By Daniela Barletta, INITIALS CX
The cost-of-living crisis affects everyone, but not every consumer’s response is equal.
Brands are working hard to understand spending trends as shoppers deal with rising prices, a fall in wages in real terms, and the spectre of spiking energy bills.
With the Bank of England, as stated here in The Guardian, suggesting inflation could eventually hit 13% in the UK, more than three quarters of consumers, as researched here in The Guardian, are already anxious about the cost of living. This is inevitably leading to changes in spending patterns.
But where exactly will consumers reduce spend? And what can brands do to shore up market share?
Gaining an Insight Into New Trends
The way that people in different age brackets will approach the financial squeeze is fracturing. The IFS has identified that inflation is disproportionately affecting older, vulnerable and low-income groups more than other demographics – largely because energy cost increases make a bigger dent in their household budgets.
However, instead of trying to group people by demographic, age, or class, brands need to consider how prepared people are to weather the storm, and therefore how they are planning on cutting costs.
According to WARC and Mindshare UK, brands should group consumers by their financial tolerance. They have segmented the population into three groups:
- “Finance Negative”: This group is hit hardest by the cost-of-living crisis. Finances are their main concern, so they will keenly feel the pinch – making cost of living a guiding factor and primary decision-making influence going forward.
- “Finance Neutral”: This group is more financially stable. They have less financial responsibility because they are more likely to be retired – so they’re not burdened with job security, mortgage payments or financial dependents living at home.
- “Finance Positive”: The most affluent and positive segment; this group of people are enjoying an easier bounce back from the pandemic and are confident in their saved money, paid debt and overhauled finances.
Regardless of which pot a consumer falls into, they are united in their belief that brands should behave differently in the current climate, showcasing compelling emotional reasons to buy.
Three Behavioural Trends We Expect to Return
When groups that are traditionally in a more Finance Positive state – high earners and some Baby Boomers – get the jitters, marketers must rethink their targeting strategies.
That doesn’t mean just cutting prices to cater to the Finance Negative mindset; it’s more about understanding how audience habits are switching and reacting accordingly. Using past recession data there are three behavioural trends we can be certain shoppers will return to:
- Bargain Hunters – cutting costs where possible by scanning the market for the best value and price promotions is an expected behaviour that people across the spectrum will return to.
- ‘Denning’ – staying in more, and prioritising products and services that will enhance their at-home experience. As people largely in the Finance Neutral and Finance Positive space spend more time indoors to save money, they will favour brands offering products or services that cater to this.
- Brands as a ‘safe haven’ – clinging to familiarity in times of anxiety, this behaviour sees consumers (both in the Finance Positive and Finance Neutral segments) stick with what they know, despite having to pay more. When times get tough, people lean into the simple pleasure that comes from buying a brand they know and love for indulgence and respite.
What these trends have proved in the past, and will demonstrate again, is that the current climate doesn’t mean the majority of consumers are universally trading down. There is no one-size-fits-all approach that brands should take in response to these changing behaviours.
Four Ways Brands Can Refocus
All of this might seem a bit daunting for brands as they look to find a way to cater to consumer expectations that are more multifaceted than ever. There are four clear roles brands must play to remain relevant, appear authentic and add value.
- Dialling up price-driven value: Tactical price-based promotions can save consumers money and are also a way to increase the value of a product using price, appealing directly to a bargain-hunting mindset. For example, Tesco’s Clubcard price brings price-driven value to life in an overt way, by lowering prices on specific items and rewarding loyalty.
- Enabling practical solutions: Giving consumers real-life, practical solutions to enhance their day-to-day lives. Consumers are looking for guidance from brands to steer them through an uncertain time. Heinz’ Beanz Mean More campaign is a good example that highlights the versatility of the product, and gives consumers new ways of thinking about and using this pantry staple.
- Reinforcing the brand value: Showcasing the functional or emotional attributes of a product, and the value it brings to consumers’ lives, presents shoppers with another reason to buy a brand. For instance, Hansgrohe’s Wallstoris range dials up the functional value of the product – including the expert craftsmanship and German-engineered design – to convince shoppers to pay a slight price premium for this range versus competitors.
- Building connected purpose: At a time of collective crisis brands must be prepared to support the societies in which they operate. Whether it’s charitable giving, local sponsorships, partnering with wellness brands in adjacent categories, or using their gravitas to influence consumers, there’s much they can do. Caboodle, a surplus food scheme that partners with brands and grocers to redistribute surplus food, ultimately mitigating food waste, is a good example of a brand living their purpose.
This confusing time for consumers adds complexity for brands battling for spend that households want to protect.
Brands choosing the obvious option of price cuts alone may expose themselves to market share erosion as people shop around. Audiences should be viewed according to their financial resilience, both in terms of disposable income and the extent to which they’re worried about their circumstances in the immediate future. Understanding and responding to nuanced financial circumstances is the only way to engage with them effectively.
Many consumers want brands for other reasons beyond just price-driven value, even as they juggle their budgets. Recognising this will be key to brands remaining on a strong footing – both during these turbulent times and once we eventually leave the cost-of-living crisis behind.