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Despite Inflation Slowing, Consumers Will Spend Less in 2024

Irrespective of income levels, price matters to everyone, analysts say.

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By: Lianna Albrizio

Despite Inflation Slowing, Consumers Will Spend Less in 2024

Inflation and interest rate raises in the aftermath of the Covid-19 pandemic has cut household budgets in 2023 resulting in heightened brand competition. Alix Partners predicts this trend will continue in 2024. 
 
Per the marketing research firm, retail, consumer products and the leisure (entertainment, hospitality, restaurants and travel) industries are among the hardest hit. They rely heavily on the volume and frequency of discretionary spend, which can fade rapidly during periods of economic uncertainty, analysts say.
 
For businesses to maintain share or grow in this climate, they must deeply understand how these changes impact shoppers. This begs the question: how are their purchasing habits evolving – and how do budgetary pressures and economic insecurities fold into these behaviors?

Consumer Priorities Study 

To find the answers, Alix Partners has conducted an in-depth consumer priorities study across the EMEA region.
 
Over 10,000 shoppers from France, Germany, Italy, Saudi Arabia, Switzerland, UAE and the UK, were interviewed between October to November 2023, and shared their personal purchase intentions and shopping preferences heading into the new year.
 
Despite inflation slowing, consumers will spend less in 2024. Against the backdrop of budgetary pressures and economic insecurity 37% of all consumers said they plan to spend less in 2024 compared to 2023, while only 17% plan to spend more; 41% of consumers in the low-income bracket plan to spend less in 2024 compared to 2023, while only 16% plan to spend more.
 
A quarter of higher earners (24%) will spend less in 2024, while 26% plan to increase spending.Irrespective of income levels, price matters to everyone. In addition, data suggesting that spending levels across income groups will remain the same or increase may still translate to lower buying volumes, given the persistent effects of inflation.

‘Value-Right’ Products 

Retail, consumer products and leisure companies must ensure their products are “value-right,” providing strong perceived value for money and quality in categories where shoppers are targeting cutbacks, irrespective of their income levels.
 
Reviews of pack price architectures and defense of pricing for producers should therefore remain under close scrutiny, while careful curation of ranges must reflect consumer demand and affordability, analysts say.
 
Consumer-facing companies across sectors should also turn to promotions and loyalty offers that make customers feel they are getting a deal.
 
Alternative offerings to promote waste avoidance in grocery or re-commerce models in non-food may find increasing acceptance, too, aligned to opportunities for upstream consumer products producers to increase sustainability credentials.
 
Affordability and curation of range are key due to lower disposable income, analysts say. 
 
Consumers plan to net spend less across all sectors. This applies particularly to non-food (where purchase decisions will be held back) as well as leisure sectors (where more time will be spent at home and the frequency of visits is expected to reduce): 43% of all consumers expect to spend less on consumer electronics, 40% less on home entertainment, and 36% less on restaurants and bars in 2024 versus 2023. Only 14%, 12%, and 18% expect to spend more on these three categories, respectively. The evidence indicates that spend will decrease in non-discretionary categories, and even more so in discretionary. This indicates just how much pressure consumer wallets are under.
 
Value for money and perceived value is uppermost in the minds of EMEA consumers. From an e-commerce perspective, consumer product companies must collaborate with retail partners to improve online merchandising and listing positions within category pages, which will boost consumer product awareness, understanding, and consideration.

Additionally, across all categories it is crucial to implement a clear 'good (price), better (feature), best (quality)' pricing architecture, ensuring consumers recognize the value proposition at each level, thereby aiding in informed purchasing decisions.

Channel Optimization 

Channels must be optimized for a customer experience that caters to different types of consumers, analysts say. 
 
Age plays a significant role in preferred channel communications in the shopping journey: Nearly 70% of consumers in the 18-64 age range prefer receiving promotional information online rather than in print. The latter increases to 47% for consumers aged 65 and over, but still highlights the critical role that digital plays across all age ranges.
 
More than 50% of consumers aged 18-34 prefer ordering at a terminal, while this drops to 21% for consumers aged over 55 (who prefer a served counter).
 
Productivity improvements are key to elevating the shopping journey across demographics and are expected by the majority of the customers. Analysts, however, advise not to push out groups less familiar with digital advances. Consider this data when designing marketing and promotional strategies, as well as new concepts at the POS.
 
