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Equity Perspectives

Here's how Maslow’s theory of human motivation guides our fundamental analysis of consumer stocks.


In Brief

  • What drives lasting change in the U.S. consumer sector? An age-old theory of motivation offers clues about the emergence of disruptors—companies that have achieved rapid growth by targeting heretofore unidentified or underserved consumer needs.
  • The theory is the “hierarchy of needs,” conceived by psychologist Abraham Maslow, which has shaped the way that Lord Abbett’s growth team assesses the upside potential of innovative consumer companies.
  • We’ve long been struck by the way the best-performing stocks, over time, have mirrored Maslow’s proposal that motivation is the result of a person's attempt at fulfilling five basic needs (ascending): physiological, safety, social, esteem, and self-actualization.


Finding Disruptors That Target the Consumer
Our growth-investing process seeks to identify companies that are poised to become much larger. Any such company disrupts the established order, causing chaos in the process. These companies are what the Austrian economist Joseph Schumpeter would describe as the progenitors of “creative destruction,” the perennial gale of capitalism. Because it represents the largest share of the economy, the consumer is a natural beneficiary of creative destruction, setting the stage for many disruptors. We have long believed that most of the innovation in products for consumers starts with an understanding of human motivation. That is why American psychologist Abraham Maslow’s 74-year-old theory of motivation, known as the “hierarchy of needs,” has shaped the way the Lord Abbett growth equity team assesses the upside potential of innovative consumer companies.

Maslow’s Theory: Explanation and Relevance to Identifying Disruptors
Across the entire range of market capitalization, we’ve long been struck by the way the best-performing consumer stocks, over time, have mirrored Maslow’s proposal that motivation arises from a person's attempt at fulfilling five basic needs (ascending): physiological, safety, social, esteem, and self-actualization. (See Figure 1.) The hierarchical structure implies that one level needs to be satisfied before moving on to the next. And the five levels of the hierarchy make it clear that the end result is a desire to achieve maximum potential. Each level of the hierarchy of needs offers an opportunity for innovation and some innovations can impact more than one level.

Maslow called man "the human wanting animal," implying that mankind presented an unbounded opportunity for innovation. (And as the late comedian George Carlin used to say, people are always looking for new “stuff.”)  Further, as the largest e-commerce provider illustrates, providing more “stuff” ever more conveniently and at ever lower prices presents a substantial growth opportunity.

At all levels of the hierarchy of needs, things can get better, many times in ways that consumers themselves initially don’t understand. Up-and-coming companies and industry leaders alike can be viewed through the lens of how well their products or services tapped into one or more milestones in Maslow’s psychic itinerary, and how well they satiate the human wanting animal.


Chart 1. The Entrepreneur/Consumer Knows What Drives Growth
Maslow’s “Hierarchy of Needs”

Source: Abraham Maslow, A Theory of Human Motivation (1943).


The Historical Context of Maslow’s Theory
British historian Niall Ferguson describes the U.S. consumer society as historically unique.1 Its magic, he contends, lies in its freedom and its symbiosis: consumers buy only what they want and companies make only what earns them a profit, and consumers are at one and the same consumers and workers/entrepreneurs. Entrepreneurs seek to enhance consumers’ self-esteem and actualization, as well as their physiological and safety needs. Better food, ever more attractive apparel, beauty, luxury, and sleep products, and more convenient at-home products are the result.

Ferguson also thought it one of the paradoxes of modern history that an economic system designed to offer nearly limitless choice to the individual has ended up homogenizing the consumer. Such generic consumers, in turn, have given rise to a “winner take most” competitive environment, with leading companies quickly disrupting the established order by producing vast quantities of the goods and services consumers want most. Such disruptive companies, however, must overcome daunting hurdles, especially of entry. In addition to differentiating the products themselves, through features such as craftsmanship, style, and value, “disruptors” must market their products well enough to lure in the consumer, who is ever more demanding. It’s one thing to identify human wants—it’s another to satiate them while still making a profit.

