The leisure economy - where to in 2008?

Happy New Year? Not if you've been reading the Financial Times. The newspaper's The World in 2008 supplement of 23rd January carried the headline "Alarm flags litter the globe" with Quentin Peel highlighting several causes of "an extraordinary degree of uncertainty" for 2008:

• Two presidential elections: the USA and Russia (to which we could add the shaky politics at the top in France and Italy)
• The Olympics in China, which will celebrate the country's economic boom but which will also raise the spectre of new, globalised industrial powers creating even more pollution, heightening the fears of voter/consumers in the West
• Deepening unrest in the Middle East and Near East, spreading from Turkey to Pakistan
• The threat of a "protectionist backlash" against globalisation, fuelled perhaps by population movements and even paranoia over the threat of international terrorism.

These political crises would not be helped by the global economy tipping into recession. In the same issue of the FT, George Soros, the controversial speculator, concluded in his column that recession in the developed world was "more or less inevitable" in 2008, precipitated by the credit squeeze in the USA.

Fifteen years have passed since Soros made a fortune speculating on the Pound but his opinion is still sought. After all, "Black Wednesday" (16 September 1992) pushed the UK further away from the European currency system and sounded the death-knell of the Conservative government. But Soros will be 78 years of age in 2008 and his prediction of "the worst market crisis in 60 years" does assume that a boom-bust mechanism still exists. After 15 years of economic stability, the UK economy, at least, appears to have moved away from that mechanism.

The irony is that Black Wednesday, now even referred to as "White Wednesday", saw the start of the UK's extraordinary period of stability. Low inflation and unemployment, fairly steady GDP growth and consumer confidence have become the norm with no immediate sign of a dramatic downturn to compare with past recessions.

The end of the old boom-bust cycle suggests that the UK economy has moved away from the threat of wild GDP fluctuations, hyper-inflation, double-figure interest rates, mass unemployment and General Strikes that occurred in the 20th century. Leisure Research would argue that three important socio-economic changes have taken place over the last 15-20 years:

• Globalisation: specifically meaning the sourcing of goods outside the UK, hence the decline (in some industries, the near-demise) of domestic manufacturing. How can prices of T-shirts or apples be hyper-inflated if a dozen countries are lined up to compete for a piece of the UK market? [see also The Price Is Right, posted September 2007]
• Fragmentation: the shift from farming, mining and manufacturing to service industries makes it harder to develop the social consensus that can lead to political (hence, economic) action
• Depoliticisation: the boom-bust cycles were exaggerated by political actions by ideological governments. The party policies are harder to distinguish now, and that seems to suit a depoliticised voting public

In classical economics terms, more choice means more substitution and there is more flexibility than ever for consumers who are no longer tied down by old-fashioned allegiances to jobs or working lifestyles or by living in a particular area. The ICT revolution alone has provided much of this flexibility.

Belts may well be tightened in 2008 by the credit squeeze but, as regards the leisure economy, consumer priorities have changed. The rather bland assumption is often trotted out that leisure spending is part of a "non-essential" category that is vulnerable to downturn, i.e. consumers spend less on leisure items because they have to pay for essentials like housing, food and clothing. This is difficult to prove in the age of lifestyle icons which consumers will now battle to maintain at all costs: their mobile phones, iPods, holidays abroad, the second car and so on.

It's Not a House, It's a Home

The big worry for most consumers in 2008 is not losing their jobs - it's much harder to dispense with service jobs than manufacturing ones - but seeing the value of their houses or flats go down. Again, the boom-bust cycle predicts that house prices must inevitably fall sooner or later. But once again, is that inevitability still there in a consumer economy where such a premium is placed on the home of Grand Designs and Ground Force?

The modern home is a long way from the economist's definition of "shelter" being one of the "non-discretionary" items for consumers. Home is where we spend our time online, with family and friends, maybe even drinking pub beer (from the Carlsberg Draughtsmaster), going to the movies (with the Philips Micro Theatre) or playing tennis (on the Nintendo Wii). Consumers can't and won't stop spending on leisure in 2008, however bad the downturn, but the vulnerable sectors are likely to be those which require moving outside the home, and many are becoming all too easily substituted by an in-home activity.

Research Tips (4): Market shares and rankings

Market share for a company or a brand is usually expressed as a percentage of the total market. Or, at least, it should be, but it's often the case that shares can be massaged upwards by taking a narrow view of the "total market".

Let's say we read in a press release that "Brand X has a dominant 60% market share". We need to ask a few questions:

1. Is the share of volume or value? (sometimes, "unit" or "Sterling" share respectively). If Brand X is an economy brand it could have a dominant position in units but the Sterling leaders could be those selling fewer units at a much higher price.


2. Share of which distribution channel? For many products, sales through multiple retailers are exhaustively researched (by retail audit systems) but what about independent shops, mail order, outdoor markets, and of course, e-commerce?


