Under Pressure: How Consumer Behaviors May Evolve Amid Recession Fears
From the homebody economy to waste-conscious consumption, consumers are increasingly relying on digital tools to mitigate mounting economic pressure
No one can say for sure whether we are in a recession or not. Inflation data seems to indicate we’re certainly heading toward one, if not already living through one, yet the consensus among economists is that the U.S. is, at least for now, not in a recession. Yet, some argue that we had already entered a recession since summer of 2022, based on a broad definition of recession — two consecutive quarters of negative GDP. Even the ones who insist that we are not in a recession say we might enter a minor one within this year.
Regardless of whether we are currently in one or not, U.S. consumers have been feeling the mounting economic pressure of ever-rising inflations and started adopting cost-cutting measures and changing their lifestyle choices accordingly. Per survey data from PWC, about half of all U.S. consumers are either very or extremely concerned about their own financial situation, and 96% of surveyed consumers intend to adopt some type of cost-saving behavior over the first half of 2023
Beyond some of the more obvious behavioral changes in the face of a potential recession, including switching to less-expensive brands or generic products, and seeking out deals and coupons to reduce spending, there are four emerging trends in consumer behaviors, especially for the more tech-savvy consumers, that brands should pay attention to.
The Resurgence of the Homebody Economy
The so-called “homebody economy” refers to the growing market of consumers who prefer to stay at home for various activities such as shopping, studying, and entertainment. During the pandemic, it understandably surged into a mainstream phenomenon as most people were forced to stay home and practice social distancing. This led to increased spending on home improvement, online shopping, digital services, gaming, streaming, and other indoor hobbies.
While the world has been gradually reopening over the past two years, consumer spending on experiences such as travel, dining, and out-of-home entertainment has rebounded to nearly pre-pandemic level. Yet, as we face rising prices and a potential recession, the homebody economy is poised to make a comeback.
As consumers adjust their spending, more people will commune or entertain at home rather than going out. In other words, more home parties, less going out. This home-first mentality could also result in them shopping online more often or making fewer trips to the store, so as to avoid the type of unplanned impulse purchases that often happen in stores. Per survey data from PWC, 43% of consumers plan to increase online shopping in the next six months.
Therefore, businesses that want to leverage the homebody economy should focus on demonstrating value and availability for at-home consumption for their core customers. For example, food brand McCormick & Co is betting on more home cooking with new products and lowering prices on small-sized products, while more fashion brands such as Offhours are focused on “inactive” apparel designed for lounging at home. Robust online touchpoints are also table stakes at this point for brands that wish to effectively reach consumers at home, and so are quick, hassle-free delivery and return services.
Value-Based Subscription for Lifetime Loyalty
Subscriptions have been a popular trend in the media business for years, but in recent years, more CPG brands and even some offline service providers are launching their own subscriptions as a way to encourage repeat purchases and harness long-term loyalty. After all, there is no place more powerful for a brand to be than becoming your core audience’s daily routines.
Heading into a potential recession, we suspect more consumers may consider subscribing to their favorite brands as a way to save on products they regularly need. Whether it’s Taco Bell’s one-taco-a-day subscription service, which has proven to be great at driving massive app activity, or the respective membership subscriptions of Lyft and Uber designed to reduce cost for frequent riders, these subscriptions are about to become more popular among cost-conscious consumers.
The flip side of this argument, of course, is that the pressure to cut cost and save may also trigger people to audit their spending on subscriptions — a recent survey reveals that U.S. consumers underestimate their subscription cost by $133 on average, and 42% have forgotten that they’re still paying for a subscription they no longer use.
Yet, popular subscription bundles may prove more “sticky” thanks to their higher perceived overall value. A recent study of over 30,000 global consumers from Wunderman Thompson shows that 70% would welcome an Amazon Prime-like service from other brands and retailers. The aforementioned Uber subscription, for example, comes with discounts for ordering food deliveries via Uber Eat as well, which also smartly plays into the rise of the homebody economy.
