A hot topic at Australia's premier marketing conference Mumbrella 360 was the cost of living crisis and how brands can retain and promote value in a cost-conscious environment. I also find this challenge to be the number #1 threat in every brand plan process I have guided over the last six months.
So this week, I've written my key takeaways from one of my favourite sessions, Read the Room: A Marketers Playbook for Tricky Times. This session was delivered by David Halter, Dentsu’s Chief Strategy Officer, and tackled the tricky issues of consumer spending behaviours during the cost of living crisis.
Then next week, I am going to give you my key takeaways from a brilliant masterclass by The Lab on The Secrets to Communicating Value for Money which “unveiled the psychology of value for money” and showed us how to use behavioural science to communicate value for money without dropping prices.
Back to Dentsu, who surveyed over 4,000 Australians in July 2022 and again in May 2023 to understand their changing spending behaviours and the motivations shaping their household finances in today’s uncertain economy.
In their own words, “Some are changing their ways, some are staying the course, and some are living it up.” Additionally, some consumer segments seem confused and burying their heads in the sand when it comes to cutting costs.
An actionable consumer segmentation
What I loved about this session was the fantastic consumer segmentation they presented. This segmentation was grounded in people’s attitudes and spending behaviours during this cost-of-living crisis and how the size of these segments has changed over the last 12 months. Click here for a more detailed profile of each segment, their concerns and spending behaviours.
The study uncovered five consumer segments:
Consumers are reacting differently, and there are distinct needs and behaviours that brands can leverage to their benefit. Brands can identify which segments are likely advantageous to them and which present a risk to future growth during this economic downturn.
Everyone is cutting spending, but some more than others.
Halter also cross-referenced his segmentation with HBR’s How to Market in a Downturn matrix, showing the regression of all luxuries, most treats and some necessities into a mixed or declining market.
I’d highly recommend reaching out to David Halter for further information. david.halter@dentsu.com. David can cut the data by the categories mentioned below and provide a dashboard to understand whether each segment represents an opportunity or risk based on the intended future spending. For a fee, of course :)
Consumes are Saving to Splurge
I’d also like to supplement these key takeaways with some further insights from CommBank IQ that demonstrate that consumers are tightening their belts in some areas and are doing so, so they can still splurge and treat themselves in other areas.
The CommBank iQ Cost of Living Insights Report issues in May 2023 found consumers are still willing to splurge on experiences such as travel (+39% vs 2022 and Eating out or Food Delivery (+8.5% vs YA). CommBank concluded that some were drawing on COVID savings or choosing to be frugal in other areas (such as petrol, household goods and apparel) to prioritise the above experiences.
The CommBank data also showed distinct differences in changed spending behaviour by age, with the older demographic, who likely don’t have mortgages and high household expenses, outspending their younger counterparts. This insight aligns with Dentsu’s segmentation, with the Rich & Ready segment more likely to be older consumers.
I'll wrap up this blog post with some suggested questions to ask yourself:
Who are your consumer segments, and how are their spending habits changing?
Do they consider you a necessity, a treat, an on hold or a luxury? This classification will determine whether spending will contract further.
There are still segments out there who can and/or are willing to spend. Are you targeting the older demographic whose financial position is less impacted by the increased cost of living?
Then there are the consumers who save on some items to splurge on experiences. Are you tapping into this motivation to treat themselves and extracting the full opportunities from these consumers?
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