In 2021 we forecasted Embracing Frugality, where consumers began to adopt a positive mindset around affordability and value, as one of our Big Ideas for 2023. In 2022, as the cost-of-living crisis continues to unfold globally, this sentiment is already more relevant than ever.
So how should brands respond and what strategies should they employ to help build a recession-proof business?
Reduced discretionary spending
After a record period of time with low interest rates, global economies are feeling the impact of rising inflation and struggling to mitigate the cost-of-living crisis. Two years of economic stimulus from governments pushed economies through the pandemic, but many countries now face increased inflation, supply chain shocks and a fall in consumer confidence.
The Institute for Government defines the cost-of-living crisis as the fall in real disposable incomes and consumers are concerned about affording basic necessities. In the UK, 23% of adults said it was very difficult or difficult to pay their usual household bills in the last month and 43% said they would not be able to save money in the next 12 months. The Ipsos Essentials Survey 2022 found 84% of urban consumers in India were concerned about their ability to pay bills and in the US, just under half of adults said they think about rising prices all the time.
Rising costs are pushing consumers to re-evaluate their spending behaviour, they are cutting their discretionary spending. So how can brands can increase value and reduce risk?
Show empathy
Brands have an opportunity to show empathy to consumers. Price freezes on private-label goods, like those promised by UK retailer Superdrug, help give people peace of mind. Price matching is also a way prioritise consumers’ time and wallets. For brands with monthly membership programmes, offer pay-as-you-go or tiered models. For subscriptions like Netflix, whose pricing has crept up over the past few years, allowing users to subscribe to just a few series or films for a low monthly fee could prevent cancellations.
Companies need to have a human face, showing customers they understand the impact increased costs is having on mental health, quality of life and their wallet. Ensure brand action is authentic and fits your customer relationship. Avoid PR stunts at all costs. In January, E.ON Energy sent 30,000 customers a pair of woolly socks while encouraging them to turn down their heating, which did not go down well.
Invest in own label
Consumers are going about their shopping in two ways. Some are sticking to local stores and doing bulk buys to save on fuel. They’re also shopping online, in the US with retailers such as Thrive Market, which offer a baked-in shipping rate. Others are store-hopping, purchasing pantry staples and cheaper produce at budget shops, for example in the US Trader Joe’s, to supplement more expensive purchases at Whole Foods Market or specialty stores.
Retain your customers by investing in own labels and committing to keeping costs low, like British supermarket chains Asda and Morrisons. Be consistent in weekly deals and promotions; if people know they can depend on you, you’ll become the weekly one-stop shop. Offer digital coupons via push notifications on branded apps to sell close-to-expiring products, which can also reduce store waste.
Reinvest in loyalty programmes
As consumers become more frugal in their spending habits, brands will need to redesign loyalty programmes from static discount schemes to dynamic and community-based reward programmes. Value-based loyalty programmes are leading in search interest. According to current Google Search data, the term “loyalty programme” surged 45% in interest between April and June 2022 over the same period in 2021.
In 2021, Mastercard revamped its loyalty programme and curated it around three key customer needs that emerged during the pandemic: wellbeing, choice and experience. For cardholders in Latin America and the Caribbean, Mastercard offers a telemedicine benefit, letting them access digital health services including on-demand live medical help and remote consultations.
In November 2021, sports retail giant Nike saw its Nike’s Members concept reach record engagement with the launch of its first global Member Days event. Breaking weekly active user adoption on its Nike App in North America, the brand ran a five-day loyalty event between November 9 and 13 themed around “Celebrating PeacePlayers”. The event aimed to raise awareness for PeacePlayers, an organisation that uses basketball to unite youth in divided communities. Nike members earned an Achievement Badge in the Nike Run Club app by running 5km, which unlocked exclusive access to merchandise as well as up to 50% off products.
WGSN is publishing numerous reports across our site addressing how brands can navigate the cost-of-living crisis. If you're not already a subscriber, now might be the time to join us to help you build a recession-proof business. Request a demo here to get a tour of what WGSN can do for you and your business.