Understanding how consumer behaviour is shifting and what factors influence the customer experience will help organisations determine business sustainability beyond COVID-19.
What will the next-normal consumer look like? Much will depend on the severity of the downturn which remains unclear, with dire predictions from Prime Minister Scott Morrison that the economic downturn “will hit us like a truck” to RBA Governor Philip Lowe’s “pretty depressing scenario”. More than 20 per cent of the workforce was unemployed or under-employed in late May.
Looking to history for indicators of what might come next is precarious, because there are no precedents for shutting down so many parts of the economy simultaneously. Economic historians have been ruminating on the post-WWI period, which coincidentally featured the Spanish Flu pandemic that claimed 50 million lives. Economic recovery notably gave rise to the carefree, wildy sociable and ultimately big-spending Roaring Twenties, which ended with a crash. Many have invoked parallels to the ensuing Great Depression, drawing analogies to the current situation in terms of the depth of the downturn. Large numbers of people who lived through the depression have carefully counted their pennies for the rest of their lives. Consumerism was muted until after WWII.
This time looks different, not least because the speed of economies has changed and so have the stimuli. Lessons learned from both the depression and the global financial crisis (GFC) are for the need to encourage spending.
Professional services firm EY’s global consumer research team expects a breed of “cautious consumers” will switch their traditional trade-off between value and cost and expressions of their identity when purchasing to weighing up whether a product, service or experience is worth the health and safety risks they are taking.
Lisa Nijssen-Smith, EY’s Oceania assurance consumer leader, has been watching a synchronous change. Social isolation gave consumers a unique opportunity for reflection, a rethink of priorities and a reset.
“When it comes to time-consuming activities, people are asking themselves how do I keep doing what makes me feel good?” says Nijssen-Smith. “What are the routine and mundane things that I’m not missing?”
EY’s Future Consumer Index shows the impact of consumers wanting to engage with companies they can believe in that display authenticity and transparency. During the lockdown almost eight in 10 respondents to the Australian EY survey nominated authenticity and honesty as being an important consideration in the purchase decision and this trend was holding strong in June with 71 per cent of respondents. Nijssen-Smith also points to the Edelman Trust Barometer, which showed a massive 90 per cent were looking to brands that put employees’ wellbeing ahead of profit — with an emphasis on health and safety and the care of displaced workers.
“Sentiment about brands is impacting consumer behaviour and their likelihood to purchase,” says Nijssen-Smith, so expect a gravitation to trusted brands at the expense of those that are lesser known. “Companies will need to evaluate how they fit in that space.”
As many long-anticipated trends hit fast-forward, consumer behaviour went along for the ride; on the move away from cash transactions to now ubiquitous online shopping and payments, and the upswing in e-learning and telehealth, for instance.
How has the consumer psyche shifted? What will stick or be eagerly abandoned now consumers are emerging to play their pivotal role in the economics of a world that is profoundly altered?
Handle with care
Post-COVID, we can expect to see an increase in consumer reactions to industrialisation and retail concentration, as well as environmental and ethical concerns, with a strong kickback on health, wellness and safety, predicts Jonathan Coles, partner at brand consultancy Premium. While the turmoil of the crisis has been massive, Coles says it won’t have rocked consumers’ inherent mindsets and he urges directors and business managers to be careful about how they regard the consumer following the COVID pandemic.
Immediate income and wealth are irrelevant as indicators on their own, according to Coles. “We look at the consumer mindset or psyche as a combination of factors. What is their propensity to spend? What are their attitudes, their behaviours?”
A former executive at luxury goods company LVMH, Coles has been working for more than a decade with social scientist Dr Ross Honeywill, who draws on Australia’s biggest consumer database at Roy Morgan to identify the whereabouts and buying habits of new economic order (NEO) consumers, the 24 per cent of the population that drives 70 per cent of the highest spend.
NEOs are leaders rather than followers, and they are more risk-takers than risk averse. “They are more confident and clearly stand apart from very wealthy consumers who actually don’t spend their money,” says Coles. “The question for businesses is: how do they make sure they attract these consumers who will lead the rebound, not just because they have the capacity to spend, but because they have the mindset to be first in market?”
NEOs are defined by more than 190 attributes, although they can be readily spotted by positive responses to straightforward questions such as: Do you prefer to lead or to follow? Or, would you prefer to do all your banking online? These set them apart from the alternative mindset, which tends to be consumers who buy on price and discounts, says Coles.
