreements and Reserve Currencies
Competition is heating up worldwide, even as sports seem to be in retreat. Competition among nations reaches nearly every corner of activities, from space and medicine to technology and weaponry. At a higher level, a competition between ways of attracting allies is emerging, a competition between geo-economics and geo-politics. The U.S., with its superpower status and influential reserve currency, continues along its geo-political pathway, while China, with lots of capital and often innovative ideas, is using geo-economics to spread its influence. But China’s use of the geo-economic approach has a larger purpose than just gathering allies through financial arrangements or challenging the stability of historic alliances. Beijing is seeking equivalency of its economy and its currency with those of the U.S., which could represent a challenge to the dollar’s primacy as the world’s lone reserve currency.
China Coming Out of the Pandemic
While much current attention is being placed on an escalating conflict between the U.S. government and Beijing, China is aggressively pursuing a national strategy to both stimulate growth from the first economic downturn in decades as well as establish a leadership role for a new set of business and economic realities.
A combination of monetary, tax and fiscal responses are intended to bring the Chinese economy out of a first half 2020 seven percent decline caused by the pandemic. In addition, the country is funding and coordinating public/private investments in a series of new capabilities. The vision is to take leadership roles in AI, Robotics, electric vehicles, 5G, Big Data analytics, advanced and distant medicine and hyper efficient logistics. The goals are to establish a series of “new infrastructures” and thus to lead over the next several years in a transformed business environment.
On the Frontiers of Digital Skip-A-Step
Many emerging and “frontier” markets, including India’s, as well as several in Africa, are leaping into the twenty-first century in a process we’ve called Skip-a-Step. They are quickly following in China’s footsteps by adopting a new array of processes and consumer habits, particularly using digital and mobile capabilities, oftentimes beyond what is common in developed economies. The rapid pace and scale of this digital adoption will have profound effects on growth and the societies in which they are now taking place.
Ecosystems represent an evolving model for doing business. This is especially true in emerging markets where customers are Skipping a Step to new technologies and accessing new services such as mobile banking and payments. The corporate ecosystems are attempting to offer convenience and simplicity to consumers by allowing them to access everything in one place, while also attempting to lock those consumers into a walled garden of services. Most importantly, in the process, these ecosystems are able to collect and analyze large amounts of accumulated data, allowing them to understand what consumers desire and move into new business areas where the data suggests there are opportunities.
The Digital Silk Road
The Belt and Road Initiative (a.k.a. the Silk Road Project) has created a whirl of activity along the land and sea routes that are combining under Chinese leadership to create an international marketplace. Yet moving ahead of these massive infrastructure projects is another piece of the project, the Digital Silk Road. This aspect of the larger initiative seeks to expand communications and networking across the Eurasian and African continents, all pointing toward one large, global online marketplace. E-commerce drives the digital infrastructure buildout, which can move ahead via the Skip-a-Step routine much faster than the larger projects that require physical buildouts. The Digital Silk Road has generated business and deal-making in three components: Systems and Networks; E-commerce; and Payments.
Russia Goes After the World's Vulnerabilities
Russia has a strategy to enhance its image in the world and to expand its influence in a location it identifies as vulnerable. That strategy involves identifying a vulnerability anywhere and then exploiting it to the Kremlin’s advantage. This practically assures victory. Russia has applied the strategy to its own domestic troubles, charging and imprisoning more dissenters recently to keep the citizenry feeling uneasy. It entered the Middle East when the region seemed vulnerable to falling into a new era of chaos, asserted its military weight. Russia utilized social media to confuse, anger and divide American voters, by using its own cyber-trolls to further the cause of a candidate the Kremlin preferred. The odd thing about the strategy is it mirrors that of terrorists, who have always identified a vulnerability and then exploited it. Terrorists are fighting an asymmetrical battle, they being less powerful than the entities they attack. Is Russia admitting to a similar relationship of power? Or are its actions clever judo moves?
Global Realignment Underway: The Appeal Of The New Autocrats
A new form of autocratic leadership is ascendant globally. These leaders use strongman tactics to make quick bold decisions, which appeal to neighboring countries, while the global West remains mired in internal political struggles. This autocratic leadership is realigning the world and undermining established institutions and international networks, while creating news patterns of friendship and cooperation.
