What the customer wants

Wednesday, 01 December 2021

Deborah Tarrant photo
Deborah Tarrant

    Changing consumer behaviour and preferences present opportunity, inspiration and challenges for companies as the world moves into 2022.

    After a prolonged period of uncertainty, “the new consumer has many different flavours,” says Jane Cohen GAICD, a partner at Bain & Company. “The pandemic has created winners and losers in many dimensions — from physical and mental health to financial security and digital literacy.” Changed values and habits have shifted priorities and expectations as people re-enter post-pandemic life differently.

    What’s unifying consumers is their power. They are calling the shots, and often in highly unexpected ways. For instance, they are bypassing the 76-year- old franchise/dealership model to embrace direct- to-consumer new car sales online — a move championed by younger generations and the Federal Chamber of Automotive Industries peak body. They have also enabled enthusiastic growth of a virtual fashion industry and digi-couture as big- name designers find significant revenue streams creating “skins” for online gaming avatars.

    The message is clear — prepare for the shock of the new. “There’s a risk in assuming you know what customers want and it’s highly unlikely that your current way of looking at customers will stay the same,” says Cohen.

    She believes a universal overhaul of customer segmentation, product strategies and marketing is required along with a continuing embrace of hyper- agile decision-making. “We’re shifting to live strategy with AI, data and dashboards to think about how those new segments might keep changing,” she says.

    The following are some of the trends that boards need to be aware of.

    Bring on the big spenders

    For starters, clear evidence of a two-speed economy has emerged based on distinct differences in consumer confidence.

    “Recent statistics show a 15–20 per cent point difference between premium consumers — who don’t necessarily have more money but have a more risk-tolerant mindset and are ready to spend — and more traditional, price-based ones,” observes Jonathan Coles, a partner at specialist consultancies Premium and Choice to Growth.

    History repeats. The same trend occurred after the global financial crisis, says Coles, and proof points are already glaringly apparent at the very high end of the market.

    In the first half of 2021, Louis Vuitton Moët Hennessy (LVMH) globally, for example, showed appetites for luxury wines, spirits and fashion had 53 per cent organic growth compared to 2020. “Not only are they up on the previous year (when figures admittedly were significantly down) they are up 11 per cent on 2019,” he says.

    The US and Asia have catapulted out of the COVID-19 environment, with LVMH’s growth moving faster once people started to travel again, says Coles. “In 2022, the opportunity for premium consumers is very buoyant and there’s good potential to further grow it.”

    Boards need to zoom in on the types of consumers they are targeting. Growing demand for more expensive goods may seem counterintuitive, but brands with a focus on consistent quality, service and innovation are winning.

    A 15–20 per cent difference between premium consumers... and more traditional ones.

    Jonathan Coles

    Disappearing consumers

    Preoccupation with burning platform issues of a rapidly evolving health emergency and its economic fallout has distracted many businesses from focusing on longer-term strategies. But projections on future consumer numbers are now strongly advised because, put simply, it’s likely there will be fewer than expected, reports PwC chief economist Jeremy Thorpe.

    Thorpe has been analysing “the big sleeper issue” of a potential nationwide shortfall of 1.1 million consumers by 2030–31 in Australia (compared to previously predicted population numbers).

    The cause is the halt of inbound migration in 2020–21. A decade on, the impact of missing population numbers will equate roughly to the current population of Adelaide. “It will be significant for organisations,” warns Thorpe.

    Population growth has been responsible for 40 per cent of GDP growth in recent years. “The upcoming population shortfall is not good news for businesses that rely on people to buy more stuff,” says Thorpe. Think housing, mobile phones, clothing and food.

    He believes almost every sector will be impacted to some degree and most profoundly affected will be businesses in Sydney and Melbourne — cities with higher migrant intakes — where addressable markets will be five or six per cent smaller. Also missing in action will be a substantial portion of consumers in their mid-thirties, the peak spending demographic, he says.

    Collective jaws drop when Thorpe delivers this thought-provoking news to boards. Their expectation that the problem may self-correct with border openings doesn’t hold up due to the absence of infrastructure and services to support a sudden influx of people. While media and policymakers’ sights have been on the tree- and sea-change movements of Australians from cities to the regions, this internal migration won’t pack anywhere near the same punch on consumption demographics, believes Thorpe. It’s an issue Treasurer Josh Frydenberg now says he’s keen to address.

    In terms of national consumer head count, directors might also keep a sharp eye on the more immediate “resignation day” trend expected to dawn once Aussies feel free to unleash their pent-up travel urges and head for international destinations for extended family visits, adventures or sabbaticals.

