Rival Spark: Coming Out on Top in the Economic Shuffle

Economic downturn changes every aspect of consumer behavior, from how consumers budget and plan, to how they spend and choose brands. It shuffles the market in a way where brands aren’t just expected to ‘manage decline’, but to think about how they can emerge on top of a restructure - adapting to different competitors, consumer behaviors, and sources of value. The economic landscape globally is one of uncertainty and negativity. However, it is certain that the next 18 months can create opportunities for new challengers to grow and rival current market leaders if they can effectively understand and adapt to changing consumer attitudes and behavior.?

Our report is structured into four key areas:?

• Overall Economic Attitudes: Highlighting how consumers see the world and what their financial concerns are going forward
• Spending Behaviors: Illustrating how financial outlook impacts consumer spending overall and by sector
• Brand Attitudes: Analyzing how purchase behavior and evaluation are shifting due to the downturn
• Key Actions to Take: Giving brands 4 key actions to immediately consider to handle the economic shuffle.

The report utilizes a selection of secondary research, as well as primary Rival Spark research conducted across the US & UK during the beginning and end of September 2022.?

Overall Economic Attitudes:?

Things Are Expected to Get Worse Before They Get Better

Consumers and businesses are both expecting harsher economic conditions in the coming months. According to?IDC, 59% of senior business executives globally feel there will be a recession in the next year. Across the US / UK, our Rival Spark research shows consumers match this worry and expect their economic situation to be much worse - with the decline bottoming out personally between 6 months and a year before a recovery.?

Within specific counties, different economic trajectories exist. Awash with news on a collapsing pound, inflation & interest rates, the UK’s outlook is significantly worse than the US's, as the country feels they’re already in the worst of it. Currently our Rival Spark data show that 29% of UK consumers believe their economic situation will be better / much better in 1 year vs. right now, relative to 65% of US consumers.?

Economic attitudes looked to be shaped by a blend of concerns, as 52% of US / UK are equally concerned about inflation & recession vs. either specific factor or neither. However, for many, recession continues to be an abstract concept. 74% believe their country is currently in a recession, but only 36% are confident in this belief and its implications.?

In a prolonged and more severe economic downturn, it could be assumed that the US might take a similar, though potentially less severe, trajectory to the UK in how they view their financial futures. This current tale of two financial outlooks, allows us to see how negativity impacts spending and saving behaviors as two sides of a spectrum - in between which other markets exist.??

UK Outlook: We Hope It Can’t Get Worse - Unless It Does

The UK is braced for the worst, with personal economic negativity currently expected to peak in 6 months before plateauing at 6-12 months. Over 58% believe their financial situation will be worse in some way for up to a year before improving in the coming years. However, long-term worries are still on the cards for the UK’s financial outlook, as only a slight majority see their circumstances improving - even after 5 years.?

September’s news coverage in the UK has had an unexpected impact on economic forecasts, with the death of the Queen giving respite to economic horror before catastrophic news in the last week of September. The need for the Bank of England to quantitatively ease the economy and buy government bonds after the mini-budget has shown to accelerate consumer’s perceptions that we’ve hit the bottom and, for now, seemingly give a perception that this can’t get any worse.?

Between the 2nd of September and the 27th, when our second round of research was conducted, the most ardent economic negativity has softened - with those believing that the short to mid term economic forecasts will be much worse decreasing, though over half still believe 6 months and a year will be worse economically than right now. It truly seems that UK consumers are hoping it can’t get any worse than now.

Coverage around cost of living has caused Brits to worry specifically about inflation, as 40% are more worried about inflation than a recession or both factors combined.?78% of the UK believes we are in a recession, but only half (40.8%) are confident in this belief, despite the Bank of England’s announcement. While the majority see inflation as equally as threatening as a recession (51.5%), inflation is increasingly the tangible face of economic negativity in the UK. As brands consider how to message around economic support, cost of living continues to be the rawest nerve within the UK economic psyche.

US Outlook: American Optimism is Cautiously Holding

The US is currently a story of maintaining in the short term before recovering in the mid / long term. 42% of US consumers feel they will maintain economically in the next month, before slowly recovering over time. Negative outlooks are a minority, as negativity peaks with 16.4% of Americans believing their economic situation will currently be worse / much worse in a year relative to now, before recovering for even those most concerned in the years to come.?

