By Todd Hale, SVP Consumer & Shopper Insights
Financial headwinds are the new normal, and U.S. consumers are feeling the effects across the board. Whether it’s spiking food and gas prices, surging energy bills, mounting health care costs, higher payroll taxes, or all of the above, rising costs of living are putting the squeeze on everyone’s wallets.
So how do marketers approach a base of consumers that’s struggling to keep their heads above a rising tide? A key first step is gaining a solid understanding about how people are fighting the economic challenges. By comprehending specific consumer difficulties, marketers can design appropriate strategies and tactics to help consumers navigate rough economic waters.
Rising Food Prices are Top Consumer Concern
Even though payroll taxes were a hot button early this year, less than one-in-four households say they’ve been affected by the recent payroll tax hike. In looking at the array of rising costs, most say they’re feeling greater pain at the grocery store and gas pumps than elsewhere. Further, rising utility/energy bills and escalating health care costs are weighing on consumers more than increased payroll taxes.
Diverse Reactions at Income Extremes
It’s probably not a big surprise to see a diverse reaction to the higher payroll taxes from households across the income spectrum, but the lowest- and highest-income households have been less affected than the average consumer. Lower-income households have also struggled to adjust to other rising costs, as nearly seven-of-10 low-income households say they’re influenced by rising food and gas prices, compared with less than four-in-10 of the most affluent households.
Impact from rising utility and energy costs is twice as great among the lowest-income households. Rising health care costs are also affecting a disproportionate percentage of low-income households, while over half (56%) of households with incomes above $200k indicate they are not affected by these increased costs of living.
Consumers Adjust to Keep Up
Ultimately, increased costs of living lead to tighter budgets and decreased consumer spending. So in the face of rising expenses, many consumers are taking action. Four-out-of-five households say they’re reducing shopping trips and conserving gas when gas prices rise; and nearly two-thirds of consumers seek deals as food prices rise. Buying fewer unnecessary things is a common tactic for coping with financial headwinds, and consumers can take this approach across most categories—gas being the main exception.
Consumer reactions to rising prices create unique challenges. Manufacturers and retailers must find ways to build loyalty and deliver value by touting benefits like convenient locations, reward programs and at-home consumption. It’s also essential for marketers to collaborate with them in order to drive success. For example, consumer perceptions about the necessity of non-food-focused products will likely drive how retailers and manufacturers in this category will respond.
Do Consumer Behaviors Match Claims? Think Spring.
A late spring in the U.S. had a negative impact on typical warmer weather categories. Last year’s warm first quarter led to growth in warmer weather categories like lawn and garden, insecticides and repellents, ice, frozen novelties and charcoal. But with a colder, snowier climate this year, sales for those categories are off substantially. Several discretionary categories are experiencing bigger declines in year-to-date sales, such as film/cameras and lawn/garden, but it’s unlikely that the drops are directly the result of how consumers are dealing with higher costs of living.
But the late spring doesn’t tell the whole story. Specifically, we can see declining sales in areas unrelated to warmer weather purchasing patterns, supporting consumer claims that rising costs are causing them to buy fewer things they don’t need.
The New Normal?
A combination of factors related to inflationary pricing, promotion support, weather and consumer demand have driven atypical swings in category sales over the past two years. In that way, it’s critical to dig beyond the average consumer response to uncover how and where a marketer should respond in order to generate positive sales results.
Retailers and manufacturers serving consumers feeling greater pain from financial headwinds can either sit on the sidelines and feel the pain too or take steps that align with consumer coping strategies and minimize the impact on your sales. Companies serving consumers feeling less pain shouldn’t sit idly by either. There are always ways to maximize marketplace success by closely examining the consumer base and addressing what matters most.