When the pandemic started earlier this year, everyone tried to predict how customers would behave. In April, we covered consumer sentiment—consumers overall were shopping less and shifting some out-of-the-house spending (e.g., restaurants and movies) to in-home spending (groceries and streaming entertainment). Now that we are 6 months into this pandemic, with no end in sight, what does consumer sentiment look like, and how should small business owners react?
Overall, the latest numbers released for consumer spending, consumer sentiment, and unemployment paint a positive picture.
According to the US Bureau of Economic Analysis, consumer spending in May increased by 8.2% following 2 months of decreased spending (March at -6.6% and April at -12.6%). This means consumers spent more as economies reopened in May. US Census Bureau’s advance estimate numbers reveal that June showed a positive increase as well—up 7.5% over May. June’s advanced numbers included significant increases in spending over May in several categories, including:
- Clothing & clothing accessories stores (105.1%)
- Electronics & appliance stores (37.4%)
- Food services & drinking places (20%)
The Horizon Consumer Science US Consumer Sentiment well-being index showed consumer sentiment to be only 5% below average mid-July compared to mid-April’s 14% below average. Perhaps related, but the Bureau of Labor Statistics showed a decline in the unemployment rate in June (11.1%) compared to April (14.4%).
So the numbers show customers are starting to spend money again, but what does that look like from a customer behavior perspective?
McKinsey identifies 5 themes of consumer behavior as the pandemic continues: Shift to value and essentials, flight to digital and omnichannel, shock to loyalty, health and ‘caring’ economy, and homebody economy. Similarly, EY (Ernst & Young) predicts 5 consumer segments for the future: Affordability first (30%), Health first (26%), Planet first (17%), Society first (16%), and Experience first (11%).
Since customer behaviors and segments are evolving, where should small business owners focus?
Adapt Your Pricing Strategy
According to McKinsey, “Most US consumers still believe it will take more than 6 months for the economy to recover,” so consumers are focused on purchasing essential items at lower costs. If the majority of consumers don’t believe in a quick economic recovery, how can your business cater to price-sensitive consumers who are primarily focused on essentials?
Perhaps it’s time to review your pricing strategy. Set your price point to capture some of the bargain-hunter markets. However, given the COVID-19 costs of doing business, don’t compete on price alone. Include options in your pricing mix to entice customers who appreciate the unique value you provide.
Many experts predicted digital would be a crucial tool for keeping businesses afloat during the pandemic. The June advance estimate numbers from the US Census indicate that “non-store retailers were up 23.5%” from a year ago. McKinsey predicts the trend will continue as “… many consumers say they plan to continue shopping online even when brick-and-mortar stores reopen.”
If you haven’t hopped on the digital bandwagon yet, it’s not too late. Implement online tools for marketing and selling to reach more customers, including those who want to avoid physical contact. Don’t forget that your back-end office tasks, like bookkeeping and invoicing, can also be converted to online options.
Know What Your Customer Wants
Customers are less loyal now. During the great scavenger hunt for toilet paper and hand sanitizer at the beginning of the pandemic, available won over brand name every time. Consumers flocked to restaurants that advertised contactless pickup. Shoppers switched to grocery stores that offered BOPIS. And cash-strapped customers have decided off-brand items can often be substituted for a pricier brand name item.
As a small business owner, ask your customers what they want. Take surveys, practice social listening, and give your customers a way to provide feedback. If you can position your product as a low-cost alternative to a name brand product, do it. If you have a local customer base, explain how buying local helps you give back to the community.
Focus on Safety and Sustainable
A McKinsey survey showed that customers want to know that you value their safety, as well as the well-being of others in your web (e.g., employees, suppliers). Make sure you are shouting from the rooftop all the safety measures—physical barriers, deep cleaning, contactless transactions—you have put in place to protect your customers and stakeholders.
Additionally, because the coronavirus has proven how interconnected the world is, some consumers may expect you to reduce your environmental impact to prevent future pandemics. Look at ways to increase your market share by incorporating sustainable products where you can.
Meet Your Customer at Home
According to McKinsey, ‘’In most countries, more than 70% of survey respondents don’t yet feel comfortable resuming their ‘normal’ out-of-home activities.” Labeling this the homebody economy, McKinsey predicts customers won’t come marching back when the government lifts restrictions—many will wait for the all-clear signal from medical professionals.
As a small business owner, can you find a way to tailor your product or services to meet the stay-at-home customer? For example, hair salons that were closed at the start of the pandemic offered customers “color to go” kits. Restaurants pivoted to sell family-size catered meals for pickup. Some small automotive shops provided pick-up and drop-off service so car owners didn’t have to go into the mechanic’s shop. Take a look at your product and see what new markets or distribution channels could help you snag a share of the home-based consumer.
Keep Monitoring Trends
Above all, keep monitoring the trends. Consumer spending will continue to be influenced by the unemployment rate, economies reopening (or shutting back down), and the rate of virus-positive cases and hospitalizations.
Without a doubt, household incomes will change. The $600/week unemployment boost that your customers may have depended on ended July 25. On a positive note, a second stimulus check may be on the way soon, which would give your customers a little extra cash to spend.
People are slowly beginning to travel again. Schools are planning for modified, phased reopenings. Both of these mean consumers will spend money, but it could also mean that coronavirus cases and hospitalizations, already on the rise, may spike to levels that cause shutdowns to reoccur. This could increase unemployment rates, decrease spending, potentially scare safety-first customers into staying home even more.
No one knows when the pandemic will end. The only certainty is that consumer sentiment will change. Keep delivering what your customer wants, make your customers feel safe, and remain agile to help your business succeed.