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.
Keep it real
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:
- Inflation, particularly rising gas and food prices, is the most significant contributor to consumer anxiety.
- The war in Ukraine and continued supply-chain challenges are impacting inflation, even with the Feds interest rate increases.
- As detailed by Bankrate, cost of living is reaching a 40-year high, with wages struggling to keep up.
- The job market is strong, adding 390,000 jobs in May 2022 and beating June 2022 predictions by adding another 372,000 jobs.
- A Brookings report calculates U.S. consumers have approximately “$2.5 trillion in excess savings (inflation-adjusted to 2020 dollars) between March 2020 and January 2022, much of which appears to have been deposited in checking and savings accounts.”
- Markets often bottom out before consumer confidence bottoms out, indicating the drop in consumer confidence may lead to increases in stock purchases and a market rebound.
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.
- Connect to the customer by putting them first.
While this seems like a no-brainer, when the economy fluctuates, many companies panic about potential sales loss and start to shift their focus from people to numbers. It’s useful to take a breather and recenter on what matters most: meeting the consumer’s needs. A satisfied consumer is a loyal consumer, and ensuring that you’re adding requisite value to consumers’ lives is a sure-fire way to keep consumers returning to your products.
- Build a strong connection to your brand.
A solid brand identity is much more than a logo; it includes how you treat your customers. Engendering trust is a significant piece to maintaining brand validity. Be genuine and friendly. Treat everyone with respect. Effuse empathy for the stress consumers are feeling. Offer excellent customer service. Create an experience that is authentic to your voice. Embody transparency. Get customer feedback and take it to heart. Stay topical and reiterate to the customer how your product can support them and add value.
- Perpetuate reassurance.
In a time of instability, consumers seek stability. In a time of uncertainty, consumers seek certainty. Reassure your customers that you are there for them. You see them. You hear them. You, too, are navigating the waters of inflation with them. Much anxiety happens from a place of fight, flight, or freeze. By offering a voice of calm in a sea of turbulence, we can bring others back to a mental space of cohesive reasoning.
A/B test your ideas before rollout
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.