The past few years have been some of the most challenging economic and societal conditions we’ve had to navigate this decade by far. The event of the global pandemic and restrictions presented drastic changes that would force every individual and business to adopt a new way of living and consuming. For many businesses, this meant transitioning to an online storefront and investing in digital experiences to meet customers where they are.
While some industries thrived, like delivery services, health and fitness, gaming and tech, many more were left behind. Particularly for small, niche businesses without the proper resources or infrastructure to go digital, many were struggling to stay in business and adapt to the new consumer landscape.
As we head into 2023, the challenging road to recovery continues. Though in-person consumption has generally resumed as usual and we’ve adopted a new level of normalcy, the economy is still struggling to find its footing. The adverse effects of increased unemployment rates and large amounts of national debt incurred in the past few years will continue to impact consumer spending behaviors. Some experts say that a recession is imminent, while many others believe that we are already in one.
As the cloud of economic uncertainty rolls into the new year, what consumer trends can your business expect and how can you best prepare to weather the storm?
The good news: people are still spending
You may be surprised to know that despite hitting record inflation rates, consumers were actually more ready than ever to start spending again. After two years of restrictive consumption, the total US population was able to save $2.8 trillion more than they had in 2019. So even with inflation growing to its highest rate in the past decade, consumer spending was still 18% higher than pre-pandemic two years ago.
For businesses, this sounds like hopeful news. The first half of 2022 showed consumer willingness to return to more regular spending habits, both online and in-person. Even more optimistically, according to Bloomberg, we may have just reached the peak of global inflation, signaling the end of the fastest interest rate hikes we’ve seen in decades. However, growth will still be slow and weak as the declining real estate market, among other factors, cools inflation.
On paper, this means that we could see a significant decline in inflation rates, but what’s more important is what consumers are actually experiencing on a day-to-day basis. It’s likely that consumers will continue to feel the effects of increased prices of food, water and energy at home which will pressure their spending abilities and decisions.
As you plan your business strategy, consider how these consumer spending trends extending into the new year could affect your business.
Consumer spending trends to look out for in 2023
Novelty will prevail over loyalty
For Gen Z and millennial consumers, aligning with a brand’s mission and purpose has become an increasingly important part of the purchasing decision. When a customer finds a brand that fits their values and meets their price and quality requirements, they will typically choose to stick to it—that is until now. After winding down on spending for the past few years, consumers are eager to venture out and experience the excitement of shopping again. As a result, loyalty to a brand’s purpose is now less of a buying factor while novelty is steadily rising in importance. Today’s consumers are willing to abandon familiar, go-to brands in favour of the excitement and novelty a new brand can bring to the buying experience.
For businesses, this is the perfect opportunity to win over new customers from other large competitors. Keep in mind that being innovative doesn’t just mean having the most unique product. You can be innovative with your branding, marketing and overall experience to attract customers.
Shopping for value
In addition to novelty, consumers are also willing to leave brands they once preferred for products that offer a better value in terms of price and quality. To no surprise, the rising cost of goods and services has forced many consumers to shop more consciously and selectively. This means having less loyalty toward brands and placing more of an emphasis on getting value.
As a result, sales in white-label products grew significantly these past years as consumers strapped on a budget seek low-cost alternatives to help save on costs. If your business is able to offer competitive discounts or promotions, this will be an effective strategy to attract new and returning customers.
For others, value doesn’t mean price, but quality. Customers that are less price-conscious will instead be more selective about the quality of the product over quantity. Their way of reducing spending during heightened inflation will be to purchase from fewer brands overall and seek for quality products that will last the longest or get the best results.
As a business, you will want to take this time to reassess your price and product quality. Consumers will be doing a lot more research to find the best deal and product before making a purchase, making it highly important to invest in a well-designed digital storefront. In addition, you’ll want to make sure that you have strong product messaging that effectively positions your brand as the best in price or quality over large competitors.
Valuing time and experience
After living within the constraints of our homes, consumers have shown excitement to spend on regular out-of-home activities again, like travel or entertainment. People value their time and experiences much more now, which also means choosing brands that align with those values.
Factors like shipping time, fees and convenience are more important than ever because of the growing expectation of on-demand transactions and experiences. The retailer that can offer faster shipping or no fees will likely win the customer because it shows that the brand values the customer’s time and money.
Beyond creating a more efficient shopping experience, consumers are also looking for an interesting experience. Falling in line with their desire for novelty, Gen Z and millennial consumers are increasingly attracted to innovative brands that offer a unique experience, either in-person or online. For instance, pop-up shops or concept stores are great physical experiences to immerse customers into your brand. For your digital storefront, incorporating innovative experiences like AR/VR shopping or NFTs can also effectively attract customers.
What’s most important is that you know your customers and understand their needs. If they are seeking the most convenient experience, you’ll want to focus on improving the operational aspects of your business and consider expanding your channels to meet them where they are. If your customers value novelty experience, you’ll want to get creative on how you can offer a unique shopping experience leveraging emerging technology.
Though 2022 saw consumers loosen their wallets due to the lift of restrictions and an increase in savings, 2023 may see a revert back to tightened spending. As the government cheques and savings accounts get spent and the economic outlook remains uncertain, we can expect consumers to buckle down on their spending habits in the coming months. On one hand, it will make it more difficult for retailers to capture the attention of customers who are generally spending on fewer brands. But on the other hand, it’s also an opportunity for smaller, niche businesses to take advantage of the decline in loyalty and win over customers from typical go-to brands. To survive these economically challenging times, businesses that are able to swiftly adapt and innovate will ultimately prevail.