While the US is largely optimistic, buoyed by government action & news of the dollar’s strength, this optimism does look to be weakening in the face of prolonged economic uncertainty and global economic upheaval. The strongest levels of short-term economic optimism, those who believe that the next month and 6 months will be much better have decreased by a net 10%, showing that while US worry doesn’t match the UK, the nation is beginning to understand that this may be a longer term downturn than expected.?

Similarly to the UK, a large majority of Americans (70.5%) believe that the country is currently in a recession, though only half are confident in this belief (35%). However, unlike in the UK, the fear of the cost of living on its own is less prominent (30% fear inflation specifically vs. 51% who are equally concerned about a recession and inflation). The lack of clarity on what is the root of the problem will cause a variety of economic narratives in the US, vs. a more singular focus on inflation & cost of living within UK culture.?

Consumer Spending Behavior

Expected Spending: Finding the Footing to Budget

Despite having different economic outlooks, both the US and UK expect to spend more in the next 6 months as a household - with 65% of the UK and 60% of the US expecting an increase. However, similarly to how economic attitudes are shifting across the two countries, so are spending expectations.?

As UK consumers’ extreme negativity erodes, so does their expectation of how much they’ll be spending. Throughout September, those expecting to spend over 20% more than currently decreased from 31% to 19%, with the majority downgrading their spending forecasts to a 10-20% increase. UK consumers are still braced for a significant increase in cost of living, but they’ve begun to try to find their feet, budget, and manage the increase.?

Alternatively, in the US, just as optimism is currently eroding slowly, spending expectations are holding and slowly increasing. While overall US numbers hold steady, slow increases towards heavier spending expectations are being seen - as American consumers may be coming to grips with the severity of the economic downturn.?

In both countries, overall consumer spending forecasts aren’t just a product of levels of negativity, but also time. As consumers come to grips with the challenge facing them, they appear to be finding more financial control and the footing to budget. While the challenges they face don’t go away, they do become incrementally more manageable, setting the tone for how brands may plan to support them.?

Sector Spending Shuffle: Where to Save and Where to Spend

Seeking greater financial control amongst economic uncertainty and shuffle leads consumers to spend in different sectors in different ways. Data show that sectors are increasingly becoming saving or spending sectors in consumer’s budgets, where inflation and necessity create a deficit in certain types of spending that is balanced by spending reduction and savings in other sectors. Across the US / UK, groceries, transport, and utilities are seen as inflexible spending areas - where a large segment of consumers see themselves paying the same or more than before. Alternatively, socializing, travel & clothing are sectors that look to be most heavily cut - as consumers attempt to buy less and switch to cheaper options.

The different economic forecasts of the US and UK have resulted in very different forecasts of sector spending. US sector spending isn’t as polarized as the UK, due to lingering consumer optimism - with light divisions between saving and spending sectors. However, savings behaviors are still most frequently planned for saving categories, as Americans are most likely to swap or reduce their purchase of socializing and clothing brands.?

Alternatively in the UK, the gap between saving and spending categories is heavily defined - led by consumers adapting to concerns about the rising cost of home utilities and groceries. As 69% of the population expect to pay more for their utilities as winter looms, and the impact of the Ukraine War on natural gas supplies worsens, a ripple effect through other sectors is increasing to attempt to balance budgets. UK grocery shoppers are most likely to try and find cheaper options, shown by an increase in the already growing share of private label and discount grocery chains.?

Within saving categories, UK consumers are most likely to reduce purchase and use frequency, going out less, traveling less, and buying less fashion and apparel in the coming months. A negative overall economic outlook, coupled with very tangible rising costs in food & utilities looks to have a chilling effect on discretionary spending this winter in the UK, as coverage of heating costs, and delayed billing, means utility costs could have a life of their own, inhibiting consumer spending.

