New economic order typology

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The NEO typology (NEO = new economic order) is a population classification widely regarded as the determining economic framework of post-industrial countries.

The classification breaks into two broad types, derived from a multi-dimensional scored approach using the automatic interaction detector method (AID) across 70 determining factors:

• Traditional Economic Order: This group comprises about 50 percent of the adult population of developed economies. There are 120 million Traditionals in the US, 12 million in Canada, 24 million in the UK and 8 million in Australia. Traditionals exhibit conservative social values, and while many are wealthy or have high incomes, they are reluctant spenders. They define themselves by brands and their occupations, and are motivated by price, features and status. Only 4 percent of Traditionals are in the top third of discretionary spenders – known internationally as the Big Spender Category.

• New Economic Order: This group comprises about 24 percent of the adult population of developed economies. There are 59 million NEOs in the US, 6 million in Canada, 12 million in the UK and 4 million in Australia. NEOs exhibit progressive social values, have high social intelligence and are motivated by authenticity, design, quality, experience, provenance and the path less travelled. Almost all (93%) of NEOs are in the top third of discretionary spenders.

In addition to these two main groups is the Evolving Economic Order. This group comprises about the same proportion of adults as NEOs. They are similar to NEOs in values and attitudes but may not have the spending behavior to automatically qualify them as NEOs. Typically they are included in the New Economic Order classification.

Based on evidence from more than 800,000 respondents over 15 years, the New Economic Order is an ascendant economic force.

Application

The NEO typology has been embedded by 8 of the Forbes Top 20 corporations in Australia; major banks in Europe, and underpins the Big Idea in North America. Specifically, the NEO typology has been used by brands including Qantas, Telstra, David Jones, Lexus, Sony, Westpac Broking, Moët-Hennessy, National Australia Bank, Tourism Victoria, Yahoo!, Fosters, Macquarie Bank, Energex, TXU Energy, among others.

Methodology

Application of social theory, including work on Social intelligence, represents a major shift away from the traditional orthodoxy of demography and socio-economics as predictor variables of an economic trajectory.

The NEO typology uses standard psychographics (values, attitudes & behaviors) + a statistical discriminant model (SDM) using multivariate modeling (to characterize the differences between social types) + a spending propensity model (SPM) to identify the respective economic impact of each social type.

In short it uses a directed, multi-dimensional approach to:

(1) identify total discretionary spending by quartiles; (2) Identify the specific characteristics significant to top & bottom quartile; (3) Select characteristics with highest discrimination between the two quartiles; (4) Select and test final definition set - Verify that the final set of variables are individually valid and meaningful when used in combination (proxies for originals) - Create frequency distributions (deciles) for all responses; (5) Refine scoring protocols - Ensure that non-discretionary spending and activity levels are defined for each question (e.g., household services) - Verify the contribution of a question to the overall result against economy-wide statistics (e.g., proportion of household services category in overall discretionary spending) - Allocate an aggregated score to each individual based on their combined response to all questions in each category (spending and attitudes)

Defined by 133 broad factors in the original (1999) algorithm, developed at KPMG, and now by 60 attitudinal and behavioral factors + 10 discretionary spending factors, the NEO typology is a complex model with each social type scored at 5% increments (each has 20 scores). The social types are developed using the automatic interaction detector method (AID). This method indicates the combinations of characteristics which best predict, describe or explain the membership of a defined target group. The AID procedure uses a chi-square test to split customers into groups based on the best predictor variable, and the resulting score is based on actual incidences of response not an assumed or forced relationship (e.g., regression).

Operating at a societal level, this is an epi-segmentation model sitting above market segmentations produced at an enterprise level.

Law of Elective Consumption

NEOs dominate elective consumption (discretionary spending) in developed economies, obeying the Law of Elective Consumption: The majority of elective consumption or discretionary expenditure in any economy is always delivered by that minority of the population whose behavior is determined by progressive social attitudes and tertiary needs.

New Economic Order and Society

NEOs are largely metropolitan dwellers, with more of them living in inner urban areas than anywhere else - these include San Francisco, Portland (Oregon), Melbourne (Australia), London, Vancouver and Boston. Forty-five per cent of NEOs are women and 55 per cent are men; and while NEOs range over all age groups, they tend to be younger than Traditionals. NEOs exceed the national average in every profile between age 20 and age 50, while Traditionals exceed the national average in every profile above age 50. Half of all people with a university degree are NEOs; when compared with Traditionals, four times the number of NEOs have degrees. They are as committed to learning a living as they are to earning a living. NEOs are most likely to be in professional or management occupations, and earn more than the rest of society. Specifically, they dominate every income category above $45,000 a year, and are five times more likely than anyone else to earn in excess of $100,000 a year. NEOs spend more … and more frequently … than anyone else. Ninety-three percent of NEOs are in the Big Spender category, compared to only 4 per cent of Traditionals.

Genetic Determinism

These findings parallel other international studies including the work done in 2005 by John Alford at Rice University, Houston, Texas. Alford and his colleagues found that only 11 per cent of any variance is due to early childhood socialization, including parental influence.

Elsewhere, psychologists have found that people with conservative attitudes demonstrate more structured and persistent cognitive styles, whereas those with liberal views are more responsive to informational complexity, change and new experiences. David Amodio, from New York University’s psychology department reported that, “conservatives (Traditionals) have been found to be more structured and persistent in their judgments and approaches to decision-making, as indicated by higher average scores on psychological measures of personal needs for order, structure and closure. Liberals (NEOs), by contrast, report higher tolerance of ambiguity and complexity, and greater openness to new experiences on psychological measures.”

The NEO typology reveals that people in society with very conservative social attitudes(Traditionals) are also highly resistant to change, risk-averse, introverted, and more likely to participate in organised religion. In short, they lack trust and are motivated by a need to impose order on a world running hopelessly out of their control. Conversely, people with very progressive social attitudes (NEOs) are open to change, willing to take calculated risks, are outgoing, and unlikely to have anything to do with organised religion. They eschew order, trust change and embrace new experiences.

These very different NEO and Traditional personality traits have genetic origins; a view that correlates with John Alford’s study. Alford analysed two decades of work in behavioral genetics and found that specific social attitudes have a direct link to genetic inheritance. Identical twins, sharing identical genomes, are significantly more likely than non-identical twins to give the same response to core personality or social questioning. Genetic determinism is the only explanation. Different gene variants produce profoundly different social responses. The gene D4DR, for example, leads to higher levels of the neurotransmitter dopamine which is in turn linked to the need to impose order on the world. Traditional personalities are therefore likely to be genetically hard-wired to attempt order in an otherwise chaotic world.

Books

Books on the NEO typology have been published in North America, Australia, New Zealand and mainland China, and are sold internationally on Amazon:

• 2001: I-Cons: the essential guide to winning and keeping high-value customers (Ross Honeywill & Verity Byth) Random House
• 2004: (Chinese edition) I-Cons: the essential guide to winning and keeping high-value customers (Ross Honeywill & Verity Byth) Citic Publishing, Mainland China
• 2006: NEO Power: how the new economic order is changing the way we live, work and play (Ross Honeywill & Verity Byth) Scribe Publications
• 2008: Managing the Innovation Faultline - chapter in Inside the Innovation Matrix (Ross Honeywill & Verity Byth) Australian Business Foundation
• 2012: One Hundred Thirteen Million Markets of One: How the New Economic Order can remake the American economy (Chris Norton & Ross Honeywill) Fingerprint, USA

See also

• Behavioral finance
• Consumer behavior
• Economics
• Neophobia

External links

• Social Intelligence Lab
• NEO Power - the book
• The Big Idea