Consumer confidence – obtained via household surveys – is a statistical measurement of how consumers feel about the economy. Lower confidence may signal a decrease in spending patterns and compound an already jittery or halting economy. Higher confidence may increase spending, enabling an economy to flourish. As Investopedia explains, “In response to increased consumer spending, manufacturers can increase production, banks can extend more credit, and the real estate market can anticipate an increase in home sales.”
Recent news indicates consumer confidence has fallen to 98.7 from 103.2. The last time we saw a number this low was in February 2021, making this a 16-month low. Many are therefore questioning what this means for the economy, and what, if anything, retailers can do to help curb it.
How we feel is often not an accurate reflection of reality; however, what we believe can shape those misperceptions into reality if we are not duly discerning. Amy Morin, a psychotherapist, notes in Forbes, “Your thoughts are a catalyst for self-perpetuating cycles. What you think directly influences how you feel and how you behave.”
Focusing on what we know rather than what we feel can therefore help consumers make informed decisions rather than panic-driven decisions. And here’s what we know:
A study published in the Journal of Service Research examined the role of consumer confidence during recessions. It found that consumers with lower confidence “tend to carefully calculate value for money when making purchasing decisions,” concluding that retailers, “should focus on the value offered by improving their price-quality ratios. This can be done by either lowering prices and/or by increasing quality.”
In addition to price-quality adjustments, retailers can also speak to consumers’ need for value items through well-managed promotions. Helping your customers understand how your products add value to their lives can motivate them to make that purchase. Low confidence consumers will be frugal and thoughtful about every penny spent. By being equally thoughtful about how you highlight your merchandise or promote product value, you can find a way to persuade even the most cautious spendthrift.
Although many elements impacting consumer confidence – such as global inflation – cannot be controlled, retailers can still do much to help quell consumer misperceptions or anxiety.
In the aforementioned study, researchers discussed how Dutch supermarket chain Albert Heijn weathered a recession storm with a value-focused approach. The study noted, however, “there is no direct empirical evidence showing the link between providing a better price-quality ratio and customer loyalty.” While that may have been the case in 2013 when the study was published, it is now 2022, and high-tech software, such as MarketDial, provides the necessary empirical evidence needed to inform high-stakes decisions. With the current inflation climate, utilizing these reliable testing tools is more essential than ever.
To learn more about how to easily test your pricing, products’ value, and promotions before rolling out changes, check out these resources.