China Building Out
One aspect of China’s long-term strategy is to “go out” and invest in both emerging markets and developed countries and purchase global strategic assets. Beijing continues to consolidate state-owned-enterprises to reduce oversupply while simultaneously pursuing the long-term Silk Road Strategy by deploying their sizable foreign reserves. These strategies will impact raw materials markets, basic industries and the growth of other emerging markets. At the same time, China is investing domestically in innovation in order to develop new products and services to sell into the global marketplace.
Technologies and Capabilities Coming Out of the Global Pandemic
As with other physical wars, capacities and technologies used in that war emerge and are important in the aftermath. Recognizing what and by whom and the impacts of these capabilities provides a forewarning to an aspect of the other side of the pandemic period. There are observable early indicators as to that impact to explore.
(Update) Tracking 2.0: Monitoring and Surveillance
At least 133.5 million American adults in 31 states are now represented in a facial recognition database accessible by U.S. law enforcement, not including U.S. passport and visa photos, which are also searchable by the FBI. Countless other individuals are in facial recognition databases of tech giants like Facebook, Amazon, Microsoft and Google or smaller technology companies, such as Clear. Despite instances of pushback from employees at some of these companies, errors in the technology’s conclusions and conversations around passing regulation, experimentation with and use of facial recognition and biometric technologies continue to gain momentum, especially as they relate to venue security and making things easier and faster for the Digitally Trained Consumer.
The Streaming Deluge
The first two industries that have been impacted significantly by streaming – music and video – are both now seeing how a change in the way content is distributed is actually also changing the content itself. New areas, including retail, are just now experimenting with streaming and the impacts will likely be significant.
Mobile Payments: The Ultimate Trojan Horse
If Jack Ma is correct in saying that “data drives the internet economy,” mobile payments, where massive information sets are captured, can be the mechanism to gather that “fuel.” Mobile payments continue to expand globally, especially in underdeveloped countries, as part of the “skip-a-step” phenomena. And this information is now being utilized in loan, insurance, and “social measurement” operations.
Similar to the changes that came with the development and spread of digital broadband, 5G capabilities will usher in new applications. With faster digital speeds and reduced latency, some of those applications will include: Smart Factories; Distant Medical Treatment; Autonomous Vehicles; Advanced Facial Recognition; Advanced Virtual Reality; Video Gaming; Distant Controlled Robots; Ultra High Definition TV; Smart Agriculture and Internet of Things. All of these applications will create multiple ripple effects, especially in Manufacturing; Entertainment; Medicine and Agriculture.
(Update) From Mobile-First To AI-First
In our original look at Artificial Intelligence (AI), we explored the scramble by companies such as Google, IBM, Facebook, and Baidu to develop an “AI First” strategy as AI capabilities quickly developed and redefined how people and machines interact. Those capabilities can be categorized to include voice recognition, language processing, image recognition and pattern recognition. In this first update to our AI topic, we explore how those capabilities are now being applied in various industries, including healthcare, finance, retail, defense, automotive, and media.
Update: Battle For Consumer Time
For more than five years, new technology and changing consumer preferences have pushed media and entertainment industries into some version of the Great Restructuring. Consumers’ time has continually been divided, subdivided and spread over several screens, sometimes at once. Consumers are multitasking and spending even more time with media, which has created many winners including content providers, especially those that have shown a history of attracting audiences. Video games and esports, social media, streaming content, podcasts and social media have all taken consumer time away from other pursuits, but in this next stage, they will have to compete among themselves.
The Digitally Trained Consumer and Finance
Like automobiles before it, digital technology is creating its own reality - that is, digital tech is essentially training humans how to think, act, read, behave and experience life. From this point in time, we can see numerous things that digital tech has taught consumers, and they are causing challenges and forcing changes for any company wishing to attract those trained consumers. First, Distractions are appealing. Second, Impatience has become ingrained. Third, Expectations are rising. And finally, consumers get better at Resourcefulness. These teachings are impacting what financial products and services individuals are attracted to, and offer a roadmap for how financial companies need to interact with their customers.
