The cost of living crisis era has shaped much of this year and looks set to be a trending topic well into next year. While we would all like to see the worst of it behind us, the latest OBR forecasts show that economic recovery is still some time away, with their data predicting a 7% decrease in household incomes in the coming two years. Read on to see how retailers can succeed in 2023.
A recent survey conducted of 2,165 respondents by the Gekko group and carried out by YouGov highlighted just how much spend has already been restricted in certain categories. It identified that 66% of those surveyed said that they are cutting down on non-essential items. 43% were decreasing spend on their essential household goods.
While these headlines confirm the severity of the situation the country finds itself in, within the retail sector the way consumer behaviour has changed as a result still presents opportunities for brands and retailers to succeed.
Gen Z Least Likely to Cut Spending
Interestingly 52% of 18-24-year-olds in our survey said they were decreasing their spend on non-essential purchases, the lowest of all age groups. Gen Z are brand focused and remain loyal to those that match their values in ethics and sustainability. Employed and with new money in the bank, this tech-enabled generation is just as willing to engage with brands both in-store and online.
At the other end of the spectrum, as we get to the older categories, there are further cutbacks with 75% of 35-44 saying that had reduced non-essential purchases. Of course, these older generations are likely to have more disposable income with which to keep up their levels of spend. Often being homeowners, these customers are the most likely to be purchasing big ticket electronics items like appliances, and therefore are particularly discerning about the quality and durability of these products.
Regardless of your target group, it is important to remember that there are valuable inroads to sales across the generations. A customised approach is required to provide a meaningful connection, translating through the customer journey to purchases.
Recession-Proof Premium Market
Much focus has been on consumers trading down for their purchases, but data also shows that the premium market has also been relatively recession-proof for a number of reasons. Premium customers are more likely to have kept purchasing regardless, being less affected by cost of living growth. Meanwhile other groups are also likely to invest in high quality devices as they are built to last, crucial with the cost of living squeeze likely to last.
According to Counterpoint Research, there was a 95% YoY growth in smartphone sales over $1000 in Q2, highlighting the ongoing demand for the very best devices. With their ranges coming into focus across all demographics, Premium bands can capitalise on this interest by offering accessible routes to their products through pricing plans and brand marketing.
Trading up and down for items is one way that consumers are switching products or brands, but there are others to look out for. We found that 48% of respondents were willing to switch for non-essential purchases as a result of the impact of the cost of living crisis. Within the electronics sector, budget (69%) and durability (52%) were key motivators to switch, with sustainability (23%) the third most important driving factor. The sustainability topic is not one that is going to fade away and is a particularly important one for younger Gen Z customers, who will connect better with brands that show ethical credentials.
So how can retailers and brands continue to succeed in this turbulent period? The ongoing lessons learned from the events of the past two years remain relevant.
1. Remain Adaptable
Showing adaptability when it comes to your consumers’ needs is imperative. Be prepared to pivot your messaging based on their needs now will pay dividends. This will stand you in good stead to succeed when the economy and consumer confidence begins heading in the right direction.
2. Continue to Invest In Your Brand
Building loyalty now will pay off in the long run, and investment in your brand during challenging times will pay off later with others disappearing from view. Discerning customers are looking for the best products at the best deal, therefore brands need to reinforce just why they should choose them.
3. Demonstrate Your Brand Values
Shouting about the values of your brand is also vital. We have seen evidence that consumers across demographics will stay loyal to those that they feel an affinity with, so to do that they need to know who you are and what you stand for. This can be through marketing activities in-store, online or across all channels simultaneously.
A recent LinkedIn survey highlighted that 78% of respondents agreed brands that maintain or increase their marketing spend during economic troubles are the best placed to recover faster afterwards.
4. Show Empathy With Your Audience
Demonstrating empathy in your go to market strategy during this cost of living crisis will ensure you remain relevant with all consumers when competition for attention is at its fiercest.
A positive omni-channel customer journey will lead to better engagement and enjoyment for the consumer. After all, a bit of joy goes a long way in these challenging times.