Is Understanding Economic Uncertainty the New Consumer Based Marketing?
Without question, the world’s economy has undergone major shifts over the past two years due to the pandemic amongst other factors.
Now…you’re probably wondering why a marketing agency is getting into economic uncertainty. Well we’re here to get a little geeky with you and talk about behavioral sciences and how that affects consumer behaviors. Although many individuals know psychology to be “the behavioral science”, behavioral economics takes that discipline a step further by allowing us to understand why people make decisions in the real world based on their emotions and impulsivity but influenced by their environment and circumstances. In today’s world, we believe that in order to grasp the constantly changing needs of consumers- or in other words consumer based marketing- we must understand the true implications of these shifts.
In the past year, US Inflation hit a 40-year high in June, quickly casting a shadow over consumer confidence, and forcing many to re-think their finances. So let’s dig a little deeper into how behavioral economics has played a role in shifting consumer behaviors, based on shifts in economic uncertainty – but most importantly, how as marketers we can adjust our strategy to best respond to this shifting behavioral economic landscape.
How Does Inflation Affect People’s Buying Behavior?
The discipline of behavioral economics in itself has expanded and shifted over the last 200+ years, but the discipline has continuously been studied due to economist Adam Smith’s ideas of the “invisible hand”. A concept that guides an overall economy to prosperity if each individual is able to make a self-interested decision. However, with this concept there is also an assumption that each individual has the ability to be overconfident, self-controlled and loss aversion biased therefore the economy will not be guided by self-interested decisions, but the phenomenon of perception – one of the foundational concepts in behavioral economics today.
Although many believe that inflation or signs of “a struggling economy” shifts consumers’ behaviors, in today’s world what truly shifts these behaviors are an individual’s perception of the economy. Inflation is defined by a change in price in a basket of commodities or a group of normal products. However, an everyday consumer is basing inflation on products they buy most frequently. Now take this same reasoning and apply it to your industry, you can now rationalize how actual economic changes are not truly changing consumer decision making behavior, whether its booking another trip to their favorite resort, or placing bets in the Triple Crown, but their perception of the value of such products is what will shift their habits.
Overall the post-pandemic economic uncertainty has changed consumer behavior, but not necessarily due to the economies weaknesses. Economic uncertainty has shifted the perception of value for consumers, and what they perceive emotionally to be “important” to their everyday lives.
3 Changes in Consumer Behaviors We’ve Seen in 2022
Roughly 1/3 of consumers indicated their intent to cut back spending on both gas and groceries after noticing significant price increases. Unfortunately for the local food spot, a whopping 48% or nearly half of all consumers have indicated intent to cut back on income spent on one of 2021’s biggest growing industries – dining. Historically, when consumers are reluctant to spend on necessities, or inelastic goods such as gas and food, they are significantly less likely to shell out money on products that have a higher elasticity of demand (products where price changes lead to a shift in demand). This being said, many normal/luxury goods (substitutable products where demand increases are based on an increase in consumer income) will see demand dips for good reason, and overall poor performance in these industries will not directly indicate an issue with the product, service, or strategy. On the contrary, consistent or increased performance in industries will align with consumers priorities, and indicate which normal goods consumers believe are still worth of their discretionary income.
Aside from the overall market, another consumer behavior shift that has been displayed is the migration to online services. Physical distancing and stay-at-home orders have had lasting effects on consumer segments causing them to shop differently, even after physical distancing regulations have been revoked. Top online consumers consist of Millenials and high-income earners. Categories where expected growth in online shoppers exceeds 35 percent include essentials such as over-the-counter (OTC) medicine, groceries, household supplies, and personal-care products.
Lastly, it is important to note the change in consumer loyalty. This was highlighted in recent reports stating, “The crisis has prompted a surge of new activities, with an astonishing 75% of US consumers trying a new shopping behavior in response to economic pressures, store closings, and changing priorities.” Brand loyalty and consumer retention have always been essential aspects of any marketing strategy. This period of increased consumer variability should be capitalized on by attracting new customers using value, online accessibility, and other relevant consumer trends. Overall, brands need to ensure strong availability as well as convey value to their intended customers.
This mini overview provides some insights into how consumers are changing their perception of value, which is why it is more crucial than ever to consistently research specific consumer trends, preferences, perceptions and needs for each specific industry being targeted. This will ensure that your consumer based marketing strategy is as aligned as possible to your consumers’ decision making habits, potential economic/market triggers that might shift that, and the industry as a whole.
Our Top 5 Considerations for Consumer Based Marketing
- Convey Value In Your Messaging – Cultivate and retain a customer base with better values. Consumers are more receptive to higher prices accompanied by better experiences, especially among less affluent consumers. Cater to Consumers Perception of your Brand
- Consumer Segmentation is key – Consumer shifts vary by generational perception of time and value.
- Focus on real-time optimizations and measurement plans – perception can change in a blink of an eye. Ensure you are consistently studying and updating who your “qualified consumers” are.
- Cater to Online – Adjust media mix and spend where consumers are spending most of their “emotional time” on (e.i. Social media, review platforms, etc)
- Focus on Long-Term Customers – Long-term relationships matter more the older a customer is.
Alexia George, Lead Marketing Specialist + Logan Didier, Marketing Intern