    Great expectations across channels

    Some of the world’s biggest trends are no brainers when it comes to thinking about new consumer behaviours. Rapid acceleration to digital, for instance, is all-pervasive. As pandemic-induced digitisation reportedly jumped ahead five years by necessity, so consumer expectations grew in synchrony.

    In retail, convenience and speed have made online and omnichannel shopping core business, “not optional”, notes Cohen. For businesses, there’s a formidable amount to consider and invest, but it looks different on the buy side. “The consumer is pretty excited that they now have all these options,” she says.

    Multiple payment options. The ability to pay in- store with the flick of your smartphone-clad wrist — a new Deloitte Australia survey shows the use of wearables as a payment method has grown 233 per cent since 2019. Flexible payment options with the consumer-led meteoric rise of buy now/pay later (BNPL) a seemingly unstoppable trend. Delivery options also abound, from click-and-collect (aka BOPIS — buy online/pick up in store) to direct-to- consumer — with last-mile deliveries a particular focus for their impact on customer experience.

    Competitive edge is driving experimentation. In August, global retail asset manager Vicinity Centres began dispatching goods from the rooftop of its Grand Plaza shopping centre in Logan, Queensland, via drone. Customers who live within a 1.5km radius have now received thousands of lighter-weight purchases — from sushi to Boost Juice and chemist goods — airdropped by Wing, an Alphabet company. The shopping centre giant claims it’s a world first. Airborne deliveries have been well embraced and it’s now considering the feasibility of lift-off across 60 more centres.

    While shopping malls continue their quest to become experiential playgrounds, traditional retailers are re-engineering their business models.

    “A leap ahead is better than a slow demise,” says Cohen. And leading the way are brands built around a whole experience, online and off. Among the standard-setters she calls out is the high-touch, high-service beauty brand Mecca, which interacts and sells to customers online and brings customers into its 100-plus stores in Australia and New Zealand to get an expert makeover, trial products and enjoy the ambient buzz.

    All together now

    The imperative to stand out and engage consumers in the high-volume roar of the online crowd is also driving convergence across industries as businesses seek to interact with consumers and their aspirations.

    “It’s happening now, with banks, utility companies and retailers all wanting to own the consumer and the end-to-end journey they are on,” says Cohen. “When you’re moving house, for instance, you interact with real estate, financial institutions, utilities and furniture retailers. It’s about playing to that with content and partnerships. Companies must consider which role they want to play — do you want to own the journey or be a partner?”

    Another closely watched space is the potential for super apps and ecosystems such as Amazon, China’s Alibaba, and Grab in Singapore and Indonesia. Australia has been slow off the mark, but big banks and BNPL operators such as Afterpay are now moving on this trend.

    From this upsurge in online and omnichannel, a new way of thinking about competition is rapidly emerging, with cross-category benchmarking the new essential. “If I’m in the market to buy something, my expectations are not just trained and shaped by what other retailers or brands are doing in the same category,” explains Coles. Customers may judge you based on the superior experiences they’ve enjoyed elsewhere.

    Boards and executive teams need to reframe their thinking around competing for the consumer rather than against their old industry competitive set, adds Cohen. “Intellectually, they get it, but in conversations, they’re still talking about the same industry competitors.”

    Social media’s big turn-off

    Brands are being urged to get TikTok-savvy post- pandemic due to the short-term video platform’s record-breaking download rates, highly personalised content recommendation system and recent moves to monetise its model. But be mindful, there’s a love-hate frisson with social media that is also happening.

    Around one third (32 per cent) of respondents in Deloitte’s latest Digital Consumer Trends report stopped using a social media platform in the past 12 months, with almost half of them permanently logging off, citing boredom, fake news and a waste of time as their top three turn-offs. Therein lies a loud lesson for companies overly reliant on selling via big social platforms to scrutinise their strategies.

    “Good for some, less for others” is the summation of Peter Corbett MAICD, Deloitte partner and co- author of the report. “If you’re planning to reach a millennial or younger audience, there’s a good chance you’ll reach them on a social platform,” he says. “Our new media consumer survey shows Facebook in the top three digital activities for those generations — 68 per cent are still using it daily.”

    Tackling the privacy paradox

    The heightening of the privacy paradox among consumers is another baffling trend in Deloitte’s digital report, which shows 43 per cent of respondents claiming to be very aware of how companies are using personal information. But their level of concern has been dropping —from 54 percent in 2018 when the Cambridge Analytica scandal broke to 30 per cent today.