Retail media businesses will continue to become more important as a method to get products in front of consumers.

Personalized Shopping Experiences and AI

Personalized shopping experiences are essential to improve loyalty and mitigate price wars.
 
With omnichannel and digital interactions increasingly becoming the standard: More than 40% of consumers enjoy receiving offers tailored to their specific demographics, as opposed to promotions inclusive of all consumers. This is especially true of high-income and younger consumers.
 
Efforts to enhance customer loyalty must extend beyond pricing. Consumers expect personalization, and the companies that can tailor a user experience that resonates with different customer segments across touchpoints will be more attractive and can gain a competitive advantage.
 
Strategic technology improves the shopping experience while reducing cost to serve. AI adoption for product discovery is catching on fastest in the Middle East: 41% of consumers in the UAE and 36% of consumers in Saudi Arabia are using AI tools to research products and holidays. Across the five European countries surveyed, Italian consumers showed the highest propensity for this activity at 23%.
 
Consumers generally are willing to explore and adopt other new technologies as they emerge in consumer-facing industries. For example, more than two thirds of all consumers already use or are open to using click and collect, digital payments, home delivery services, or retailers’ mobile apps.
 
Consumers show enthusiasm to try the latest digital offerings. This provides a key differentiating opportunity for retailers, given shoppers’ willingness to adopt new technologies and their curiosity and desire to experiment.
 
Application of new digital tools and techniques will enable retail and leisure businesses to gather valuable insights about specific customer groups, optimizing their offerings and marketing efforts (such as personalization) for better engagement and profitability.

Quality is Key to Success in Leisure

Analysts predict net spend intentions will dip amongst consumers for discretionary leisure activities in 2024: 40% of consumers overall expect to spend less on in-home and out-of-home entertainment; just 15% say they spend more; 36% expect to spend less on restaurants and bars; 18% say they spend more; 35% expect to spend less on travel and holidays in 2024 versus 2023; and 26% expect to spend more.
 
While consumers may reduce spend overall in these sectors, they will be reticent to trade down on quality, instead reducing the frequency of activity to focus on special occasions or fewer, but higher quality, travel and F&B occasions.
 
A clear brand identity that stands for high-quality experiences or excellent value for money will be critical. Operators in the squeezed middle are unlikely to benefit as customers prefer to stick with brands that they trust versus trading down.

Omnichannel Solutions ‘Critical’ for Retailers

Omnichannel solutions are critical for retailers in their pursuit of different types of consumers.

Customers are using the convenience of the digital product comparison insights at their fingertips to shift spend across channels and categories to manage budgetary pressures. In turn, this is remodeling historical consumer segments that shop on certain platforms or for particular brands. Analysts say care must be taken to avoid pushing out certain groups that have less familiarity with digital advances, especially those in lower-income households who use cash as a budgeting technique. This is even the case when comparing shoppers who prefer paying with cash versus those that prefer paying with card: across all seven countries surveyed, digital payment methods were preferred, although income level and age play a factor; while 79% of high-income consumers would rather pay with card than cash, this drops to 63% for low-income consumers; similarly, more than 70% of shoppers under 44 prefer digital payment methods, but only 57% of shoppers aged 65 and over do as well.
 
French, British and Italian consumers have the highest preference of paying with card versus cash, at 77%, 76% and 74% respectively. German consumers, on the other hand, were evenly split, with 51% preferring card and 49% still preferring cash, in line with lower overall digital adoption in the country.
 
Age also plays a significant role in preferred channel communications in the shopping journey. Nearly 70% of consumers in the 18-64 age range prefer receiving promotional information online rather than under 30% preferring print. The latter increases to 47% for consumers aged 65 and old, but still highlights the critical role that digital plays across all age ranges.
 
Analysts advise it is important for companies to consider this data when tailoring marketing and promotional strategies, to ensure they invest in the right areas. Preference for physical leaflets from older consumers is likely due to familiarity and lack of acceptance of digital alternatives.
 
Analysts also asked consumers why they prefer shopping online rather than in-store, and two key themes emerged: convenience and product availability: “It’s less convenient to go to the store than shop from home” was the number one choice, followed by “less availability of certain products or sizes” and “narrower product selection.”
 