The notion that downturns inevitably reshape the mindset of whole cohorts of consumers and have a long-term impact on buying behaviour is up for grabs. This time around, directors should expect the unexpected, suggests Coles. While consumers’ financial circumstances may have changed due to the pandemic and its economic fallout, their mindsets essentially will stay the same, he claims. It’s a mistake to categorise them purely by income or wealth. This means their next moves are easier to predict in some respects, and harder in others.
The simpler life
As changes in consumer behaviour go, calling out the new austerity due to the massive rise in unemployment, reduced incomes and impacts on superannuation balances and investments from erratic share markets, seems like a bit of a no-brainer.
Reduced funds for discretionary spending are an inevitability for many in the short term, but not all. Australians are faring best in the world on personal financial security, according to a recent consumer sentiment snapshot by Boston Consulting Group (BCG), although “a sizeable chunk — 40 per cent — remain concerned”, notes Monica Wegner, MD and partner at BCG, who leads the group’s consumer insights in Australia. “A whole generation has never experienced a serious economic downturn, which in part explains why Australian consumers are spending less and saving more.”
Some consumers, influenced by the imposed simplicity of social isolation, look set to opt for a simpler way of living long-term. Time back from commuting translated to a well-reported burgeoning of creative pursuits — from baking bread to growing vegetables, nurturing gardens and home maintenance. Data analytics company Nielsen calls it the “homebody economy”.
Beyond limits on spending power, the retreat to more prosaic preoccupations represents a fundamental shift in the consumer psyche, believes Wegner. “There’s a revisiting of what’s important,” she says. “Do we really want to return to the rat race?”
Wegner expects some new behaviours will certainly stick. As lockdowns lifted across Australia, media reports featured consumers lamenting the prospect of relinquishing their newfound simplicity.
Provenance — where does it come from?
Hand in hand with the authenticity trend driving new consuming habits for many is their focus on the provenance of goods, which is not new. Witness the threefold rise in farmers’ markets over the past decade and the growth of craft and founder-led businesses. Organics producers across Australia have reported a huge sales uplift in recent months. Experts concur that heat on this issue will increase in the post-COVID-19 world — and it is multifaceted.
Informing corporate supply chain future strategies is the consumer need for assurance of where goods are sourced from and guarantees of origin. “There will be a pushback from going into a large retailer and buying whatever has been ranged nationally, and a desire to know that if I’m going to put something on or in my body then it’s coming from somewhere ethical or healthy,” says Coles. The post-GFC trend that delivered a budget-driven upswing to fast food is unlikely to repeat.
Companies should also keep top of mind that the needle on sustainability also has moved beyond the recent concentration on environmental concerns. EY’s global research shows people are willing to pay more for products or services from companies that put society first.
Among COVID-19’s top catalysing consumer impacts is a willingness to buy Australian brands, despite the perception that they cost more. What may have seemed a short-term necessity in the lockdown, now — with supply chain, health and safety issues coalescing — may be permanent.
“Our research over the past decade has always shown consumers’ desire to buy Australian or to buy organic,” says Wegner. “They want to support those brands, but when asked if they would actually buy them, it did not translate. For the first time (during the COVID-19 crisis), we’ve seen a massive increase in willingness to buy.” That willingness is up 56 per cent since 2016, in spite of 36 per cent still believing Australian-made goods are more expensive. Wegner believes this trend is sticky, however, because it runs across both likely and unlikely categories — from fresh and packaged foods to medicines, health, personal care and also clothing and cosmetics, which are easy to buy online and offshore.
“My best hypothesis, which is supported by qualitative research, is the desire to support local businesses and the region after the hardships of the bushfires and COVID-19,” she says. “It feels tied to sense of community and, possibly, safety.”
This bodes well for a local manufacturing rebirth and is a major marketing opportunity for Aussie brands. There are also synergies with the “flight to quality” that can happen in tough times. “We see this trading up/trading down phenomenon, where consumers will be frugal on some categories and at the same time be willing to pay more for something they feel confident in — or to support Australian businesses,” says Wegner.
The trend also turned up in EY’s research, in which 40 per cent of people said they would pay a premium for Australian-made products. As financial stress prevails, “people want to keep buying from their local businesses, a sense of community is resonating,” says Nijssen-Smith.
Hyper-local is particularly important. Directors should be asking about how they are both supporting local and elevating how their brand acts locally.
The rise of the inconspicuous consumer
Luxury brands looked increasingly down at heel as the economic crisis precipitated by the pandemic spread, with BCG reporting a 20–30 per cent sales dive for 2020. A backlash to high-end luxury spending is expected to continue. Interestingly, 57 per cent of BCG survey participants in May said spending doesn’t feel like the right thing to do, morally.
