Adapting to adapting: Keeping up on changing consumer behavior
Real-time engagement is clutch for brands to be able to anticipate, adapt, and respond to ever-changing consumer behavior.
Consumer spending held fairly steady this year despite sky-high inflation, but is showing signs of weakening. With no relief in sight, consumers are rethinking their purchases as their confidence wanes and anxiety grows.
Faced with rising prices of everything from housing, groceries, gas, and services, more than 8 in 10 US consumers plan to change their spending in the next three to six months, according to NPD Group. Consumers are buying fewer goods and shopping less, said Marshal Cohen, chief retail industry advisory for NPD.
“There is a tug-of-war between the consumer’s desire to buy what they want and the need to make concessions based on the higher prices hitting their wallets,” he said.
Retailers are anxiously watching the shifting buying patterns as consumers try to stretch their dollars.
2022 so far: A year of soaring inflation
Inflation in the US is reaching its highest level since the 1980s. In March, the Consumer Price Index rose to 8.5%, the biggest 12-month increase since December 1981, according to the US Bureau of Labor Statistics.
Experts point to a number of causes for the surging prices, including increased demand, supply shortages, global conflict, and rising energy and labor costs.
Analysts expect the rate of inflation to level off during the rest of this year, but still end at a high rate of about 6.3% before dropping down to 3% by the end of 2023.
Initially, rising prices didn’t slow consumer spending. In fact, US retail and food service sales in the April were up 8.2% year over year, according to estimates from the U.S. Census Bureau that didn’t account for price changes. Saving during the pandemic and an eagerness to return to brick-and-mortar stores helped drive demand.
Now, though, they’re feeling the pinch as trips to the gas station and grocery store become more and more costly.
Fortifying the retail supply chain for an omnichannel future
Faced with ongoing uncertainty, retailers are strengthening their supply chain to keep shelves stocked, inventories healthy, and customers satisfied.
With inflation at 40-year peak, consumers are saving for essentials, planning to change shopping behavior
Seventy-one percent of consumers plan to change their shopping behavior due to inflation, according to a March study by BCG. Many plan to cut back in discretionary categories like clothing, recreation, and restaurants, as they focus on paying for housing, gas, and healthcare, the survey showed.
Other reports indicate a similar trend: Consumers are belt tightening as their concerns about inflation grow. Many are holding off on big-ticket items, entertainment, and dining out to save money for staples and select extras.
In its most recent earnings call, Walmart said its shoppers were buying more private-label food brands, shifting away from discretionary items, and altogether buying less.
A survey by the National Retail Federation in May revealed how consumers are managing their budget in the face of high prices for essentials:- Switching to cheaper alternatives (47%)
- Looking for coupons and sales (45%)
- Shopping at discount stores (41%)
- Buying a different brand (41%)
- Cutting back in other areas to afford essentials (40%)
NFR’s survey also showed how low-income households are bearing the brunt of inflation.
Seventy-one percent of survey respondents earning less than $25,000 a year are borrowing money, going into debt, or dipping into their savings in order to cover their expenses.
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Hey Siri, find cheap food: Searching for deals and discounts
Inflation is impacting consumers worldwide. Google’s Global Market Insights team reported that 70% of consumers are concerned about rising costs. The year-over year growth in searches for cheap goods and services tell the story:
- Searches for “cheap food near me” grew 70%
- Searches for cheapest electric car grew 100%
- Searches for cheap flight tickets grew 100%
When they can afford it, consumers are splurging on small non-essentials like candles, soaps, perfume and other beauty items.
Experts say the “lipstick effect” has kicked in: Even in a tough economy, people will buy small, feel-good discretionary goods like lipstick.
Jungle Scout’s quarterly consumer trends report highlights the impact of inflation on spending across generations.
What brands need to do as consumer behavior changes
As inflation reshapes consumer buying habits, retailers need to plan and recalibrate to keep customers.
“Brands need to continue to emphasize their quality and habit/familiarity, which are main drivers of product choice,” Uzma Rauf, founder of Khatanalytics, a consumer and analytics consulting firm, wrote on LinkedIn.
“But they must figure out how to stay shoppers’ top choice as people start to cut back spending,” she said.
NPD’s Cohen said retailer marketers need to take steps to entice consumers when they do decide to make a shopping trip.
“An appealing shopping environment, displays that make the product pop, and persuasive promotions are necessary to get more items into the basket when consumers do shop,” he said.
US consumers are looking for value, but also are interesting in trying something different, according to a McKinsey & Company report.
“Combining innovation with the perception of better value could be a particularly attractive offer,” they wrote.
McKinsey also confirmed the need for retailers to provide a connected customer experience as shoppers return to brick-and-mortar stores, but continue to make many purchases online. In-store is recovering well from the pandemic, with spending up 8% year-over-year in March, according to the study.
“Providing a seamless experience in both online and offline channels is becoming table stakes for brands and retailers,” they wrote.
