The Cost of Living Crisis and Consumer Purchase Behaviour

This year, the UK headlines have been flooded with five words: the cost-of-living crisis. As 2023 draws closer, this is unfortunately set to continue. There is undoubtedly a cause-and-effect correlation between the rising cost of living and consumer purchase behaviour; therefore, companies must take this into account – before the consequences come knocking at their door.?

So, what is the cost-of-living crisis, and how is it affecting the business world??

The Cost-Of-Living Crisis: Explained?

We’re sure you’re all well-versed on the cost-of-living crisis: it is simply the public response to the spiralling cost of living in rented and owned property in the UK. We have, in fact, hit the highest inflation rate since the 1980s, with energy bills reaching staggering heights. Recent surveys have shown that 91% of adults in Great Britain reported an increase in their cost of living ?– and this has unsurprisingly led to a significant shift in their spending habits. And as the UK sits on the precipice of a potential recession, we are unlikely to see signs of improvement any time soon.?

The Impact on Consumer Attitudes and Behaviour??

So, how exactly is the cost-of-living crisis impacting consumer behaviour? The obvious answer is that customers are buying less – however, the issue is more nuanced than you might think. For one, it is important to note what, exactly, consumers are buying less of. Over a quarter of Britons have cut back on essential items (such as food, clothes and petrol), often opting for cheaper alternatives, whilst half the UK population are scaling back on their luxury purchases. So, many are swapping their brunch dates for homemade avo on toast, and cancelling flights in favour of cheaper staycations.

Next, let’s take a look at consumer purchasing power: the extent to which inflation affects consumers’ ability to buy. Purchasing power is directly impacted by each individual’s gross household income, as different consumers will naturally have different amounts left over after their essential monthly expenditure. Therefore, whilst the UK’s cost of living crisis is, indeed, knocking the general public’s confidence, different consumer groups are affected in different ways.??

For example, those with lower gross household incomes are naturally more affected by the cost-of-living crisis. Therefore, lower socioeconomic groups have naturally taken a harder financial hit, whilst those with a higher household income are more likely to maintain consumer confidence. However, Britons from a range of socioeconomic backgrounds are concerned about how their household finances have changed – and are set to change in the next 12 months, should the crisis continue.?

What’s more, statistics show that the core working population (aged 25 – 49) are the most concerned by the cost-of-living crisis, demonstrating how different demographics exhibit different responses. On the topic of a potential recession, young people, in particular, were concerned about the long-term effects: 48% of 18 – 34-year-olds claimed that they would be highly impacted, in comparison to just over a third of over 55s.?

Overall, consumer confidence has been at its lowest since the pandemic. It’s safe to say we’ve certainly had a rough few years! It is, therefore, unsurprising that, in addition to the obvious financial impact, there are social consequences too. The cost-of-living crisis has seen a rise in mental health issues and increased social withdrawal.?

The Impact on Businesses - and How to Handle This

This shift in consumer purchase behaviour has significantly impacted businesses across all industries. As previously discussed, different demographics are affected to different degrees. It is crucial that you understand your target audience and their purchasing power in light of the cost-of-living crisis. What’s more, the UK’s economic state is fluid, fast-changing and unpredictable; businesses need to ensure that they are reactive, and regularly review and refresh their customer insights to keep ahead of the cost-of-living curve.?

Furthermore, Bobbie Ramsden-Knowles, Crisis and Resilience Partner, PwC UK claims:?

“The changing concerns of the UK public over the last 12 months show how fast-moving and unpredictable risk is and how quickly it can shape people’s behaviours. Organisations must rethink their approach to resilience to not only get ahead of these crises and disruption but also better anticipate and adapt to the rapidly-shifting behaviours and spending habits of customers, employees and stakeholders to mitigate the impact.”

But how can businesses directly respond to these issues? The reality is that, in the current climate, customers are overall less likely to be able to afford to buy your product or service as frequently. However, experts advise against blanket discounts; instead, many brands are providing customers with additional complimentary offers at the point of purchase, and honing their focus on customer experience. What’s more, you also need to consider your position as an employer: 33% of the UK public think that businesses are responsible for tackling cost-of-living issues. Here are a few examples of how companies across the UK are playing their part in supporting employees amidst this crisis.

How will your business adapt to the new normal? Have a browse of Social Chameleon’s blog for more expert tips on navigating the business world in the current climate.?