There are two sides to every coin, and this logic applies to the global financial situation.
People are reporting two drastically different narratives, the first pays homage to one of the worst economic crises in history, the other captures the pent-up demand currently laying the foundations for a period of economic prosperity.
Many will have seen their savings increase off the back of deferred spending. And compared to December, the OECD is already predicting much higher growth for the global economy in 2021. This is based on vaccination efforts and the impending $1.9 trillion economic stimulus package in the U.S.
So the means are there, governments and brands just need to ensure the confidence to indulge is too.
Here, we consider the main ways spending attitudes and habits have shifted, and how organizations can adapt their offerings to better meet the needs of today’s cautious consumer.
The decline and recovery of consumer spending
The outlook for spending in 2021 depends on consumer confidence; when it’s high, shoppers make more purchases, and vice versa.
At the start of 2020, those in the low savings segment (data generated based on our value of savings questions) were the most optimistic that their finances would get better in the near future.
By Q2, the tables had turned – leaving those with low purchasing power feeling the least hopeful about their financial situation.
Across all savings segments, economic confidence is picking up again. But for those with less savings, a rebound in spending is going to take more time and reassurance.
Regional trends don’t always conform to this pattern. In North America, the portion of consumers falling into our medium-to-high savings segment increased significantly (+18%) across 2020. And yet, the continent exhibits one of the steepest falls in economic confidence (-16%). Similar things can be said of Europe.
A better predictor of economic confidence is lockdown severity.
Using the Oxford COVID-19 government response stringency index, it’s clear that regions with the most intense and pervasive restrictions have typically seen the biggest drops in financial positivity.
With life so far from normality, and intermittent lockdowns enhancing general uncertainty, it’s understandable that people in these parts of the world are less optimistic about spending money that might be needed should restrictions reoccur.
In America, a fair amount of the money granted by stimulus cheques was saved or used to repay debt, while furlough schemes and benefits bolstered incomes in the UK. This is why many in these countries witnessed an increase in savings.
If consumers loosen their purse strings on even a portion of this accrued wealth, a lot of money will be up for grabs.
And organizations can aid this process.
Government campaigns like Eat Out to Help Out in the UK remind people that supporting struggling industries is a collective effort. But some feel that longer-term strategies like ongoing awareness campaigns are a stronger tactic than temporary handouts. Save the Street, which has offered support schemes for retailers and sparked a wave of public and influencer support across 2020, is a prime example.
In hard-hit sectors like luxury and travel, various brands are banding together to frame new and enduring narratives. Just under half of consumers in the UK and U.S. are still pushing back vacations or trips, amid stories of travel providers delaying or refusing to issue refunds.
Keen to change their minds, over 300 travel companies are backing the Save Our Summer initiative, which guarantees consumers a refund should restrictions prevent the trip from happening.
Strong brand and government messaging is needed to drive consumer confidence in 2021, particularly in countries that have been locked down the longest. But it needs to be pressure-free and show sensitivity toward current anxieties, like Disney Parks’ When You’re Ready campaign.
2021’s up-and-coming purchase categories
The general story is that people are forking out less; but they definitely haven’t been skimping.
Consumers have upped their spending in several non-essential product categories, ultimately redirecting some of the money they would have otherwise spent on traveling and experiences.
There’s been a shift from covering up to caring for our skin, with massive drops in make-up purchases mirroring rises in skincare products. Physical wellbeing is also high on the agenda, as health-conscious consumers continue to stock up on vitamins and home exercise equipment.
A number of these trends are set to stick around for the foreseeable future. A year on, interest in fitness and cooking remains noticeably higher, with passion for cosmetics and fashion continuing to trend downward.
According to The NPD Group, several products across the beauty industry have seen their market share increase, including tinted moisturizer, bronzer, and concealer. Consumers are still keen to take care of their appearance, but beauty priorities have taken a turn. Many are looking for lightweight products or subtle ingredients that address self-care.
By the same token, the portion of internet users who say they follow the latest technology trends and value learning new skills has climbed since Q2 2020, a sign that online streaming and education services have made lasting progress.
Companies able to facilitate the learning of new skills and DIY habits will tap into the growing demand for creative, healthy consumption.
These wider patterns do vary by income. More likely to work remotely, high earners have seen steeper drops in how often they use public transport, dine out, and travel abroad.
But ‘forced saving’ and a renewed focus on quality – though more significant at the higher end of the income spectrum – can be seen across the board. Even among low earners, there’s been a 6% increase in consumers saying they tend to buy premium versions of products since Q2.
What value looks like in the new normal
With consumer confidence especially low in the West, brands need to communicate and demonstrate ‘value’. Yet, the meaning of this term has expanded across 2020.
The importance of equal rights, mental wellbeing, and recycling has generally crept up – and this is reflected in what consumers want from brands.
Compared to 2008, the current recession is a consequence of nature, not a structural problem. Once the pandemic is contained, the focus will be on nursing the planet and its people back to health. Value therefore doesn’t just apply to the price of a product or service, but the implications of buying and using it.
Using our February Zeitgeist research carried out in the U.S. and UK, we’re able to create an audience of price-conscious shoppers – those who say they’ve been looking for cheaper options or relying on discounts more since the pandemic began.
Despite their eye for bargains, they want much more than price cuts, and can be incentivized by brand purpose and other value-exchanges.
We know consumers want discounts, but not all companies can offer them, and for some sectors it’s not feasible as a long-term strategy. Plus, lengthy discounts undermine perceptions of quality.
For consumers looking to maintain a financial security blanket, flexible payments, introductory offers and loyalty schemes can satisfy their shopping cravings, while mitigating money concerns.
Online electronics and clothes buyers are significantly more likely than the U.S. and UK average to say flexible payments carry purchase influence.
Brands in lifestyle categories have an excellent opportunity to reap the benefits of ‘buy now, pay later’ schemes, as providers like Klarna continue to add features like livestreams to their list of services.
What’s more, while 16-24s have been hard-hit during the pandemic, they’re the most likely to be tempted by exclusive content offerings, which work best in aspirational categories.
Even now, this age group is 27% more likely than average to say great photo opportunities have the biggest sway on their choice of vacation. Holiday destinations like The Branding Spa hotel have generated high levels of engagement by creating influencer-driven content on YouTube and TikTok.
So for younger consumers in particular, brands can offer value by enhancing their online image or reputation, and use social videos to boost spending intentions among those who want their lifestyle to impress others.
How the penny is finally dropping
- Consumer confidence had already started creeping back up toward the end of 2020, and was barely affected among those with high purchasing power. Banks disagree on the amount that’s going to be splashed out, but with high earners typically seeing the biggest increases in savings, we can expect them to power any economic growth.
- Countries like the U.S. and UK are sitting on the most money, but have seen the biggest drops in financial optimism. Brands and governments need to deliver sensitive and reassuring narratives, and adapt their offerings to alleviate current anxieties around spending.
- A list of product categories have benefited during lockdowns, and continued to see higher buying rates at the end of 2020. With interests and attitudes also having budged, a number of these habits are positioned to stick around for the foreseeable future.