Over time, goods and services should become more personalized. This will represent a growth opportunity for consumer companies for many decades to come. And the rest of the world finds our consumer society to be irresistible, so much so that many populations are “downloading” American products, while innovating in-country. This also is happening while, owing to international prosperity, hundreds of millions of people around the world are moving out of poverty and, many of them, into the middle class and beyond, implying continuing growth opportunities for consumer companies.

The Evidence of Maslow’s Theory
We think that evidence of Maslow’s theory is abundant at all levels of the hierarchy of needs. It also is apparent that products such as entertainment address a number of levels, and enable human movement up to higher motivation levels. And because humans are social beings, this theory is not just about wants but also about “wannabes.”

Physiological level—The physiological level comes first: without food, water, sleep, a reasonably comfortable temperature, and a healthy body, life isn’t so great. Take a company such as Starbucks, which, in 1971, seized upon the opportunity to meet the untapped demand for better-quality coffee. Now, the company has expanded to more than 27,000 locations worldwide and has grown to a market cap of nearly $80 billion (as of May 4, 2018).

Other companies have realized that making anything better presents an opportunity. These would include specialty retailers that sell vitamins, minerals, herbs, supplements, sports nutrition, and other health and wellness products. Now, millennials are increasingly focused on healthy eating and exercise. As a result, they are more willing to pay a premium for fresh, natural, and organic food. They are more concerned with the ingredients and sustainability of the food they consume—all of which translates to stronger preferences for gluten-free and locally sourced food, as well as foods that are free of genetically modified organisms. The manner in which we get our food and beverages is a growth opportunity, as McDonald’s showed in the last half of the 1900s—that “faster” was better. Saving distance, space, and time—the convenience level—also presents a substantial opportunity, as food-delivery services are showing today (even when the wait time seems excessive).

Safety level—Humans need to be safe from physical and, eventually, financial harm. Given the inequality and the envy that economic disparity engenders, this is an immense market opportunity. With ongoing advances in networking technology, some entrepreneurs have responded to consumers’ safety concerns with wireless alarm systems that can detect and report intruders, smoke, fire, and carbon monoxide leaks. One fast-growing company developed a more comprehensive approach with smart-home automation systems to control lighting, entertainment, security, energy, and other connected devices. Nest, an industry pioneer here, has made great progress with its “smart home” strategy since it was acquired by Google. Security software companies have made consumers’ personal data safer, and identity protection providers can limit financial harm from that invasion of privacy.

Love/belonging—Humans are social animals who need love and to feel belonging with other beings. It’s too hard going it alone—and not much fun, either. Social networking has experienced phenomenal growth by connecting more people than ever in real time. This opens up sizable opportunities to address human wants in many areas, as evidenced by dating and ancestry DNA sites. Finding the right “significant other” (or just dating) is very important, and if these sites improve the experience in a meaningful way, substantial dollars will flow there. Artificial intelligence is likely to make all consumer sites more valuable to their users. The now-ubiquitous attraction to pets and their unconditional love has also presented growth opportunities. One example is a laboratory company that does testing for all kinds of veterinarian services, which is growing its sales 10–15% per year as it crosses through annual sales of $2 billion.

Esteem—We are social animals who generally want to be liked by others. With a greater emphasis on healthy ingredients and dermatologist approval, bold new approaches to cosmetics manufacturing and retailing are helping consumers look good and feel good. Cosmetic procedures that improve women’s and men’s appearances in a multitude of ways are a huge business. Straight teeth are an enhancement for self-esteem, and one company has provided a more convenient way to achieve that (through invisible braces). Sales last year for this company grew 36% as passed the billion-dollar mark in annual sales. Self-esteem also is enhanced when one is more fit and shapely. This provides a significant growth opportunity for innovative yoga and fitness chains. More recently, fresh approaches to the apparel and luxury business have also boosted self-esteem, most notably well-made down jackets that keep consumers warm (and less bulky looking) in the winter for a fraction of the price of high-fashion versions.