Fortunes Made and Fortunes Lost: The Great Restructuring
Numerous industries – including Retail, Video, Hollywood, Grocery and Advertising – are in the midst of the restructuring process. A conversation about what we can learn from what has already transpired with investments in restructuring industries and a discussion of what opportunities and risks to look for moving forward.
Esports: Finding the Truth Between the Hype and the Reality
Among the hype and high expectations, esports are facing growing pains as companies continue to experiment with different revenue models. However, our observations also suggest an industry that is still in its early stages with increasing appeal for consumers, companies and marketers. A discussion about the present and future of the esports industry.
From Farm to Table: Food Restructuring
Technology, climate change, healthcare and ethical perspectives are converging on the food production systems that have been in place for decades. The convergence of such widespread forces is triggering an extensive restructuring of the food system, from agriculture to retail to distribution to consumption. This makes for a complex era, in which new consumer interests trigger the development of new kinds of foods, which affects farming; and conversely, new kinds of food production methods lead to new kinds of restaurant offerings, which affect what consumers eat. As a result, this restructuring is prompting a period of price and product volatility, and that could cause some surprise successes and failures.
(Update) A New Video Paradigm
In October 2018, DAZN (pronounced da-ZONE), an over-the-top (OTT) sports provider run by former ESPN president John Skipper, signed boxer Canelo Alvarez to a $365 million contract, the richest individual deal in sports history. In a first, the average U.S. adult is likely to spend more time using mobile devices than watching conventional TV, including broadcast, cable, or other over-the-air channels live or on DVR, according to an early June report from eMarketer. Already, viewers in the 18-to-34 demographic spend a greater share of their media-consumption time using a smartphone than a TV. All of these suggest a continuation of the New Video Paradigm context which we wrote about last summer. At the time, we suggested that this new paradigm consisted of providing video to consumers “when they want it, where they want it and how they want it” and would be centered on expanded OTT video offerings, including sports and news. The continuing consumer adoption of OTT services and video streaming is only one part of the story, however. Over the past year, content providers and video distributors have accepted this new paradigm and there is now an acceleration of business-model experimentation and advertising for streaming video.
Retail 2020 and Beyond
Over the past decade, digital technology has become ubiquitous and in the process it has “trained” consumers in how to behave and has reset their expectations. Consumers demand convenience and speed while they also seek novelty and expect personalization. Individuals also have changed their values and perspectives as it relates to sustainability, which has led individuals to become satisfied with access to goods that previously had to be owned. Meanwhile, the retail industry has spent almost a decade scrambling to restructure in the face of lower barriers to entry, changing consumer preferences and the rise of online shopping. This topic explores the current state of the retail industry and where it will go from here.
Lasers, Drones and Cyber Attacks: Advance of the New Warfare
The world has recently witnessed the rapid spread of a New Autocratic style of leadership, rising brinkmanship and proactive military actions, yet there is still no country that can match the military power of the U.S. in terms of conventional weaponry. Therefore, countries and insurgent groups, ranging from those as large as China to those as small as ISIS, are attempting to adopt capabilities of the “new warfare” including high-energy weapons such as lasers, unmanned vehicles such as aerial drones, and cyber attacks. Other countries, including the U.S., are responding by investing in ways to counter these threats.
Update: Healthcare and the Digitally Trained Consumer
Digital technology has trained individuals to be impatient; to desire convenience and ease; to expect access to information; to have elevated expectations about the speed, accessibility and personalization of services; and to be resourceful in pursuit of what is in their best interests. The retail drug sales business has been playing catch-up with other forms of retail in its attempt to offer fast and convenient omnichannel services, while hospital networks and other providers are attempting to offer patients more convenient options through telemedicine platforms. The law and insurance coverage are still expanding in the U.S. to cover more telehealth services, as payers recognize that telemedicine can lower costs and provide more convenient care.