Consumer Saving Behaviors: Frugality vs. Red Flags

Amongst saving behaviors US / UK consumers considered, smaller, private actions were seen as more likely vs. those that potentially signaled economic trouble to others. Eating and drinking more at home, shopping at cheaper retailers, switching to private brands, and coupon usage was seen as likely saving avenues, vs. eating or drinking at cheaper establishments, changing travel plans, or buying second-hand clothing. The UK’s concerns around heating manifests as the most likely way to save money for Brits, potentially putting it at odds with a greater home social life in the coming months.?

Overall, the need to maintain the purchase behaviors that construct social and public identity are the ones consumers are most likely to try and keep. The element of control, but internally over finances and externally in how we present ourselves to others is a more emotional driver of how people will spend in the coming months vs. purely rational finance.?

The need to preserve public identity while saving money creates two emerging types of saving behaviors: frugal choices consumers are happy to have publicly known and economic red flags that signal concern and are kept private. Those frugal behaviors are the most likely for consumers to start with, and the most likely to be discussed as savvy cost-saving behaviors culturally in the coming months. Similarly to how a LIDL or?ALDI bag became a sign of ‘smart shopping’, even when shopping in upmarket Waitrose, during the 2008 financial downturn in the UK, shopping at cheaper retailers and for own label products is an acceptable shared behavior.?

The Continued Rise of Discount Grocery

Discount grocery brands look to be an increasing first port of call for frugal shoppers.?ALDI is seeing increasing shopping amongst economic worries,?with the brand growing 18.7% in the UK over the last 12 weeks?while also adding?1 million new customers?in the US over the last year. US budget retailer Dollar General reports?an influx of customers making $75-100k annually?vs. its core customers who earn under $40k due to inflation.?

The push downwards within the grocery market shows how discount shopping can be seen as a smarter way to handle necessary spending, with brands adapting to potential market shuffles.?ALDI pledged to the UK?in the face of increasing worry that it will ‘do whatever it takes’ to maintain its position as the country’s lowest cost grocer. Meanwhile,?US retailers Target and Walmart?are looking to start holiday pricing and sales early to solidify a role in addressing rising costs.?

The downwards grocery shift leaves traditionally higher price point grocers with a challenge to add value and reframe their consideration factors. For example, UK grocer Sainsbury is attempting to merge a food waste and savings message, through a renewed interest in frozen foods. Competing in a territory commonly held by Iceland, Sainsbury is launching?its Sainsfreeze?pop-up in London to highlight the range of frozen goods and savings available in store.?

Beyond switching retailers, increasing private or own label purchases is a likely avenue for consumer savings. Own label brands, already established in the UK consumer’s mind, have seen increased growth, with Kantar?registering a 7.3% increase in own label grocery sales?in August 2022 - holding 51.6% of the market vs. branded products. However, in the US, attitudes towards own label or store brands are less developed, potentially signaling the opportunity for them to grow if they can resonate with consumers.?

In June 2022,?IPSOS found 29% of the US public were likely to buy store?or private brands, a disconnect from the 64% that would consider switching as a way to save in our Rival Spark data. As store brands such as Costco’s Kirkland continue to?PR their famous ‘inflation busting’ $1.50 hot dog and soft drink deal?in the face of rising food costs, there is potential for this to halo more heavily over to the store brand’s wider range.?

The Great Dining Downgrade?

Staying in to eat and drink is poised to be the most likely way to save money amongst consumers, with 26% overall and 41% of UK consumers reporting they will eat and drink out less to save money. For hospitality industries still recovering from the hangover of lockdown and the pandemic, the challenge is to turn consumers away from their own kitchens and back into restaurants and?pubs?- however, who they attract is poised to change.??

Socializing and dining out face a reluctant downgrade across the market as 17% of US / UK respondents plan to save by swapping to cheaper options and 60% would be comfortable with people knowing they have. The?CEO of Dine Brands, parent company to US casual restaurants IHOP and Applebees, stated in August 2022 that a downgrade has been measurable in the last quarter. He reports a 6-8% increase in visits from those making $75k+ in Q2, while also reporting a 2-3% decrease in visits from those making $50k or less.?

