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Economy

It seems that the world has been in constant economic crisis since 2008. The effects of the Corona pandemic of 2020 are still to be seen. China, seen for many years as one of the most important engines of the world economy, is lagging behind expectations and many analysts believe that the growth numbers achieved in previous years have been partially pushed by the Chinese government. In addition, the other BRIC countries (Brazil, Russia and India) have continuously been below growth expectations.

The economy of the United States is still going strong. They have chosen a more aggressive monetary policy, as well as government spending path. The European Union, on the other hand, which has tried to opt for a stricter monetary policy, has experienced lower growth rates, as well as political tensions, as seen in the Brexit development.

Still, the general trend of recent decades has been to open up economies to more free trade. The Tramp presidency is following a stronger America First policy, and together with the 2020 Corona pandemic, the effects on free trade are still to be seen. The trend toward free trade has been due in part to the spread of political democracy and the end of communist and military dictatorships in Europe and South America. During the decades when military dictatorships dominated Latin America between the 1960s and 1980s, only Mexico, which was under a very authoritarian government, Venezuela, Colombia and Costa Rica were not governed by military juntas. In Europe, the fall of the Berlin Wall in 1989 was the beginning of the fall of communist dictatorships in Eastern Europe. In addition, before that, countries like Greece, Spain and Portugal had left their military dictatorships behind them.

This political development has led to increased globalization of trade, a globalization that is not only about the economy and the possibility of international companies reaching new markets more easily or establishing production in low-cost countries. There is an important social aspect to it as well. This social aspect is clearly supported by the technical developments in communication. Through globalization, influences and trends become global as well. People are confronted with similar brands and products, the same fashion, the

GDP in the United States. European Union, Mexico and Brazil

Figure 1.14 GDP in the United States. European Union, Mexico and Brazil

GDP of the United States, European Union, Mexico and Brazil in billion US dollar s between 2006 and 2014.

Source: The World Bank, 2017; Trading Economics, 2016

same movies etc., although with some regional and local adaptations. Such a development is criticized by some and seen as something very positive by others.

Another important trend is the growth of emerging economies. It is clear that many economies have grown very rapidly in recent years and many South American countries have been very successful, as well as countries in Eastern Europe or parts of Asia. Through a growing middle class and purchasing power in these countries, shopping has become more important. Still, purchasing power is low in many cases, often referred to as the bottom of the pyramid economies. Although on an individual basis purchasing power can be very low, through the cumulative power of the people at the bottom of the pyramid the market becomes very attractive as a target to companies.32

An interesting example of companies that have been successful in reaching these groups of shoppers and consumers are cell phone companies, who have developed profitable businesses in almost all markets on all continents, reaching high cell phone penetration rates.

Globalization from an economic point of view is seen by many as a possibility to grow the economy and develop and enlarge a middle class where it did not exist before. The bottom of the pyramid economies are also developing and many working conditions in emerging countries are seen as phases of development, which over time will be stupassed, as they were in North America and Western Europe.

In recent years, there have been critical views, led by economists such as Paul Krugmann or Thomas Piketty, who point out that economic development is something enjoyed by only the richest part of the population.33 While important population groups are rising out of poverty in emerging and developing economies, there is an increasing inequality in developed economies. The social mobility between social classes that existed after the Second World War until the 1980s has slowed down.

Neoliberalism developed as a reaction to the New Deal in the United States as academics feared a development towards “big” government, as they had seen in Europe, leading to central planning. Von Mises described in his book Bureaucracy the danger of central planning and von Hayek saw the danger of an oppression of individuality and a route to totalitarianism in socialist initiatives. The two founded the Mont Pelerin Society in 1947.34 Milton Friedman built on the ideas of neoliberalism and these ideas

Free trade areas

Figure 1.15 Free trade areas

The map shows the most important free trade areas: the Commonwealth of Independent States Free Trade Area (CISFTA), MERCOSUR, the Greater Arab Free Trade Area (GAFTA), South Asian Free Trade Area (SAFTA), the Andean Community (AC), the Association of Southeast Asian Nations (ASEAN), the European Union (EU), the North American Free Trade Agreement (NAFTA) and the Common Market of East and South Africa (COMESA).

Source: Danielson. 2017

Economic pyramid

Figure 1.16 Economic pyramid

The economic pyramid depicting the world population by purchasing power parity and number of people, in millions.

Source: Prahalad & Hart, 2002

were used in the 1980s by Reagan and Thatcher as a critique against Keynesianism and demand-side economics.35 Neoliberalism led to tax cuts, deregulation and privatization with the result of a concentration of wealth in the high income brackets.36 There has also been strong criticism that there are vital services in which competition does not really work, like health care, or banks, as they are often not allowed to go bankrupt.37 Some authors present the thesis that the crisis is used to introduce political change and privatizations, such as the privatization of the education system in New Orleans after Hurricane Katrina.38 Through the privatization of common goods, some people, such as the oligarchs in Russia, have become very rich and powerful without actually developing anything themselves.39 Given the concentration of wealth and power, normal households increasingly have had to finance their consumption through debt. With an increasing economic divide new retail formats, like discounters, and new offerings, like retail brands and low-cost services, have emerged.40

As society and the economic reality is changing, so are social classes. A society grows economically, but the growth is felt mostly by the richest percentage of the population, the wealth of the middle class ends-up being mainly based on their property ownership, and lower social classes become dependent on subsidies or state support. With the transformation from an industrial to a service economy, social classes are changing. What once were classes of capitalists, managers/technicians and workers have transformed into a society of capitalists and managers, professionals and a type of precariat of people in low-paid service jobs, working in the gig economy or looking for a job.

Countries are at different stages of economic development, and the economic divide impacts the lifestyle and needs of different categories of consumers and shoppers. Segmented approaches are needed within shopper marketing to address the different needs of shoppers. In addition, there are important lifestyle differences that need to be addressed with increased personalization of offers.

There is no single shopper marketing approach, but many different ones, aimed at, for example, Pera or Sweden, or various social classes and lifestyles.

Smartphone penetration

Figure 1.17 Smartphone penetration

Smartphone penetration in 2019 and expected in 2025 for different parts in the world.

CIS: Commonwealth of hidependent States

MENA: Middle East and North Africa

Source: GSMA, 2019

Distribution of income

Figure 1.18 Distribution of income

Share of total income of the groups with the highest incomes (the 10%, 1%, 0.1% and 0.01% highest income brackets) from salaries, wages and pensions in the United States between 1918 and 2011. Does not include dividends or other capital income.

Source: Wid.World, 2017

 
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