The New Business Model: The Customer Ecosystem
Alibaba, one of China’s largest enterprises, is currently involved in at least twelve different areas of business. From education to e-commerce, from finance to the cloud, from entertainment to logistics and from sports to tourism – Alibaba is spreading out horizontally. While Alibaba and Amazon own companies that make things, they also both have marketplaces that enable other people and companies that make things to take advantage of their (Alibaba’s and Amazon’s) logistics and delivery mechanisms to market goods. These companies and others like them are not just focused on a specific set of market relations; rather they are creating a new business model around ecosystems – that is networks of companies focused around consumers’ wants and needs. These companies’ horizontal growth, as they jump into new industries and across traditional categories of enterprises, outmaneuvers traditional monopoly laws; yet their influence is enormous.
(Update) The Great Distribution Experiment
It has been four years since our inFocus, “Retail Restructuring: The Great Distribution Experiment,” and companies are still trying to figure out the best and fastest ways to get packages into the hands of customers. This update contains new examples of how retailers are trying to respond to current consumer demand to receive their items how, when and where they want it, with implications for retailers, distributors, warehouses and technology providers.
The fast-developing Digital Silk Road has an important distribution/logistics component. The developments of capabilities and new technologies and approaches are explored.
The Rise of EVs
The auto industry, already dealing with numerous secular changes, now has another significant shift to deal with., electric vehicles. Nations across the globe are adopting requirements for hybrids and full-electric vehicles and with sales likely to increase substantially over the next few years, there are many implications for auto companies, auto suppliers, and the makers of batteries and components, among others.
Energy and Resources
Saudi Trifecta 3.0
This context suggests that Saudi Arabia and Russia are actually working together to achieve their objectives, which appear to be:
I. Weaken Iran’s capabilities to disrupt the rulers of Middle Eastern countries through direct and proxy attacks. This appears to be a time when severely lower oil prices, coupled with U.S. sanctions, could finally achieve that longstanding goal for Saudi Arabia. The COVID-19 outbreak in Iran is already squeezing Iran’s leadership.
II. Extremely low oil prices squeezes U.S. frackers, making several companies unsustainable and potentially removes their production from the marketplace. Low prices could also challenge the price competitiveness of sustainable energy sources.
III. Low oil prices reduces costs in a global economy reeling from the pandemic’s impact on economies.
We will explore the repercussions of this inferred strategy and the proposed things to look for in order to provide early warning in the energy arena.
Bring On The Greens
Extreme weather has been triggering extreme reactions, as more and more individuals realize that climate change is real and that humans have a need and a responsibility to take action. Schoolchildren walked out of classes twice this past spring to protest the lack of action by adults to preserve their future on Earth. Other groups have started to take action as well. The result is that at the individual, corporate and governmental levels, doing something to address climate change has moved to the front burner. What is intriguing about this spreading attitude among such a large swath of society is that it could represent another step toward a new grand narrative, a context of unified purpose that over the decades can guide society forward. For the moment, both public and private institutions are feeling the pressure from individuals (as customers, as employees and as citizens) to take action.
Scrambling, Restructuring and Realigning: Energy and Military
For over a decade, a Global Realignment has been underway in geo-politics and geo-economics. This realignment has seen the rise of new power centers and international institutions, the falling clout of former powers and intuitions, and the scrambling of traditional alliances - all of which impact the energy and military industries. At the same time, the two industries have been undergoing Great Restructurings, due to the effects of permeable borders, globalization and digitization.
Evergreens and One-Offs
Intelligence, Diagnosis and Effective Decision Making
New digital media communications get shorter and shorter, moving from Web pages and blogs to text messaging and Twitter posts. Those shorter communications technologies along with all digital technology are reprogramming the human brain. New-media adopters have found it easy to place three barriers between themselves and those who would like to communicate with them: Receptivity, Selectivity and Connectivity. To overcome these barriers, anyone wishing to communicate with the digitally adept must focus on these users’ minds first and then think about the technology, which may be uncomfortable for advertisers and agencies.
Unaddressed Consequences: The Risks of Not Following Cause & Effect to the End of Linked Systems
This context raises the issue of elevated risks derived from interlinking complex systems with other complex systems. The human mind wants to make things easy and simple, and so, those in control of these systems often launch projects with an eye only on short-term benefits, choosing not to focus on the more difficult yet possibly more costly long-term consequences. “Who could have known that…” or “I was not aware that…” are usually later public comments. They are, so to speak, living with technological and financial changes without fully embracing the range of consequences.