Navigating Inflation & High Costs.

Even with ongoing concerns about inflation and the rising cost of living, consumers of all ages and across various product categories are showing they can still spend—just a bit more thoughtfully. This trend highlights the resilience and adaptability of today's consumers, who are increasingly prioritising experiences over goods and seeking the best value for their money. Even when it comes to sustainably produced products and services, the price needs to be right.

Shifts in Consumer Behaviour

Recently senior partner Sajal Kohli shared insights from the latest State of the Consumer report, spotlighting significant shifts in the global consumer landscape. Consumers are behaving in unexpected ways, challenging consumer goods companies, retailers, and consumer-facing businesses to stay agile and responsive.

Future Consumers: Young and Optimistic

One of the most exciting groups to watch is young people in emerging markets. By 2030, about 75% of consumers in these markets will be between the ages of 15 and 34. These young consumers are not only ready to spend but are also more likely to trade up to premium products. Their optimism about the economy is notably higher than that of their Western peers, making them a crucial demographic for businesses to target.

Retired and Ready to Spend

On the other end of the spectrum are the "retired and ready to spend" consumers. With longer life expectancies and declining birth rates, especially in advanced economies, the global population of people over 65 is growing rapidly. This group, often overlooked, has significant purchasing power, especially in experiential categories like travel. Wealthy ageing consumers in both developed and emerging markets are showing a strong inclination to spend on entertainment and experiences.

The Squeezed but Splurging Middle Class

In the middle of these two extremes lies the "squeezed but splurging" middle class. Despite rising living costs, this group is planning to splurge on discretionary items at rates comparable to high-income consumers. They are focusing on experiences such as travel and dining out, and are becoming more thoughtful and cautious in their spending habits, seeking to enhance their quality of life.

Brand Loyalty and Consumer Preferences

The pandemic has left a lasting impact on consumer behaviour, weakening brand loyalty and increasing brand exploration. Many consumers, unable to find their preferred products during the pandemic, began trying new brands and retailers. This behaviour has persisted, with over a third of consumers in developed markets trying different brands and around 40% switching retailers or adding new ones to their regular shopping routines.

Private brands are also gaining traction, with 35% of consumers planning to purchase private label products more frequently and 60% believing that private brands offer quality equal to or better than branded products. This trend is evident across various categories, including apparel, food, and beauty products.

The Mixed Bag of Sustainability

While sustainability remains an important consideration for many consumers, its influence on purchasing decisions varies widely by geography. European consumers and CEOs place a higher priority on sustainability, whereas in the US, Latin America, and large parts of Asia, value for money often outweighs environmental considerations. Interestingly, younger generations, who previously emphasised sustainability, are now more likely to prioritise affordability when it comes to paying a premium for environmentally friendly products.

The Wellness Trend

Wellness is a significant and growing area of consumer interest, driven by both ageing populations and younger consumers. The global wellness market is estimated to be worth $1.8 trillion, growing annually by 5-10%. This trend encompasses a broad range of categories, including fitness, nutrition, sleep, and personal care. The wellness wave is particularly strong among women, with a high propensity to spend on beauty and personal care products.

Urban Hot Spots and Social Commerce

Consumer spending is also being influenced by new urban hot spots and the rise of social commerce. Secondary cities with populations between 50,000 and 500,000 are emerging as significant growth frontiers. Social commerce is gaining traction, particularly in Asia, where consumers are actively engaging in online marketplaces and social-commerce platforms. This trend is expected to spread to Western markets, creating new opportunities for businesses.

Lessons for Businesses

Businesses can draw several lessons from these consumer trends:

• Micro-targeting and Hyper-personalisation: Companies need to invest in data and advanced capabilities to understand consumers at an individual level. This allows for tailored offerings and more effective engagement.

• Wellness Focus: Businesses should consider how they can incorporate wellness into their product and service offerings, tapping into the growing demand for health and well-being products.

• Social Meets Digital: Investing in social commerce and exploring innovative partnerships can open up new opportunities for growth.

• Premiumisation: While value for money is important, consumers are also willing to pay a premium for enhanced experiences and high-quality products from trusted brands. Businesses should develop diverse pricing and product portfolio strategies to cater to different consumer needs.

Conclusion

Today's consumer landscape is characterised by optimism, discernment, and a focus on value for money. Businesses that can adapt to these changing behaviours and preferences, leveraging data and innovative strategies, will be well-positioned to thrive in this dynamic environment. The key to success lies in understanding and meeting consumers where they are, offering personalised and high-quality experiences that enhance their quality of life.