3. Is own label share included in total sales? Manufacturers understandably like to measure their brands' performances against other brands, but the picture becomes distorted when the stores' own label accounts for much of the market.

So, Brand X could have 60% of the total market by value. Or it could have 60% of branded unit sales (excluding own label) through multiple grocers, and its overall market value share could fall to 30% or less if the comprehensive market, by value through all outlets, was measured.

How important is brand share? How much does it matter? For manufacturers, gaining and keeping a listing in multiple retailers depends on proving that their brand is in demand and ahead of its competitors. Changes in brand share, up or down, are also a vital indicator of the strength of a brand, including its marketing and pricing strategies.

Outside the conventional retail channels, brand shares are usually harder to calculate, and that includes many leisure markets. Ascribing market share to Alton Towers or JD Wetherspoon would depend on agreeing value/volume totals for the theme parks or pub markets - not an easy task. Where statistical shares of a total are impossible to come by, researchers may have to make do with rankings based on objective data (e.g. turnover, from financial reports). If that fails, the subjective opinion of companies in the trade in question, or suppliers to that trade, may be the last resort. B2B market research often includes questions to responding companies about major competitors.

Finally, there are occasions when market shares can be massaged down, not up! This is usually done to satisfy government regulators whose aim is to prevent monopolies developing. As more industries consolidate around a handful of major players, this temptation to under-estimate market shares may become more common.

Corporate sponsorship - risk or reward?

Sponsoring either sport or the arts is always a risky sort of marketing venture, although the rewards can, if events turn out right, easily outweigh the benefits of ordinary advertising.

In sport, the thrills and spills involved in attaching one's corporate name or brand to teams or events were amply illustrated, across the British Isles, in the closing months of 2007:

• Rugby Union's World Cup, hosted by France and televised by ITV across six weeks of autumn action, turned out to be a boon for the sponsors of England and South Africa, both making the Final in place of the anticipated clash between the hosts and/or the Antipodean giants. England's sponsors, including O2, did well out of coverage considering that South Africa had thrashed England 36-0 earlier in the tournament.
• England's football team took over the flag-flying duty in November, but if the rugby team had stunned its supporters by reaching a Final, the English football fans had a shock to come as their team narrowly failed to qualify for Euro 2008, the national championships.
• Scotland and Northern Ireland were nearly given the chance to gloat over English failure but they, too, fell at the final hurdle for qualifying for Euro 2008. Neither did Scotland, Ireland or Wales cover themselves with glory in the Rugby World Cup.

England's Euro 2008 failure was broadcast as a matter of concern for sponsors like Umbro, the team's kit supplier. (Ironically, Umbro was the subject of a takeover bid by Nike - an even more lavish global "soccer" sponsor - at the time of England's untimely exit.) But the old PR idea that "any news is good news" does carry some weight in sponsorship. Nationwide, the building society with the biggest sponsorship commitment to British football, has a far-reaching programme that covers all four 'home nations' at amateur, women's and junior level, not just the famous senior men's team.

Smaller companies than Nationwide or Nike can identify, through sponsorship, with plucky under-dogs rather than predictable champions. There are endless opportunities for sports sponsorship at grass-roots level, including public/private "matched" funding through the Sportsmatch scheme.

Another tactic for sponsors is to spread the risk across more than one sport. Vodafone has been prominent in this respect for more than a decade, paying handsomely to attach its name to the England cricket team, Manchester United, the UEFA Champions League and horse racing (including the Vodafone Derby). In motor racing, the second biggest sponsored sport after football (mainly attributable to Formula One races), Vodafone's sponsorship of the McLaren Mercedes team came up trumps in 2007 when the young English driver, Lewis Hamilton, broke through as a major new star of Formula One.

Putting all the "deals" together, sports sponsorship is worth at least £1 billion a year in the UK and the forthcoming London Olympics (2012), Glasgow Commonwealth Games (2014) and, possibly, the FIFA World Cup in 2018, will guarantee record spending over a long period. The organisers of the London event have already targeted £625m worth of sponsorship income.

For arts and culture, the burgeoning growth of sports sponsorship is worrying in that the sector has been struggling to regain the heights of the Millennium celebrations. Arts & Business, the official forum for the arts and their sponsors, has recorded static figures from businesses although the arts, more so than sports, are also supported by non-commercial donations from individuals and trusts.

To offset the overwhelming appeal of the Olympics to sponsors, the DCMS (Department for Culture, Media and Sport) is planning a Cultural Olympiad - "a four-year celebration of the UK’s cultural life that will be a perfect curtain-raiser to the Games in 2012" - which will embrace everything from a World Cultural Festival, the International Shakespeare Festival and the 5-rings Exhibition down to grass-roots community arts.

References:

Photo: woodym555 (Wikipedia)

http://www.aandb.org.uk/

http://www.culture.gov.uk/