Just as in groceries, consumers are entering lower price point restaurants in response to economic pressures and looking for ways to choose these new brands. Restaurants are simultaneously facing?increased supply costs?that raise menu prices and the balancing act is creating different approaches to adapting to the dining downgrade. US casual restaurant?Olive Garden?has adopted more taste cues in its messaging - pushing a quality message to capture diners downgrading, while?Applebees?& IHOP have taken a value based approach, offering free movie tickets with meals and a happy hour style discount on food.?

Choosing Style or Savings

The need for consumers to maintain identity has so far depressed switching behaviors within fashion & apparel. While only 34% of the US / UK say they plan to spend less on fashion & apparel going into winter, there isn’t a clear outcome on how consumers will comfortably adapt. 16% of the US / UK say they would consider switching to cheaper options to save and a majority of consumers in both markets say they would be uncomfortable with others knowing they bought clothes second hand to save money. Frugal fashion looks to have a lingering shame, as retailer efforts from a range of brands such as?Primark?to?Tommy Hilfiger?to tap into the second hand and reuse market are limited in their appeal.?

Instead, purchasing less but keeping the same brands, or turning to “Buy Now, Pay Later” and credit cards seems how consumers expect to shop for fashion and maintain identity. A study by?Quantum Metrics highlighted?that 45% of Americans and 33% of Brits have opened a new credit card to manage their spending in the last 6 months. Back to school shopping for families has increased spending pressures,?62% of UK parents?worried about how they will afford all the items needed for the new school year.?

When faced with pressures to maintain socially for themselves or their families, consumers are looking for brands to help manage identity and budgets - providing financial control or new ways to socially reframe behaviors, such as shifting perceptions around second hand fashion.

Brand Attitudes

Shifting Value: The Coming Brand Shuffle

Shifts in planned consumer spending and outlook don’t just affect sectors, but also how consumers choose brands. Across the US / UK, differing attitudes exist towards what consumers would pay more for, but as prices rise in both, value factors are rapidly diminishing.?

Providence factors, such as organic food and ethical sourcing look to hold the lowest appeal against price increases, while factors that have more of a direct impact, such as relevant purpose, health & a strong resonance look to maintain. However, as economic pressures increase, even these begin to wilt in the face of price, as seen in the UK.?

Age also has a strong effect on what consumers will still pay more for. As shown within the UK above, an overall depressing effect on what drives a premium shifts by age. While health provides a universally relevant premium, relative to other factors, purpose, sustainability and provenance is least effective with older consumers - while 18-29’s show a higher engagement with ESG purchase factors.??

Brands face a challenge to differentiate on more than price and promotion as their operating costs rise, to a consumer who is increasingly bottom line focused. A strategy of “price plus” instead of justifying the premium alone is, for many, increasingly becoming the clearest way to adapt - especially in markets with harsher economic outlooks. Challengers with clear, valuable features, coupled with aggressive marketing or promotion are being given a clear opportunity to disrupt existing purchase behaviors.?

Giving More with Less

As prices rise, consumer expectations also increase - creating an opportunity for reappraisal, which can come from factors beyond the product.?IPSOS?reports that 64% of US consumers expect an immediate increase in consumer experience to compensate. Shifting expectations in not just what is being bought, but the experience around it can create opportunities for change.?

These opportunities potentially favor smaller entrants over larger organizations, as?IPSOS?reports that smaller companies may have an empathy advantage over larger counterparts. 81% of US consumers are likely to have ‘empathy’ for small businesses that need to increase their prices due to inflation or shortages, vs. just 47% for large, multinationals. While empathy alone doesn’t make up for higher costs, it does provide a useful hook for smaller challengers to create a story about the experience they provide.?

How To Come Out on Top of the Economic Shuffle

1.) Reintroduce Yourself, Not Reinvent Yourself

Previous economic downturns have taught us a variety of lessons we should readily adopt.?Bain’s analysis of the 2001 market downturn?illustrates the profound opportunity for market realignment and growth. It also highlights that brands that acted intentionally to refine and communicate their core offering performed best over those that sought to diversify. When the market has become like quicksand, an instinct to spread yourself as widely as possible to stop sinking is understandable. However, reintroduction, not reinvention is the best strategy.?

