For some years now the price of necessities such as food, housing and energy has been rising immensely. We call this the cost-of-living crisis. This phenomenon has a huge impact on consumer behaviour forcing consumers to rethink their spending habits, adopt new behaviors, and prioritise certain areas over others.
Overview of the cost-of-living crisis
This crisis affects regions differently but is experienced on a global level. The main drivers of the crisis are inflation, wage stagnation, global supply chain issues and rising energy costs. In the background stand a lot of issues such as the pandemic and the Russian-Ukranian war for instance. Such discrepancies disrupt supply chains, decrease employment rates and complicate global collaboration.
As a result of economic downturns people’s purchasing power decreases and makes it harder for them to cover even basic expenses. The lot is forced to cut back on their spending which influences businesses and as a circle comes back to further damage the economy. In the following, we will see how exactly the crisis is reshaping consumer behaviour.
Changes in consumer behaviour
The most noticeable difference is the shifting of priorities regarding spending habits.
Consumers are cutting back on non-essential purchases such as luxury goods, dining out or entertainment to focus on essential ones. This phenomenon gave popularity to budgeting, consumers are extremely careful with their spending, assigning amounts or ‘budgets’ to areas of their lives.
As a way of saving money thrifting has also become more widespread. Discount retailers, second-hand markets, and resale platforms like eBay or thrift stores have gained popularity recently. Furthermore, customers are more price-conscious, comparing prices and looking for promotions.
Generally, consumers developed a preference for store brands or generic products over
premium ones. Especially regarding products that do not symbolize status such as soap for example. In addition, many tend to buy in bulk reducing the number of shopping trips or purchase online to find better deals and avoid transport costs.
Finally, more sustainable products are on the rise as well, as consumers look for more
durable, quality products so they do not have to repurchase often. For the same reason, DIY culture and repairs have gained more traction as well.
Impact on businesses
Businesses are responding to changing needs by launching budget-friendly product lines for instance. Some companies offer payment plans, subscriptions, or flexible financing options to make it easier for consumers to ration their income.
At the same time marketing communications of companies also need to be responding to the changes. Brands emphasize value and practicality in their messaging rather than luxury or aspiration. While in practice companies offer promotions, deals, and loyalty programs to increase consumer loyalty in tough times.
Another practice responding to the cost-of-living crisis is releasing new, more affordable
product lines. As a way of keeping generic brands at bay and maintaining, if not raising
market share. For example, Starbucks launched VIA, a cheaper instant coffee alternative to their freshly brewed coffees. In a less consumer-friendly way, businesses also use creative solutions like smaller packaging or shrinkflation. The reason for this practice is to cope with rising production costs while maintaining price points.
Generally, the crisis and changing consumer demands affect all sectors of the economy. Some sectors like retail and e-commerce have better chances to fight it, while others like tourism or real estate have taken quite a blow.
Conclusion
Overall, we can see that the cost-of-living crisis led to a substantial change in consumers’ spending habits and priorities. Unfortunately, it seems that this change might be persistent potentially leading to a long-term transformation in consumer behavior. Therefore, businesses need to continue to adapt to these changes.
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