Self-actualization—For many, the best existence is to “have it all” and, for most, to be better in some way. Online learning opportunities enable us to advance our careers and, therefore, to make more income, enabling many consumer disruptors room to expand. This extends well beyond a classroom setting. One recent basketball rookie sensation got much of his instruction on YouTube (watching old pros do their thing), a platform that enables users to control content in a manner that best suits the user. For more than a decade, social networking sites have injected an unprecedented gratification dynamic into the top three echelons of Maslow’s hierarchy of needs. Consumers have platforms where they can participate in vast networks of people around the globe. Some use these to become famous. A more recent development in self-actualization is newly available experiences (versus goods) in areas like entertainment, travel, and leisure. All of which helps to explain the growing number of “selfie” concert and vacation photographs on Facebook, Instagram, and Snapchat. Rapid advances in the ability of artificial intelligence, data analytics, and networking technology can help consumers find goods and services more readily and free up time to pursue what really fulfills them.

The Consumer Internet Is a Tsunami for Maslow’s Hierarchy
The technology revolution is an enormous catalyst for the consumer society. Multiple new devices and services are enabling better, cheaper, and more conveniently consumed (via e-commerce) products and services (e.g., digital music, streaming video). Entirely new ways of communicating (powerful smart phones) and interacting (social networks) have ushered in huge consumer disruptors. Social networks, for example, gave rise to the shortest time of any company to reach a $500 billion market cap since inception (11 years).

Many of these products and services enabled by the technology revolution haven’t existed for long, and so still have an extensive runway for growth. In addition, many of these new offerings were things that consumers couldn’t envision at the time they were introduced and never thought they needed until they saw how they would enhance their lives.

Entertainment has long been an overarching magnet for consumer dollars. Four forms of entertainment—namely games, movies, music, and sports—have become enormously more commercial than they were decades ago, and at a much faster rate than the growth of the overall economy.  Maslow may have pegged this quadfecta to different parts of the pyramid: games (problem solving/esteem), movies (creativity/friendship/family), music (creativity/spontaneity), and sports (belonging/esteem). Rapid advances in technology have transformed the way we consume these various forms of entertainment, and with the spread of artificial intelligence, the next “must-have” products and services are no doubt in the works, some of which we can’t imagine.

Conclusion—Maslow’s Theory Guides Us to Most of Consumers’ Disruptors
The historically unique and irresistible U.S. consumer society is alive and well. It’s being downloaded around the world, and other nations are putting their own imprints on the global consumer society. Because the consumer is the biggest spender, it remains a prime target for creative destruction. Disruptors know that significant opportunities exist satisfying the human wanting animal. To do so involves making desirable products and services better, cheaper, and more convenient to consume. Sometimes disruptors just create new products or services consumers don’t express a demand for. Expect a continuation of such patterns for decades to come, and value to be realized in understanding the evolving hierarchy of needs.


1 Niall Ferguson, Civilization: The West and the Rest (Penguin Press, 2011).


Keep in mind that all investments carry a certain amount of risk including possible loss of the principal amount invested.  The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. Historically speaking, growth and value investments tend to react differently during the economic cycle. Since value stocks are often cyclical in nature, they may benefit from the increased spending that usually occurs during an economic expansion. Growth stocks may also perform well during an expansion, but they may also be out of favor during market downturns, when investors pay more attention to price ratios. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential as well as their volatility can be substantial.

The data contained herein is being provided for informational purposes only and is intended to illustrate certain information analyzed during the research process. It does not constitute a recommendation nor investment advice, and should not be used as the basis for any investment decision.  This is not a representation of any securities Lord Abbett purchased or would have purchased or that an investment in any securities of such issuers would be profitable.

This commentary may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that markets will perform in a similar manner under similar conditions in the future.\

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

The opinions in this article are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.


About The Author

The Lord Abbett Growth Leaders Fund Class A seeks to deliver long-term growth of capital by investing primarily in stocks of U.S. companies. Learn more.

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