Shoppers that prefer buying certain products in-store versus online are most concerned about product quality and cost.
 
Fifty-five percent of this segment need to see and touch the product before buying it – by far the top answer – while 28% believe the in-store experience alleviates product quality concerns. Thirty-five percent said the cost of delivery is too high, while 32% eschew online purchases because of the cost and hassle of returns.
 
The topic of online delivery, once again, splits respondents by income level and age. Retailers must factor in the demographics of their target consumer bases when iterating channel operation strategies: 45% of high-income respondents often or always order online for home delivery, compared to just 27% of low-income shoppers. While 62% of those under 45 years old shop online for home delivery at least some of the time, only 45% of shoppers aged 55 and older will do the same.

Customer Personalization Is King


Analysts say consumers now expect a personalized experience.
 
A personalized and “frictionless” experience at every touchpoint in the omnichannel shopping journey is critical to satisfy consumer needs, analysts say. An easy-to-navigate website and app are crucial, and by leveraging user data, savvy companies can serve customers the most relevant content, promoting engagement and extending retention. User-generated content such as reviews, ratings, and photos also help personalize online shopping journeys.
 
Despite the prevalence of online shopping, personal interaction remains an important source of inspiration for EMEA consumers – nearly two-thirds prefer personal contact with in-store assistants. This mirrors similar findings from our US Holiday Outlook Survey, where 41% of respondents plan to ask store employees for advice, information, or recommendations.

Moreover, older and lower-income consumers display a stronger affinity for in-store help: fewer than 60% of shoppers under 35 prefer engaging with in-store assistants, but more than 75% of shoppers aged 55 and older do.

By country, French consumers most prefer personal contact with in-store assistants at 72%, followed by Swiss and Emirati shoppers at 70% and 69% respectively.
 
Across Alix Partners' data, more than 40% of consumers enjoy receiving offers tailored to their specific shopping behaviors and needs, as opposed to promotions inclusive of all consumers. This is especially true of high-income and younger consumers, and for those countries where loyalty schemes tend to be more widespread and advanced: in Switzerland and the UK, 54% and 52% of high earners, and 61% and 58% of consumers aged 18-24 prefer tailored offers, respectively.
 
When we investigate the leisure sector, the battle for loyalty is a fierce one. All age segments across all markets prefer price shopping online to lock in the best deal.

GenAI Business Use Cases Will Continue to Expand

The race to harness AI has gripped every business sector and industry in 2023, driven by the advancements of Generative technology. Within retail, this technology can improve the online buying experience, especially in sectors where consumers prefer to test in person such as beauty and cosmetics or apparel. For example, while AI’s global market size for the beauty and cosmetics industry was valued at $2.7 billion in 2021, it is expected to reach $13.3 billion by 2030, according to a market intelligence report by InsightAce Analytic. Companies are already using AI advances to allow consumers to virtually apply make-up or discern their “skin age,” while the technology is also increasingly deployed to aid better customer product choices online and reduce return rates in apparel.
 
Beyond improving the shopping journey, Generative AI can serve a key role in supporting staff shortages or driving operational efficiency. GenAI solutions in contact centers present an alternative as a first point of contact for consumers, which can often answer more predictable questions, freeing up human customer service agents to handle more complex tasks. As a rule of thumb, while GenAI business use cases will continue to expand, the tech is currently best suited to automate repetitive tasks, as well as summarizing vast amounts of content and data.
 
From a consumer perspective, AI adoption and usage for product discovery is catching on fastest in the Middle East: 41% of consumers in the UAE and 36% in Saudi Arabia are utilizing AI tools to research products and holidays.
 
Among the five European countries in our survey, Italian consumers scored highest in this respect, at 23%. Interestingly, while the UK uses the digital channel the most for purchases, it significantly trails the other four European countries in AI usage for research.
 
Consumers across regions show enthusiasm around other modern digital offerings too: While only 9% of all respondents currently use virtual fitting rooms via AR and only 10% shop at unmanned stores, 29% and 28% respectively say they’re open to using this new technology. This provides a key opportunity for retailers, given shoppers’ willingness to adopt new technologies and their curiosity and desire to experiment.

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