Overall, it would behoove brands to consider launching a direct-to-consumer, value-based subscription service to help loyal customers save, or partnering with subscribe-and-save programs like the one that Amazon offers to reach cost-conscious customers. Moreover, if your company has the right assets that would make sense to create a bundle, that would greatly increase the overall perceived value of your services and help fight subscription fatigue.
AI-Enhanced Deal Checking
For digital-savvy consumers, there has never been a better time to find steep discounts and great deals online. As we mentioned earlier, the recession pressures may push more people to shop online instead of going to stores, and the various digital services that people are using to find deals and coupons when shopping online are making cost-saving easier online. Some of these popular deal-finding services include Rakuten, which offers cash back rewards for online purchases at over 2,500 stores and provides access to exclusive coupons, or RetailMeNot, which offers a browser extension that would automatically surface promo code and gift card deals for online shoppers whenever applicable.
Of course, with the rise of generative AI lately, a new class of deal-finding services is on the cusp of breaking into the mainstream. Wings, for instance, is a digital shopping assistant that helps people find the best products and deals online. Powered by AI and natural language processing, Wings can chat with users through text messages or voice calls for product recommendations, price comparisons, and coupons. It also learns from your preferences and feedback to provide personalized suggestions.
Another good example in this regard is the “Ask Instacart” feature that the grocery delivery company is planning to launch in its app. Built with the ChatGPT API, this feature allows Instacart users to create and refine their shopping lists by answering questions in a friendly, conversational manner. For example, users can ask for recipe suggestions, product recommendations, or dietary tips. One could easily imagine a future where cost-conscious users ask to limit their search to discount deals and items on sale, and leverage AI shopping assistants to quickly narrow down the shopping search results.
In response, brands and retailers should consider launching their own generative AI-powered shopping services that can inspire customers to shop and find deals with ease. Otherwise, it’d likely risk losing control over an important part of the customer experience to a third-party assistant or search engine.
The Rise of Waste-Conscious Consumption
In response to economic pressure, some consumers are looking to save on spending by reducing waste on groceries In response, tech-enabled tools for finding creative recipes based on what’s in their fridge are going to be a great help for many consumers in reducing food waste, while also opening up a new discovery channel for all types of brands. A recent Morning Consult research found two-thirds of U.S. adults said they cooked with a recipe at least one day.
A good recent example in this regard is the Snapchat Lens that Walmart created to help people find recipes based on ingredients they have or can order from Walmart via the said lens, which also lets users scan barcodes of products to see related recipes as a way to use the ingredient they already have and reduce waste. Similarly, grocer Kroger launched a chatbot to give people recipes specifically designed to cut back on food waste.
As consumers continue to feel the squeeze of a looming recession on their wallets, some may seek to reframe the essentials, and focus on needs rather than wants in order to cut expenses. This may prompt some people to take stock of their physical and digital possessions and get rid of items that they no longer use or need. This, of course, is going to further fuel the already-booming resale economy, as more consumers look to buy second-hand as a cost-saving measure, which, in turn, also helps reduce fast fashion waste.
And thanks to resale platforms like Poshmark, Depop, and RealReal, there has never been an easier time to sell the items you own but no longer need. In response to their rising popularity, brands should consider creating a resale feature in their existing platforms or websites to allow customers to trade in their old items for store credit or discounts like outdoor apparel brand Arc’Teryx with their upcycling program, or partnering with existing resale marketplaces to promote their brand awareness, attract new customers, and improve their environmental impact.
As the adage goes, there is opportunity in every crisis. With the right strategy, smart brands will be able to help their customers navigate through the economic pressures in a way that enhances their customer loyalty without losing profit margins. If you wish to dive deeper into the various ways that brands can do so, the Lab is here to help! Please reach out to our Group Director Josh Mallalieu at josh@ipglab.com to start a conversation.
