As we enter this critical quarter for retailers, they are faced with a series of new challenges dampening consumer confidence. The impact of inflation with consumers facing real term pay cuts, the impact of increased energy costs and now surging mortgage costs on the back of a disastrous mini-budget, which the effects are unlikely to be reversed as quickly as they were created.
A headache-inducing cocktail of challenges in this critical time for boosting the bottom line. Yet retailers have shown remarkable resilience and adaptability over the past two years to continue to offer customer-centric strategies. They will need these qualities to continue to survive and thrive.
So how to react? In a recent study we carried out in conjunction with YouGov, we wanted to look at the impact of this inflationary period on consumer behaviour. What are the drivers of purchasing in these challenging times and what is the impact on cross category purchasing? By understanding the motivations of different consumers at this time retailers can ensure they truly focus on their needs. Those that do will be rewarded.
Consumers cutting spending on essential items
The research highlighted that the cost of living crisis is being felt at the sharpest edge by those on the lowest incomes. Many are struggling to afford the basics as energy bills have rocketed, despite the support package now being provided.
For essential household items, more than 2 in 5 respondents revealed they had reduced their spending (43%). Of these, 1 in 3 (32%) have cut spending on essential household items by more than 15%. 3% have cut spending on essential items by more than 50%.
There are some significant variations, based on gender, location, age and financial situation. 48% of women have reduced spending on household items, vs 38% of men. Of those who have reduced their essential household spending, home owners (of any type) are the most affected, with 63% saying they had cut spending by up to 15%, compared to 51% of renters.
Londoners are least likely to cut spending significantly. Of those who have reduced their spend on household essentials, just 2% of Londoners are cutting spending by more than 50%. Meanwhile in the East of England this rises to 6%, and 7% in the North West.
This highlights the uneven nature of the situation and the need to not have a one size fits all strategy in communicating with audiences.
Spending plummets on big ticket items
For considered purchases, 52% of 18-24 year olds have cut back on spending, compared to 68% of 25-34 year olds and three quarters (75%) of 35-44 year olds. The categories hit hardest by a cut back in spending of consumers of these goods are: Consumer electronics and homeware and home furnishings with 61% of consumers of these goods reducing spending. Next was Clothing & apparel 60%, DIY and garden, 50% and Baby and child, 41%. As the cost of living increases and the ability to secure a new mortgage or afford the one you already have will impact further the decision factors around a considered purchase.
The factors driving purchases in today’s climate
Of those factors we know that are driving purchasing behaviour for more expensive items. In today’s environment the number one factor driving a considered purchase is that something is within budget, 69%, durability/ being fit for purpose was next, 52%. Third in the list was sustainability, still favoured by 23% of respondents. Brand awareness was considered by just 13% of respondents. For Gen Z (18-24 year olds), the result for sustainability was far higher at 38%.
Millions of consumers looking to switch brands
Another key takeout is that brand loyalty has plummeted in the current climate. 60% of people would switch brands for essential items and 48% of people revealed they are more likely to switch non-essential considered purchase brands.
This suggests the need for a tailored approach for brands to remain relevant in the current environment. Ephemeral qualities like brand values seem less important when people are rightly concerned about affording bills.
Quality and price consideration crucial
The focus in generating sales and retaining customer interest should be price and durability as the two key factors driving buying decisions. People still need big ticket items but necessity trumps desire in the current environment.
However, it is important for brands to have expertly crafted messages for different audiences. with sustainability still crucial, in particular for younger audiences. Having the right tone and audience-centric approach will help brands and retailers remain relevant and necessary during the next few months.The results reveal the cost of living crisis has had a dramatic impact on consumer spending at all levels. It highlights that there is a real need to focus on value and longevity to win customer loyalty with the need to craft audience-specific messages like never before. If retailers and brands keep this in mind, without the need to apply offers, they can still thrive amongst the turbulence and uncertainty.
To read the full article by Dan Todaro, Managing Director please visit Retail Sector