Understanding Consumer Spending Habits Post COVID-19
Consumer spending has been shaken to the core by lockdowns, layoffs, and crises.
what have we seen so far?
For many product categories spending has screeched to a halt as increased unemployment and reduced social interaction has dramatically shifted consumer spending habits. Understandably, the impact on direct-to-consumer (DTC) brands has been varied; pre-existing category differences, cash positions, and supply chains play significant roles in the ability to operate profitably.
COVID-19 will have lasting impact on how consumers spend, suggesting a ‘new normal’ for DTC and retail. How consumers will spend in the post-crisis retail landscape remains speculated upon — for every likely outcome, there is a very real and opposing possibility:
1) Stunted Spending on Non-Essentials
Disposable income could be limited for months — or more. The Business of Fashion (BOF)’s State of Fashion 2020: Coronavirus Update says the post-crisis recovery period will see a continued lull in spending and cross-channel demand. For non-essential spending, consumers may bifurcate into those with jobs and those without. Both segments may want to return to normal shopping behaviour, but those with impeded budgets may not be able to.
— Or perhaps, celebratory surges in spending to make up for lost time?
2) Further Reductions in Physical Store Footfall
Store closures, in-store shopper limits, and mask requirements, alongside general aversion to crowds may deter customers from in-store shopping even further than pre-crisis levels. Although DTC brands will face increased competition from more traditional players online, more consumers may be shopping this channel.
– Or perhaps, digital fatigue and retail nostalgia will increase store visits?
3) Shift to ‘Mindful Shopping’
The crisis has sped up the inevitable — consumers expect brands to be purpose-driven and sustainably focused. Driven by greater conscientiousness, consumers may be more mindful of their purchases, shifting spend towards longer-wear pieces. However, the post-crisis recession may stunt consumers’ ability to afford this distinction, despite the desire to do so.
– Or perhaps, indifference and a return to old habits?
4) Demand for Social Action
Consumers may expect more from brands than just product. They may demand CSR, sustainability, and, most importantly, authenticity. Jordan Fox, Founder of MMP Digital, emphasises that these efforts “should be a part of the [brand’s] DNA… it shouldn’t come off as promotional,” highlighting the importance of staying consistent with your brand messaging.
– Or perhaps, products matter more than brand values?
taking action: a case study
Some DTC brands were better positioned to support the crisis than others, enabling philanthropy that tied naturally into brand DNA. In March, Ministry of Supply launched its COVID-19 Response Mask Initiative. By reworking their 3D printing and technical fabric, they helped tackle the mask shortage for American healthcare workers. In an interview with TotalRetail, Co-Founder and President Gihan Amarasiriwardena changed focus, asking, “how do we as a business shift our efforts towards helping to solve this challenge?”
Looking towards crisis recovery, Ministry of Supply is adjusting its sales strategy to meet shifting consumer needs, for example, by introducing new pick-up options. The accelerated development of the online consumer experience has meant DTC brands need to tailor how they go to market. We all know that the world has changed, but no one knows exactly how they should adapt. Over the next few months, we recommend increased experimentation to better understand behavioural shifts that have occurred in your customer base.
update segmentation to include recovery sentiment
Post-crisis consumer behaviour must be explored through the consumer segments your brand serves. Not all consumers behave equally, and spending may surge or strain depending on the product category. Resonate’s March 2020 US consumer study surveyed the impact of COVID-19 across categories and consumer segments. The study revealed 37% of consumers believed their lives would return to normal in 1–3 months; 34% in 4–6 months, and 25% expected recovery to last at least 7–12 months. Since March, a lot has changed. However, DTC brands should still think about the consumer landscape in this way, and ensure they incorporate sentiment towards the recovery into customer segmentation. When will your consumers feel comfortable shopping your category again, and how can you help them get there? Here are a few examples:
Long-term recovery consumers are expected to invest rather than spend freely — primarily on home improvement. They will seek trustworthy brands, longevity and durability in products.
Shorter-term thinking segments, in contrast, are expected to bounce back in sports/fitness equipment shopping, seeking fair prices and familiar brands.
The segments you target, DTC products you sell, and geographies you operate in will ultimately determine your consumers’ willingness — and ability — to return to purchasing. While this new normal may continue to be defined by external sources including shifting governmental policies, planning ahead and listening to your customers are crucial.
what can we do now?
DTC brands must think ahead and adjust strategies for what is a permanent shift in consumer behaviour.
1) Build relationships over pay-to-play
Limited cash and venture capital funding may reduce expensive marketing campaigns resulting in fewer new customers. However, consumers seeking genuine brand relationships are more likely exhibit higher loyalty resulting in increased LTV. ‘Growth at all costs’ may not work anymore. Instead, focus on relationship building across the marketing funnel, using personalisation and transparency where possible.
2) Invest in great talent
The post-crisis period is a rare opportunity to hire great talent that was previously unavailable. Brian Chesky, CEO of Airbnb, posted a public directory of Airbnb employees who were let go during the crisis. Acquiring newly available, highly experienced employees should be welcome news for DTC brands with growth targets to hit and teams to hire for.
3) Open pop-ups over permanent stores
Utilise pop-ups as a dynamic retail solution rather than a marketing tactic. Rethink your store strategy to be flexible; brands with fewer stores may benefit from investing in pop-ups and remaining agile.
4) Tailor community-building
Offline shopping is now completely different, and includes a host of new safety questions. Understand how the purchase path has changed and revise how you build your community online — or offline — accordingly.
the future consumer
Consumers will understandably remain cautious while economies reopen. Signs of “revenge buying” in China are encouraging, such as the Hermès store that generated $2.7 million in one day. However, overall spending in China remains overwhelmingly down. Some DTC brands will lose: bankruptcies will continue as spending remains stunted. For many DTC brands, marketing spend will be cut significantly — this requires re-evaluating ways to engage with consumers. Building contactless shopping experiences is one way to do this. Ultimately, adapting to the recovery means fluidly meeting consumers where they are most comfortable shopping, maintaining engagement through an open dialogue, and, as always, building community.
This article was originally posted on in.Parallel’s market insights blog, in.TheKnow. in.Parallel is a DTC consultancy that helps brands with international expansion.
