Consumers Worry About Economic Recession, How Should Brands Respond?
The latest consumer sentiment survey from EY-Parthenon shows that nearly two-thirds of U.S. consumers believe a recession is likely, with financial confidence down 12% from six months ago. Consumers are adjusting budgets and reducing discretionary spending, making competition among brands more intense. Experts suggest that brands should focus on existing customers, reactivate dormant customers, and win the market through authentic value delivery.
Brief Overview:
- According to a report released Tuesday by EY-Parthenon,Consumer Sentiment Survey, nearly two-thirds of consumers believe a recession is likely.
- According to EY-Parthenon data, consumer financial confidence has dropped 12% over the past six months. In response, consumers are reallocating budgets and reducing discretionary spending.
- "What we're seeing is just another tightening in a long-term trend of economic insecurity," Will Auchincloss, EY-Parthenon's Americas retail leader, told CX Dive.
Deep Dive:
EY's latest survey results show consumer sentiment continues to decline amid rising costs. Consumers are becoming more selective in their spending, intensifying competition among brands.
The latest data from the U.S. Bureau of Labor StatisticsConsumer Price Indexshows a significant rise in prices—up 4.2% over the 12 months ending in May. Energy prices contributed to more than 60% of the monthly CPI increase.
To offset the impact of rising oil prices, nearly a third of consumers say they are reassessing their entertainment budgets, 29% are reevaluating food budgets, and another quarter are adjusting travel plans.
"What you see in shopping behavior is that they are switching categories and channels to save money, and as summer vacations approach, we expect spending to be more subdued than in previous years due to these impacts," Auchincloss said.
For example, consumers often reduce dining out and instead increase grocery spending to cook at home, Auchincloss noted.
Consumers will not tolerate price increases without corresponding value, and many brands have reached the limit of raising prices without losing customers, Auchincloss said.
"They want brands to be on their side and stay authentic, they want affordability, they want value for what they buy, and retailers that do that are succeeding in the market," Auchincloss said.
Facing such intense competition, brands must demonstrate their value to remind customers why they chose the brand in the first place.
"Data over the years has certainly shown that focusing on existing customers is always cheaper than acquiring new ones," Auchincloss said. "One important area where we've worked deeply with a client is reactivating dormant customers—those who came before but churned—and we see this as a huge opportunity for the industry."
However, as consumers reassess spending, there are also opportunities to acquire new customers.
"This really creates opportunities for retailers that are smart and strategic in their approach, because consumers are not locked in," Auchincloss said.