Australian Consumer Sentiment Snapshot #6

The Australian Consumer Sentiment Snapshot series shares insights from a BCG consumer survey undertaken with our coding and sampling partner, Dynata. The survey aims to uncover how consumer perceptions, attitudes and spending behaviors are impacted by the evolving COVID-19 and inflationary environment. This snapshot presents insights from Round 6 of the survey, gathered from 2 November to 8 November 2022. We have drawn comparisons with research completed in previous rounds and other countries.

With uncertain economic conditions and the after-effects of the pandemic, consumer behavior and sentiment continue to evolve rapidly. We are seeing 7 trends emerge from the inflationary environment and receding COVID-19 impact:

1. Consumers’ concerns are high after a brief period of post-COVID-19 relief
2. Consumers are earning and saving less, yet spending more, primarily due to inflation but also because of pent-up demand
3. Confidence in job security and the receding impact of COVID-19 are supporting consumers in this inflationary environment
4. Six patterns of spending are emerging as consumers reset their category spending for the next 6 months—inflation driven, pent-up demand, no sacrifice, dip in volume, deal hunting, substituting
5. Digital and online shopping continues to grow, but consumers also intend to shop at stores; channel preferences vary according to demographic and socioeconomic status
6. Leisure travel is not only being driven by pent-up demand but also by continued intention to travel more. Cruise travel and international flights will gain momentum
7. Climate and sustainability is one of the top 3 issues on consumers’ minds, but consumers need more support from companies to make sustainable purchases

1. Consumers’ concerns are high after a brief period of post-COVID-19 relief

Two years after the onset of the pandemic, inflation has become one of the main concerns for the global economy. Prices are at a record high in the UK and Europe because of inflation and Russia-Ukraine conflicts. This has led to the highest level of concerns about macro and micro economic factors we have seen in all survey rounds. Most consumers across the countries surveyed, including Australia, think there will be an economic recession and that inflation is here to stay. See Exhibit 1.

Consumers expect to spend more on inflation-driven essentials such as utilities, mortgage, food and groceries, cars and pet care. Consumers also continue to anticipate spending more in categories restricted by COVID-19 (e.g., travel)—a sign of pent-up demand. Categories where consumers typically do not reduce consumption during economic downturns—such as education and nonprescription medication—will also be likely to see a lift in revenues, given consistent purchasing despite inflated prices. Predictably, consumers expect to spend less on non-essentials, increase deal hunting, and substitute purchases with lower-cost brands and alternatives. The category that consumers most consistently point to as an area where they are likely to reduce their spending is clothing. See Exhibit 5.

5. Digital and online shopping continues to grow, but consumers also intend to shop more at stores; channel preferences vary according to demographic and socioeconomic status

The key question for companies is: how do we encourage more of these ‘acting’ and adopting’ consumers to pay a premium for sustainable products? There are ways to reach and motivate these consumers by aligning sustainable offerings with their core needs. For many products, the premium for a sustainable solution is only 1-4%; companies need to understand what deters consumers from fully embracing sustainable choices and what will motivate them to pay this premium. Then, companies need adapt products, services, and communication strategies in a way that resonate with these motivations.

Action for companies

The question remains how long employment and confidence in employment will hold up in the face of inflation and shrinking GDP—and when changes in those metrics will impact average and higher-income consumers. Given the prevailing uncertainty, companies need to prepare for declining consumer spending and closely monitor consumer sentiment and behavior. At the same time, supporting consumers to act on climate and sustainability provides opportunities for companies to encourage spending around a strong cause.

We see 4 key actions for companies:

1. Strategically plan in an inflationary environment. Strategic planning is more important than ever, but companies need to take an agile approach. Companies need strategies that provide a clear ambition, prioritise resource allocation, can react to material opportunities and provide clear and timely guidance to investors. While strategy often works well in stable environments, uncertainty can help companies build a more resilient strategy. To drive faster and more agile strategic planning, companies can ask:

• What world might we be operating in?
• What could winning look like?
• Which investments are most attractive and resilient?
• How aggressively can we move without limiting flexibility?

2. Win the customer in new reality. This inflationary environment is like no other. Price increases are resulting in spend increases but for the moment, consumers have employment security, savings and confidence as COVID-19 impacts recede. Winners need to understand market dynamics, their competitive landscape and the ‘shape of demand’ to succeed in these difficult times.

Let’s take the example of leisure travel. Customers are looking for new experiences and deals/discounts to make up for lost time during COVID-19. While there is still some uncertainty regarding COVID-19 impacts, they are ready to take the leap if they get assurance on refund and health protocols. Winners are those who remove the frictions, provide good deals and minimise perceived risks.

3. Take green to mainstream with consumers. There’s a big gap between consumer concern about sustainability and action for sustainability. With consumer-centric data, companies can:

• Understand core consumer needs. Companies need a keen understanding of what consumers want and how sustainability fits into those desires. Which consumer needs drive sustainable choices? What do consumers believe about sustainability? What are the tradeoffs they feel they have to make?

  In the beverages category, for example, only 7% of consumers cite sustainability in their top 3 considerations when making a purchase, but a larger share of consumers—as much as 43%—have ranked considerations that are highly related to sustainability in their top 3. These consumers seek beverages that are healthy, high quality, guilt-free, and socially responsible—and all these associations are positively correlated with sustainable products. By emphasising these attributes in product design and marketing initiatives, companies can attract consumers to sustainable products even when consumers are not deliberately seeking them.
  

• Innovate to build a sustainable offering. Companies should start by generating a diverse set of ideas about the products and services their organisation might offer to remove real (rather than perceived) barriers to uptake.

  For example, for many consumers who are concerned about climate and sustainability but are reluctant to act, cost is a primary issue or key tradeoff. It’s also a great example of a negative perception that may not be justified.  Our research proves that consumers who do not actually buy sustainable products tend to think there is a much higher ‘green premium’ than there actually is. Consumers who are on the fence about making sustainable purchases for this reason need clearer price communication to combat this misperception.
  

• Drive sustainable choices. Companies need to get tactical to remove perceived barriers and change consumer choices; they need to engage with consumers, measure progress, and adjust the course depending on results. Making the attribute of sustainability an ‘and’ not an ‘or’ will be a win for the environment and the company’s bottom line. 

4. Create a channel ecosystem that aligns with consumers’ expectations. COVID-19 accelerated consumer digital journeys and many of those behaviours have stuck. To realise the benefit of this, companies must continue to digitise their customer journeys, front to back.

Only 30% of companies navigate a digital transformation successfully. And navigating it in uncertainty is especially difficult as new behaviors and expectations evolve. By taking a bionic approach—blending digital and human capabilities—companies can kick their digital transformation into gear and keep the momentum going.