    People profess concern about personal data and how it’s used — although they have been happy to share it to help with the health effort during the pandemic or get a sense of “normal” by using a QR code at a cafe, notes Corbett. With changes to Australia’s Privacy Act 1988 mooted, the next 12–18 months will be critical for businesses to think about how they build trust with consumers around privacy and the products they sell, he believes.

    Companies such as Apple use privacy as a differentiator for competitive advantage — and greater transparency over how much data they ask for and why they are asking for it is one potential solution. “When it comes to app permissions, for example, an app might ask for access to your camera, photos and contacts when you download,” says Corbett. “Most of the time, consumers don’t understand why they’re being asked for access and what it means if they don’t give permission. Companies can do a lot more to gain trust by explaining the utility they get from these permissions. A two-way dialogue may help prevent a future backlash or the possibility of heavy-handed regulation on what companies can do with consumer data in future.”

    Sustainability gets nuanced

    Consumer sophistication around sustainability issues has grown stronger and is increasingly nuanced. Where once a simple message that a company was doing the right thing environmentally might have washed, in 2022 people want the details.

    “People have had more time in front of their screens to research what they are buying, and their views and priorities are changing,” says Lisa Nijssen- Smith GAICD, EY’s leader of consumer and retail markets in Oceania. They are looking beyond recyclable packaging and “too much plastic” to dig deeper on issues of safety, ethical supply chains and decarbonisation.

    The seventh global EY Future Consumer Index found that 90 per cent of Australians and New Zealanders care about sustainability when buying goods and services. A quarter of consumers interviewed had increased their purchasing of sustainable products; while in the coming year, 33 per cent expect to buy more sustainable products.

    Confusingly, “sustainability” now means different things to different people. Is it social or environmental sustainability? Asked to nominate their top three issues, the index defined Australian and New Zealand consumer priorities as climate change (44 per cent), plastic waste (32 per cent), water pollution (30 per cent), human rights (29 per cent), wildlife conservation (24 per cent) and wealth inequality (23 per cent).

    That’s a daunting list when it comes to corporate action points, not least because consumers are looking to want those who create and regulate the products to act on their behalf, says EY’s sustainability team.

    It’s possible to fall short by taking a broad approach. There is a risk for companies who are not calling out the area of sustainability most pertinent to their customers, says Nijssen-Smith. “For a lot of companies going into product development and marketing, we have [surveyed] their consumers and results differ depending on the product.” EY research shows people willing to pay more for products that prioritise their areas of concern, particularly cosmetics and toiletries.

    The next steps are finding ways to meet that consumer demand. EY says brands need to make it easier for consumers, to help them make sustainable choices when they shop — 56 per cent want more information, and only two in five are prepared to figure out a product’s environmental impact for themselves. Robust scoring for sustainability is a clear gap in the market, but it’s a hugely complex task.

    Show it’s Australian

    It’s 18 months since disrupted supply chains and the requirement for healthy, safe and high-quality products sent Australian consumers on a voracious hunt for locally made goods and catalysed revitalisation of Australian manufacturing. The urgency may have passed, but pro-Aussie sentiment holds strong in the minds of local consumers, insists Ben Lazzaro, CEO of the Australian Made Campaign. However, there’s been a correction to the enthusiasm levels of mid-2020, when business applications to use the campaign’s green-and-gold kangaroo logo, on their goods rose 400 per cent. It remains up by about 50 per cent on 2019 levels.

    Roy Morgan research shows consumers still prefer Australian-made products across a wide range of categories — from agricultural and gardening equipment to baby products, building materials and home furnishings.

    Lazzaro is confident the upsurge in buying local will stick, in part due to high levels of consumer engagement coming through social channels and a proliferation of new online marketplaces for Australian-made products. Research is currently underway to quantify this. Feedback reveals Australian consumers like the notion of keeping locals in jobs and are willing to pay a premium for local goods in some instances. “Consumers are more likely to look at the total value proposition of a product,” says Lazarro. “Yes, it may be more expensive, but it will last longer and be supported locally.” While the logo has been around since 1986, having a visible symbol of product’s provenance suddenly has fresh relevance.

    Offshore demand for Australian-made goods is also strong. “The Australian story is not just about country of origin, it’s about the characteristics tied to it — quality, safety, ethical production, jobs, sustainability, clean and green,” he says. “Any kind of positive halo effect as a good corporate citizen should be top of mind for directors.”

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