Now is a time to ask yourself what the core challenge is that you solve for consumers and what is the authentic and differentiated way you solve it. It is the time to honestly evaluate if you can improve upon these basic foundations, instead of looking for business salvation in new sectors, audiences, or products.?

In their report,?‘The Fever Economy’, RGA’s Global CSO?astutely referred to now as the start of the ‘Great Brand Audition’. For marketers, as you’re about to go on stage is not a time to create a new act. Instead, refinement, clarity, and above all a link to the value you provide will see you through, so you can remind consumers why you should exist in their lives.?

2.) Don’t be Cheap, Be Valuable

Simply lowering prices or discounting begins to address consumers’ economic concerns, but it should often be the start of how to address economic worry, not the end. The need for control over spending and budgets isn’t just a rational need, instead there are emotional targets to hit - which cheapness often misses. Providing greater value, while minimizing cost, is the sustainable strategy in an economic shuffle. Even as?ALDI proclaimed?their commitment to lower-cost shopping in the UK, they simultaneously touted programs to help communities as well as noting their own hit to profit. Their value doesn’t just come from price, but from a shared commitment to getting through this period and helping others.?

Own label Canadian grocery brand ‘No Name’?provides a blueprint?for how to have a low price and a high value. The brand, sold in retailer Loblaws, has created a cachet amongst consumers due to its unique packaging,?quirky approach and direct tone. It creates value around the price, from how it markets, operates and presents itself. Alternatively,?UK retailer ASDA launched?a similarly branded value line in August 2022, sharing ‘No Name’s’ highly visible packaging, and received claims of poverty shaming. Whereas ‘No Name’ tells a story of value, ASDA was accused of promoting only cheapness to those who had to choose it.?

3.) Pick Up Progress On Issues Consumers Have Had to Sacrifice

As our Rival Spark data show, brand purpose still has a place with consumers, but it will increasingly be challenged to prove its relevance amongst price increases. As a previous Rival Spark illustrated, purpose is a value multiplier, not a value creator. But as consumers turn their attention more inwardly towards economic concerns, there is a clear role for brands as an agent of preservation across different causes they care about. From sustainability and ethical products, to social causes and health, continuing commitment and investment to progress these causes during an economic downturn can pay long term dividends as the economy begins to recover.?

Additionally, brands can consider how to reframe issues into an economic benefit. The potential consumer stigma of second hand clothing purchase amongst many can be reconsidered if it is reframed as a sustainable cost saving measure.?

4.) Provide Tools to Ease the Consumer Balancing Act, Not Just Empathy

Consumer behavior shows the economic downturn isn’t just a rational finance issue, it's a control issue - as uncertainty and inflation robs consumers of the power to live how they like. As a recent survey by Bluecrew found,?57% of Americans?are looking for additional work to fight inflation and costs. Brands can do more than just help consumers minimize their financial outgoings or empathize with their worries, they can help them feel as if they’ve taken back the ability to control their financial lives.?

Financial and Fintech brands, already aiming to establish a role as an advisor to consumers through open banking and greater spending insight, have a golden opportunity to scale their impact in the coming months. Consumers will need a holistic view of their finances, supported by clear tools to act on this perspective - which banks have the potential to give.?

Beyond financial tools, wider promotion has an expanded role to play. While promotional mechanics are seemingly a short term way to increase value, they have the potential to be communicated as a solution to a consumer’s increasingly tenuous financial balancing act. From Applebee’s Dinner + Cinema tickets offer to the role bundled travel can play as cash-strapped consumers look to travel, promotion that seems like a value add can additionally be trade off reduction.?

Conclusion: The Clearest Plan Ends Up on Top

Marketing proverbs that purportedly quote?Chinese proverbs?about the word “crisis also meaning opportunity” are one of the only certainties of the coming months. However, this is easier said than acted upon. As consumers experience disruption and realignment of their finances and shopping behaviors, so will brands experience upheaval in the market. The question isn’t whether marketers see it as an opportunity or a crisis, it will undoubtedly be both. Instead we need to ask ourselves how we respond instead of react - creating intentional actions and plans that provide consumers value and create a path upwards in a restructured market.?