Business media is awash in perspective on, in short, the perplexing nature of the challenges facing consumables brands and retailers.
“The old playbook isn’t working.” Businesses must future-proof.”
“Inflationary pressures will have deep impact on consumer spending.”
So while these points may be true, what are business leaders to do with them?
While the only thing constant is that things will continue to change, there is an underlying factor in the marketplace that most strategists, analysts, insights leaders, and marketers continue to overlook: simply, consumer psychology is much more durable than it may appear.
Which leads to the less obvious, but much more important, questions leaders should be asking:
- What spending phenomena will all the stress and pressure of recent (and upcoming) years drive?
- Is it safe to assume that consumers (even lower income households) will penny-pinch and cut back as a result of rising prices?
- How can brands in everyday consumables categories look past the headlines to meet consumer psychology – and win?
Spending is Not Rational, but Predictable
Most analyses and forecasts assume that consumers will respond in rational ways -- as prices go up, consumption goes down.
But this has not been the case in recent years, and this is because consumer behavior is rarely rational -- but it is fairly predictable.
Think back to a negative event in your life -- a stressor that threw you out of whack. Was your first instinct to open a spreadsheet and carefully assess the situation, then proceed in a measured way?
Of course not. You freaked out a little. Negative emotion flooded in, concerns may have swelled to an overwhelming scale in your mind, and you may have lost sleep. In other words, your emotions were the most salient factor in your natural reaction to something bad happening.
So the first important lesson is to weigh consumers’ emotional response with great importance as you reflect on what lies ahead for your business.
Three Consumer Mindsets
Analyzing years of data from our neuroscience-driven database, we see that there are basically three consumer mindsets out in the U.S. population in terms of spending perceptions and behaviors.
And the majority of U.S. consumers are more driven by emotion than by rational, tangible price considerations – even as concerns over household finances climbs.
They will be compelled to act more as free-wheeling ‘Inflationares’ than as calculated penny-pinchers. This is the underlying cause of ‘revenge spending’ -- buying experiences that may appear ill advised from a purely financial perspective.
But the brands and retailers that recognize this actually have unique opportunity to pull-ahead.
At the core of this strategic opportunity is the human truth behind why people buy things: they do so to make themselves feel better.
Focus on the Experience
And there’s no better example of this than the food and beverage space. The things we eat are directly linked to what a scientist would call mood regulation. Food has a particular effect on letting us control how we feel -- and it's not just about quelling hunger. It has deep emotional relevance.
Here are some Q&As based on conversations being had across industries…
Q: “When will consumers trade down to private label?”
A: Consumers will shop on price alone -- and therefore simply buy what’s cheapest -- if the premium brand fails to deliver the experience; the ability to make themselves FEEL BETTER, whether via innovation, engaging promotion, new discoveries, or the like.
Q: “When will consumers shift from away-from-home eating (QSR, restaurant, etc.)?”
A: We see that categories like fast food have a high “emotional attachment” for many consumers, so these categories will be much less susceptible to price-based trade outs. Rather than racing-to-the-bottom on price, operators should focus on -- you guessed it -- experience.
Q: “What will happen if we take yet another price increase?”
A: Consumers will be motivated to “get more” than they will to “spend less.” Frame price increases around value-adds, like promotions that let them get a little extra by purchasing your brands (e.g., access to an exclusive online concert, gaming event, etc.).
In a word, brands and retailers will win by focusing on providing consumers with a bit of relief in the form of positive experiences, rather than merely lower prices.