How can consumer businesses respond to the cost-of-living crisis?
Last month my colleague Kieran shared his thoughts on the impact of the cost-of-living crisis on consumer behaviour. This month (June ‘22) the BBC published a consumer study revealing how UK households are trimming their outgoings: cutting down on eating out, reducing household energy consumption, driving fewer miles, and limiting their spend on personal care.
This article focuses on approaches businesses can adopt across different consumer sectors to help navigate the cost-of-living crisis.
1 / Offer the option of trading down (rather than switching), or compelling reasons to stay
For those essential categories that consumers are not willing to give up, better value alternatives are already being sought. Grocers are savvy to the risk of share loss to value operators or new markets entrants, having had their lunch eaten by Aldi and Lidl following the 2008 financial crisis. Asda has already responded by launching a new value range, directly in response to the cost-of-living crisis.
This willingness to sacrifice some elements of a product proposition will be ubiquitous across sectors. Fundamentally, what Aldi and Lidl got right was understanding what consumers were willing to sacrifice (brand name and range of options), and what they weren’t (quality and taste).
Vehicle fuel is another essential spend massively impacted by spiralling inflation and I for one have become increasingly conscious that perhaps my MG doesn’t need to exclusively exist on a diet of premium fuel. Should I trade down? Shell has the answer – Shell Go+. If I sign up for an energy service, I’ll save 3% on the cost of fuel. And if I’m loyal to Shell, I earn discounts on food, drink and car care. All of a sudden, I feel less compelled to refuel at Tesco.
2 / Win discretionary leisure spend through value proposition and experience
Businesses which rely upon discretionary spending are often the most nervous when recession is on the cards; it is fair to assume that consumers will rethink the non-essentials. The BBC study showed that over two thirds (68%) of consumers had been on fewer nights out in the past six months.
Accepting that visit frequency to social venues is under threat, the question shifts to how hospitality businesses can respond?
Value proposition is key; promotions that reinforce this and avoid ‘bill shock’ will attract more repeat custom. Consumers are likely to be swayed by those elements that can’t be replicated at home, such as atmosphere and environment.
Faced with soaring CoGs (cost of goods), foodservice businesses are constantly reviewing menus in order to engineer their offers to balance protecting their margins without impacting the customer experience. Rationalisation is inevitable, but it is critical this is informed by an understanding of what’s important to consumers and how this is changing.
3 / Reduce subscription attrition by embedding more widely
Subscriptions boomed during lockdowns, but the data suggests that over half of us (57%) have subsequently cut back on our commitments to TV. Given this, Netflix’s decision to crackdown on password sharing in April raises questions. As the bill-payer of Spotify and Netflix accounts which are both used by friends and family, I’d have a lot of explaining to do if I cancelled these subscriptions. Ironically, I rarely use Apple TV, but my subscription to the MG Car Club (which has not been as popular with my kin!), is a more likely candidate for cutback for this very reason.
Amazon go a step further, as not only do my family members enjoy access to Prime Video, making it impossible for me to cancel that one too, but it is difficult to directly compare the value its streaming represents relative to Netflix, due to the Prime delivery element of the proposition. Just when I think Clarkson’s Farm lacks appeal and perhaps my family will forgive me for cancelling, a delivery van with three boxes arrives to remind me I can’t live without it.
Could other subscription-based businesses learn from this dynamic to become more embedded? For example, gym chains are often high on the list of cutbacks during a downturn. Could a limited extension of access to friends and family members help reduce churn, or attract new members, without compromising margin through discounting?
Overall, as costs continue to increase and competition hots up for a diminishing pool of spend, businesses will need to be resourceful to maintain custom at the same time as preserving margin. The key principle, which can be applied across sectors, is to keep in tune with the shifts in consumer behaviour, to understand the options available to fulfil their needs and focus on those factors that differentiate vs these alternatives.
To chat more about how we work with clients to help align propositions and strategies to changing market conditions, please get in touch.