Against a turbulent economic backdrop, McKinsey’s latest Consumer Pulse Survey shows an array of shifts in consumer sentiment and behavior that present challenges for employers.
Twice as many US consumers are pessimistic about the economy now compared to the start of the pandemic and cash savings in low-income households are starting to run out. In Europe, consumer pessimism was at 22 percent in May of 2020. Now, it’s at 43 percent. On both continents, consumers are trading down and reducing or delaying discretionary purchases.
But these times also hold significant opportunities for employers, particularly during the holiday season, where middle- and high-income consumers plan to spend big, despite holding on to savings recently.
We spoke to three McKinsey Growth Marketing & Sales leaders to better understand how these shifts are impacting companies and break down how to respond to these disruptions and prepare for the future.
Kelsey Robinson: Get closer to your consumer
Our survey shows for 66 percent of survey respondents, inflation is a top issue of concern, especially higher prices on necessities like gas and food. But it’s important to understand how inflation and other forces impacting the economy are playing out across generations, and how these may affect sentiment and buying decisions.
For instance, boomers were the most concerned about the economy, even though they have the most savings to support them in times like this. Conversely, Gen Z is least likely to name the economy as their top concern, focusing instead on social and environmental issues—even though they have the least in savings.
Ultimately, these sentiments still translate to consumption patterns in both groups dictated by their balance sheets: despite high concern, Boomers are taking few cost-cutting measures, while Gen Z is more aggressive in cutting costs despite being less concerned.
As companies work across the busy shopping season, they should balance short-term holiday promotions with the long-term health of their brands. This requires understanding details of consumer acquisition during the holidays, and then following up with customer-relationship-management tactics to boost retention.
Tamara Charm: Know what matters to consumers
These times call for a nuanced understanding of how consumers are feeling and reacting given an increasing number of external shocks.
Gen Z and Millennials, for example, are looking for authenticity in the brands they buy and want to put their dollars behind responsible actors. They’re not just evaluating a product’s impact on their wallet but its broader effect on society. At the same time, 80 percent of them are trading down to lower priced products. So right now, that authenticity will not always command a premium.
Companies need to manage value perception now more than ever across every category. In multiple categories with low inflation, such as electronics or cosmetics which have less inflation than the standard 2 percent increase, around 30 percent of survey respondents told us prices have risen significantly.
The need to reassure consumers is paramount so they know they’re making smart purchases. Clear, personalized messages like "here's something we think you'll like” delivered when and where consumer want to buy at the right price will be powerful for consumers.
Brian Gregg: How to capture this moment
These turbulent times are a defining moment for leaders to deliver profitable and sustainable growth by acutely focusing on these five breakout moves to emerge even stronger, while operating at multiple speeds.
Focus on inflation-proof growth. Preserving demand requires data-driven pricing strategy to effectively protect margins, preserve demand, and manage promotions to drive value. This can be done at different speeds, depending on the company’s needs: a one-time increase, incremental increases, or by building a tech-enabled, analytic-driven model that constantly shifts pricing to match inflation.
Self-funded growth through efficiency. Making sure your house is in order is crucial during chaotic times. In our experience, companies can use this moment to capture bottom-line savings of 10 to 35 percent that can be reinvested in other high-growth areas. The first step is identifying opportunities to reduce costs by examining category efficiency—across marketing, media, and commercial spend to capture cost savings. This way, companies can re-allocate and drive the highest incremental growth.
Personalize customer engagements. Companies that link data with what their customers care about can deliver personalized customer journeys—from higher customer acquisitions, value, and retention—including 10 to 20 percent in revenue uplift, and 20 to 30 percent reductions in cost to serve. This requires having a detailed view of which customer journeys and touchpoints drive the most value and mapping the path to capture value, including the right starting point, key milestones, and how impact is measured.
Going all in on omnichannel sales. B2B buyers and consumers want an always-on, personalized omnichannel experience. That’s why it’s no surprise hybrid selling is expected to be the most dominant sales strategy by 2024. To deliver on sales growth and reduce cost requires bolstering omnichannel capabilities, scaling by using hybrid models to sell to and serve customers across channels.
Plan for the future. This inflation cycle will end. Leaders can make this an opportunity to reimagine the operating model of the future—to be able to mobilize at a faster rate—and move at multiple speeds. Keep investing in businesses and betting on new products and revenue streams.