How consumers are responding to the cost of living crisis
‘Do you want to share the subscription with me? It seems silly for us both to pay.’
These are words I recently heard from my brother, who like me has started to become more conscious about his outgoing expenditure.
As food, fuel and energy prices rise, managing my money has been brought to front of mind. Being in the fortunate position where I have limited responsibilities, previously I had a relaxed attitude to taking on new subscriptions with little thought. ‘Oh it is only £5 per month, that will be fine’. But the increase in cost of living has made me stop, think, and change my approach. A question I find myself asking is where can I cut back without having an impact on my life?
The constantly changing dynamics of the economy have created uncertainty surrounding the extent of saving that is necessary and sensible. As we emerge post-pandemic, there remains a lot of pent-up desire to do nice things but also the realisation that I must tread carefully with how much I spend. For example, to satisfy my wish to travel, I have been carrying out multiple, small excursions away instead of buying a new phone or adding to my wardrobe.
Consumers are making more adjustments
This is behaviour that we see reflected across the majority of consumers, who like me, are having to make more adjustments to spending and take a more considered approach when making and planning purchases. Our article ‘Reimagining opportunity in the year of the squeeze’ in February this year, looked at some of the market dynamics sitting behind the current cost of living crisis across different sectors and as we approach June, some of these are coming to fruition. The Bank of England has been warning of a growing danger of a recession and data shows that most consumers are concerned about the rise in the cost of living. Consumers are reacting in several ways: switching from branded to non-branded items; delaying or swapping larger purchases for a smaller outlay; and restricting spend on other luxuries including subscriptions and clothing. Netflix is an example of a brand that has taken the brunt of this behaviour change, experiencing a loss of 200,000 subscribers in the first three months of the year.
A stubborn reluctance to be beaten
Nevertheless, for the average consumer, there remains a flicker of optimism. Approximately 3 in 5 are confident that they will still be able to afford the essentials. After being locked up in our rooms for the last two and half years, dreaming of what lies outside those four walls, consumers are reluctant to give up on sociable activities and are not willing to compromise on ‘living life to the fullest’. Using savings as an injection into available income, consumers are still spending. More than two thirds of consumers say they are still planning to purchase items they would like but do not necessarily need. Consumer demand for goods during the pandemic soared but a shift away from this towards spending more on experiences and services is beginning to emerge; less ‘stay at home’ and more ‘let’s go out’ spending. With the ever-changing dynamics of the economy, consumers are trying to take opportunity of the reinstated freedom. April data confirms this. It shows positive signs for the travel industry which has seen a recent boost in activity and is on an upward trajectory post-pandemic. Consumers are looking to get away and make up for lost time on activities they were unable to do throughout the lockdowns.
Trading down is not the same for everyone
However, this is not felt across all of society and for some the impact of the rising cost of living has been seriously damaging. There is large disparity between the rich and the poor. For many lower-income households, daily life has started to become a real struggle. They are struggling to afford everyday essentials, and this is unlikely to ease any time soon. There is a constant fear for these consumers that they will need to go to extreme measures to be able to do so, such as becoming reliant on food banks to feed the family or cutting off their energy supply to counter the rising utility bills.
We have seen retailers trying to soften the blow by offering more support for consumers. Asda are in the process of introducing a new and improved essentials range and Tesco and Sainsbury’s are continuing to push their ‘Aldi price match’ schemes. However, these current efforts by retailers are falling short of consumer expectation. Only 1 in 5 expect retailers to make products more affordable and consumers remain pessimistic about the extent to which retailers will be there to support them during this squeeze.
How do businesses respond?
Consumers are adapting to these changes, but a tension endures: a desire to enjoy life but also the acceptance to invest more carefully in the discretionary. With these competing behaviours, how do businesses respond to these challenges? How do businesses themselves be resilient and adapt as consumers do as well?
Our upcoming Strategy thought pieces will continue to look at the year of the squeeze from a business perspective and explore how we might best respond to these challenges as they continue to emerge. If you want to learn more about how consumers are behaving and how you can help them through your brand, please get in touch.