“This is really about overt luxury,” says Wegner. “At a time when all these people in the Australian community are suffering, it just doesn’t feel right to go out and buy lots of expensive stuff — even if I can.”
The post-GFC period also saw a shift away from ostentatious spending and a move to the inconspicuous consumer who believes it’s unseemly to flash their cash. “It might be that I choose to enjoy some nice wines with my friends, but my spending will be less overt. In more economically challenging times, there’s a focus on how my consumption looks,” says Coles.
Globally, EY identified a small segment — nine per cent of consumers — who are predominantly young and in work, and who will be “back with a bang” in terms of spending. More likely, those with the capacity to spend will be cautiously extravagant (25 per cent of all consumers).
International travel, which represents and triggers a significant portion of luxury spending worldwide, will be off the radar for the foreseeable future. Management consultancy McKinsey estimates around 20–30 per cent of the travel industry’s revenue is generated by consumers making purchases outside their home countries.
However, there will still be a contingent of consumers with an appetite for luxe — and they will be looking for the latest new thing, or hankering for luxury brand hallmarks of heritage, quality and innovation, says Coles. Affordable luxuries — small treats such as a bottle of Archie Rose Distilling Co gin, or enjoying a virtual wine tasting with a group of friends — will suffice. “Companies that innovate around affordable luxuries can be very successful,” he says.
Offline to online — will it stick?
A confluence of surveys indicates that the upswing in online shopping is here to stay. Consumers have embraced the convenience across demographics, and product and service categories, with some new additions.
Surprises popped up early in the downturn. Fine-dining restaurants introduced home-delivered meals, while trendy bars created home-delivered cocktails. Footwear retail chains Hype DC and Platypus in Australia saw their daily online sales soar from $250,000 to $1.1m in a matter of weeks — prompting parent company Accent Group to announce store closures.
The upsurge in younger people buying insurance online is a global phenomenon. History shows us that such structural changes endure, with salutary examples including the Chinese electronic retailer JD.com, which morphed from a chain of small shops into a massively successful e-retailer during the SARS epidemic of 2002–03.
Future success depends on seizing the moment to educate and enable consumers online, making it as easy as possible for them to meet their needs, advises Wegner. She says companies should stay the course with the crisis-inspired trend for introducing rapid feature improvements, which they may have considered initially to be “sticky-tape measures”. One example is the Woolworths app that allows customers to plan and navigate around their local store by product, making their journey as painless and safe as possible.
“You need to be ready for when demand returns,” says Wegner. “And the winners will be those that have been thinking ahead about the opportunities.”
Six action points for directors
- Monitor customer behaviour Nimbleness is required to meet consumers’ evolving predilections in uncertain times. Heed customer feedback, both on breakpoints in the existing experience and for new services for emerging needs, urges Wegner. “Not all companies are good at measuring feedback in ways that allow it to be very rapidly interrogated and used for feature development and new services,” she notes. BCG recommends running a robust 360-degree feedback system. Best-in-class business systems allow for continuous tracking across all consumer touchpoints and channels and bring together customer feedback with operational metrics to identify where service needs to be lifted.
- Review your value proposition Coles believes directors should be asking: How are we maximising our value proposition and delivering on what consumers have a heightened need for? Short-term deliverables include trust, reassurance, a hyper-local emphasis and a human at the end of the line. And longer-term must-haves are being seen as ethical, having a meaningful purpose beyond profit — and a social conscience.
- Keep up marketing spend Brands that continue to invest in marketing will benefit from a higher share of voice, says Coles. Maximising your spend when others are cutting back is a smart strategy. “Directors and senior leaders also need to be aligned as closely as possible with what’s important to the customer and understand how their brand is perceived versus the competition,” he says. “The board should be asking: How are we measuring alignment and how well are we aligned internally with what our customer is now thinking?”
- Anticipate the next normal Management may assume that business will return to normal with some structural change or acceleration of trends, says Nijssen-Smith. “Boards need to ask: Are we doing enough sensitivity testing and scenario planning around what the future will look like? The touchpoints with consumers and listening to how they’re reacting are key.”
- Beware falling prices The risk of the moment is around short-term pricing decisions, warns Coles, as discounting to deliver business goals does irreparable damage to your brand and value proposition. “Directors should be asking: What is our price strategy and how are we making price decisions that bring longer-term benefits rather than a short-term deliverable?” Remember, it’s a lot harder to put prices up again, so consider different ways of providing value. Three nights for the price of four?
- Make it safe Map a customer journey from acquisition to loyalty and work out how to replace physical touchpoints with digital ones, recommends EY’s global future consumer research team. Think about the best way to provide a virtual demo of a product that would normally be experienced in a store.
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