Cost of Living Crisis in the UK: What Does it Mean for Brands and Consumers?
December 20, 2022
We live in times of great uncertainty and this inevitably has a major impact on our lifestyle and buying behavior. The prolonged consequences of Brexit and pandemic lockdowns, exacerbated by the war in Ukraine, have contributed to inflationary price rises – intensified by energy companies’ cost rises, and worsened by material scarcity, supply chain disruptions, and labor shortages.
As a result of all of these events, inflation has hit record levels and the increase in prices is not accompanied by a rise in consumer income, translating into a loss of purchasing power.
On top of that, financial planners are already warning that “the classic pension-saving rules from the ’90s are no longer relevant in a world where everything suddenly costs a lot more.” Bill Bengen, the financial planner who popularized the ‘4% rule’ – the amount that was considered safe to withdraw from a pension fund each year during retirement – now recommends that “individuals approaching retirement should expect to keep reducing costs during their golden years.”
The priority for almost every adult in the UK is to figure out how they can stretch their finances further in the face of unavoidable price rises. How are their spending habits changing – and what do they want from brands at a time like this?
How are consumers dealing with it?
In the UK, consumer confidence reached record lows ahead of this winter (a decrease of five points in overall consumer confidence, reaching -49 points in September), according to the latest GfK Consumer Confidence Index.
Given this, 55% of people have already started to reduce their cost of living by giving up luxuries such as eating out and buying new clothes, while other treat purchases like alcohol and vacations have also been trimmed – so businesses operating within the retail, hospitality, and travel industries are the most likely to feel the impact. Yet, while most consumers are worried about the rising costs, not all of them are reducing their consumption habits, with many instead turning to “buy now pay later” services (there was an increase of 29% in the use of such services) to maintain spending while pushing the cost down the road.
Even still, behavior is likely to have changed across the board. Consumers are now more open to switching from their branded products to cheaper own-label ones and to shopping at discount stores. They are also increasingly inclined to spend more on eco-conscious products or services that enable future savings, with 44% of them planning to walk or cycle more instead of driving their own cars or taking expensive public transport, and 38% planning to reuse more products. Given this caution, shoppers are looking for clear communications about the impact of inflation on their favorite products.
Within the travel industry, price is a key factor, although the quality of experience is travelers’ top priority. As pandemic restrictions are lifted, consumers who are spending on travel are now looking for meaningful experiences rather than just a getaway.
Separately, in the financial sector, money management tools are becoming increasingly important for people, and Britons have embraced fintech-driven open banking methods to help them through the crisis. On the other hand, data from the Post Office signals that Britons are re-embracing cash as a method of budgeting.
Is there a way out?
In the face of such change, brands that balance convenience and cost are likely to have an advantage (for example, by providing an omnichannel and seamless shopping experience). Perceived value is increasingly important, especially when brands cannot afford to lower their prices. There are a number of clear opportunities for brands to create value in different industries:
Consumer: Offering membership deals and saving schemes
As prices increase, consumers are becoming less loyal, switching to more price-appealing brands or services. Therefore, having a loyalty-focused strategy is useful to attract money-saving consumers. Direct-to-consumer or subscription models are one way to maintain more control of pricing and distribution in times of economic uncertainty; 87% of Brits say that a loyalty program influences them to buy again, especially when it comes to subscriptions.
Travel: Creating meaningful and personalized experiences
Consumers may be thinking of reducing their travel expenses, but many are still willing to travel, especially in an effort to gain memorable experiences. Indeed, global travel and tourism GDP is expected to grow on average by +5.8% annually between 2022 and 2032, outpacing the overall economy’s growth (+2.7% per year). Wellbeing is increasingly becoming a priority, and in times of crisis, travel companies can tap into budget-friendly package destinations that include wellness experiences. There are also ample opportunities in the area of affordable green tourism that are likely to attract travelers seeking options that reduce the negative impact on the environment while lowering travel costs.
Financial Services: Educating consumers on financial responsibility and saving methods
There are opportunities to help individuals with the cost of living crisis, by becoming a source of education when it comes to the best money-saving methods. This is especially important to young people, as 63% of 18- to 25-year-olds claim to want more insight into their spending so that they can better budget. However, consumers do not trust information from just any source, so financial brands must find a creative way to provide credible and transparent insights. For example, seeking partnerships with financial leaders or influencers seen as honest and humble can help brands generate new forms of insights to engage with consumers and differentiate their brand experience.
Be adaptable to change
In general, brands that focus on building their reputational credibility are more likely to retain a loyal customer base. In fact, 63% of people from the UK consider transparency and honesty to be important factors when engaging with brands. The responsibility is on brands to earn that trust and turn it into meaningful actions and purchases.
It is necessary to keep monitoring and analyzing how businesses will be able to deliver value to their consumers. The use of primary research and social listening tools to assess and understand consumer sentiment and behaviors enables actionable insights, exceptionally valuable for a brand strategy. It is not the first time that brands have faced inflation, lower spending, and an imminent recession – these are all components of the common economic cycle. Charles Darwin once stated: “It is not the strongest of the species that survives, nor the most intelligent. It is the one that is the most adaptable to change.” In this way, brands will certainly need to adapt to the current consumer needs in order to survive a world of constant evolution.
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