march 17, consumer behavior report
What you’ll learn:
- Why some economists are calling 2021 the “Year of the Consumer”
- Experts from several fields predict the biggest emerging consumer behavior trends for 2021
- How your brand’s trustworthiness and digital security translate to the bottom line
Verde Consumer Behavior Report - march 17, 2021
We’ve officially hit (and passed) the one-year mark on the pandemic. And the vibe is...remarkably good.
Pandemic-inspired trends are separating from what will become the longer-lasting “new normal” of consumer spending and preferences. So this week we dive into predictions around consumer spending and behaviors in the new world order.
Spoiler alert: People have some money to burn, and they’re really excited to spend it. But after a year of hardship and self-reflection, consumers are saying that how you operate influences their purchasing decisions almost as much as the product you provide.
The Economist’s View of Consumer Spending
According to economists at JP Morgan Chase, and shared via their quick-hitter Economic Take Podcast, 2021 will be the “Year of the Consumer.” (Full episode: “Consumer Spending: Hungry for More?”)
Before diving into why, some background beta is important. The prediction is based on the complex subjective and objective interactions between real household income, consumer spending for services, retail sales, savings rates, and government policies.
In 2020:
Largely due to government policies and an unprecedented fiscal transfers (through PPP loans, unemployment stimulus, direct payments, etc.), real household income was up 3.7% (twice as high as 2019).
Overall consumer spending (for goods and services) was down 2.7% in 2020.
Consumer spending for goods (retail sales) was up 7.2% (twice as high as 2019).
Consumer spending for services was down 7.2% . The typical growth rate for service spending is approximately 2% per year.
Household savings rates, though already moderating, doubled in 2020.
So how will those factors come together in 2021 for the Year of the Consumer?
Continued governmental fiscal policies and stimulus will likely drive real household income growth even higher than 2020’s 3.7%.
Household economic figures are currently out of historic balance and will seek to rebalance.
Historically, households tend to raise spending permanently by about 2.5 cents for every dollar increase in net worth. Given an anticipated rise in household income:
We could expect consumer spending to rise by $230 billion this year: equal to about 2% of consumer spending.
It’s worth noting that households have become more conservative in spending-to- net worth recently, so this is uncertain. But most economists believe people will spend in 2021.
More home equity means more spending confidence.
The real estate market boomed in 2020, when the net worth of households rose more than $9 trillion. Since two-thirds of Americans own houses, this equity buffer inspires more spending confidence.
Though savings rates (i.e. the percentage people are saving, not the rates banks are offering) are already going down, they are still twice as high as pre-pandemic levels. History shows that these rates tend to hover around 7-8%. If the current rate of savings drops down to typical numbers, we would see a 7% rise in consumer spending.
To put this savings vs. spending in actual numbers:
Prior to the pandemic, households saved $1.15 billion monthly.
In actuality, households saved $2.26 trillion from March to December in 2020.
Early economic indicators show this prediction has merit. Consumer spending for services in Q4 2020 (as part of overall GDP) came in far stronger than was originally assumed. Plus, retail sales exploded to 5.3% in Q1 2021 -- showing strong gains all around. Basically, after a year of restraint, consumers are ready to spend. And it looks like they’ll have the money to do it.
Emerging Consumer Trends
If 2020 had been a typical year, we’d be done looking back by now. But--it could easily go without saying--2020 was anything but normal. Everyone’s life, business, and levels of social awareness were affected and transformed.
Forbes Business Council recently asked 15 experts from various fields to identify which trends in consumer behavior are emerging from the tumult that was 2020, and which are here to stay. Honestly? We hope many of them are here to stay!
Increased demand for transparency
Accelerated online buying
Increased focus on what’s truly important
A shift in omnipresent communication (toward a cohesive brand experience)
A greater human element in client interactions
B2B customers gaining more leverage
Increased demand for anonymity (consumers refusing to provide more info than what’s needed for each transaction)
Consumers looking for social experiences - rise of events and experiences again
More people taking a DIY approach (hair styling, cooking at home, working out at home)
Growing importance of content marketing
Increased focus on “green” products
More socially conscious shopping
Increased value-based spending (including buying local, buying from values-aligned brands)
A boom in customer automated decisions
Customers preferring vetted vendors (i.e. they’re more cautious how they join with vendors; quality and standards matter more important than costs)
The trends above are quoted or mildly edited from the Forbes article. For more details, click over to the article.
Trust and security drive online decision-making
Trust has been the unsung hero of the past year. Employers have needed to trust their teams as we all work from home. We’ve all needed to trust one another for our health. Shoppers have needed to trust that in-store experiences were safe and that online purchases were secure.
As we’ve reported here, online shopping absolutely blew up in 2020. While we expect it will calm down post-pandemic, no one anticipates the ratio of online-to-in store shopping will ever revert completely back to pre-pandemic levels. This means your digital experience needs to be exceptional.
Okta, the identity protection and authentication SaaS, recently issued “The State of Digital Trust” report. The goal was to determine how the rapid digital transformation over the past year impacts how consumers gauge trust in brands.
The top takeaways (quoted or edited minimally):
Site and brand reliability and security are critical.
32% of the 15,000 people surveyed named “service reliability” as the key determinator for trust. They expect products to arrive, on time, as expected, and in good condition.
Data transparency is more important than you may think.
“42% of Americans and 47% of UK respondents say that a brand mishandling or selling data would cause them to lose trust in that brand.
Trust in our digital world directly correlates to consumer purchasing decisions.
75% of Americans are unlikely to purchase from a digital brand they don't trust.
If a brand misuses data or experiences a data breach, 47% of Americans say they will permanently stop using the company's services.
High percentages of people expect pandemic behaviors to continue post-pandemic.
67% will continue to connect with friends and family via video conferencing.
40% will utilize online doctor appointments alongside in-person visits.
58% report increased online spending, with 63% of those expecting the figure will remain the same or increase.
Developing trust and security begins with your sign up process.
74% of US respondents say they'd be likely to stop signing up for a website or app if the onboarding is time consuming or requires lots of personal information and security details.
Our take: Values. Values. Values. Consumers have now spent a year changing their buying habits and frequency. Many have likely saved more and spent less. Their news feeds--and possibly their personal lives--have been filled with frightening news and tragedy. The behavioral changes brought on by the yearlong pandemic have allowed consumers to reflect on what they sincerely value.
The ball is in the brands’ court to meet consumers where they are, and to clearly communicate and to take action on their values, trustworthiness and value propositions.
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