Cost of living crisis having bigger impact on consumer spending than pandemic

The IPA’s latest TouchPoints survey of 3,000 adults conducted in the spring found that 37.6% of consumers are “not coping” with their current salaries and that 60% were making consumer decisions based entirely on the products with the lowest prices.

60% of respondents in the lowest income categories said they weren’t coping with the cost of living on their current income. The figures suggest the cost of living crisis is proving harder on household budgets than the coronavirus pandemic; in 2019, 32.6% of adults said they weren’t keeping their heads above water, while during the 2020 and 2021 lockdowns, the figure was actually lower, at 30.7%.

• Brands risk seeming out of touch if they don’t pay attention to cost of living crisis

Belinda Beeftink, the IPA’s research director, said that the high cost of living “is impacting [consumers’] daily lives not only in terms of what they can afford but what they do, when they go out, when they socialize and – crucially for our industry – how they consume different media channels.”

The survey found that, as a consequence of stretched budgets, adults were spending on average an hour more indoors than they did before the pandemic – and that almost 6% were consolidating debt or remortgaging. Furthermore, it found that 17% fewer consumers were shopping on the high street and 7% fewer at supermarkets.

Chris Whitson, global chief strategy officer of media agency Iris, said that high-interest rates and changing consumer behavior had implications for advertisers.

“There is no doubt the continued increases in interest rates, aligned with significantly higher costs for the things we need to buy every day, are having a huge impact on how people are feeling right now. The main challenge for brands is to face that anxiety without adding to it,” he said.

“It’s the sense that no one knows how and when it will end that is perhaps, the most concerning. It’s not a surprise that, in the face of such uncertainty, people are pausing plans and reconsidering the immediate future.

“The fact that nearly 40% of people feel they don’t have enough to get by is utterly terrifying. In fairness, most supermarket brands are playing a role in lowering prices for customers. The big brands like Tesco, Sainsbury’s and Boots have switched their loyalty strategies to allow customers to unlock lower prices instantly – a switch from the points collection slow burn savings that were prevalent before.”

Josh Krichefski, chief exec of GroupM in the UK and Europe, the Middle East and Africa, and president of the IPA, said agencies needed to pay attention to the impact of stagnant wages and high inflation.

“As financial burdens increase, halting both our short- and longer-term plans, it is imperative that brands and their agencies are mindful of these challenges and work to understand the role we can play in helping to add value to consumers’ lives at this tough time.”

Christi Tronetti, head of growth, M&C Saatchi London, told The Drum: ”This is not exclusively an advertising problem. Most brands, including those in the FMCG space, are doing everything they can to not pass on their rising costs to consumers, looking at every single point in the supply chain to understand how they can be more efficient. However, advertising does have a part to play. Our recent On The Money research study showed that advertisers need to think about the role that they can play in people's lives in challenging times, and that it’s not about reflecting the doom and gloom. When things are difficult, people don’t want advertising to keep on telling them that, they know it already.

”Generally speaking, brands can’t make everything better through their marketing efforts, but they can still find their place, whether that’s making life more fun or providing a little humour or comfort.”

As well as spending less time shopping outright, the IPA’s survey has found more consumers using price and discounting as the primary decider for a purchase. 60.9% of consumers plump for the lowest-possible priced products, the survey found, while 52.9% said they would switch brands to use a coupon or discount.

Tronetti suggested that a closer consumer focus on price could spell trouble for premium brand names. ”We’ve seen that people prioritise certain products and services because they see them as being important to their mental and physical wellbeing, although they may need to trade down. If you’ve got a price premium to maintain, you’ll have to justify it. People will only pay more if something has real tangible benefits such as usefulness or longevity.”

Jordan McDowell, digital strategy director at McCann Manchester, said it would likely play into the hands of value retailers: “As in 2008/09, value players like Matalan and Aldi are in demand as consumers economise. The smartest of brands weathering these storms will know, in order to retain the customers they gain from economic shifts, they’ll need to have proved themselves a savvy switch, not a compromise. Time will tell.”

Whitson said that brands should emphasize their capacity to make consumer lives easier. “For every brand targeting a mainstream audience right now the key is to be a ‘helper’ brand – there to support customers as they deal with difficult financial challenges and the anxiety that goes with it. Customers will remember the brands that showed empathy and support and the loyalty is likely to endure beyond the current crisis.”

In addition to spending habits in the present, the survey found the cost of living crisis was changing consumers’ long-term financial plans. Fewer expected to move jobs in the next 12 months (7.4%, down from 11.9%), and fewer young consumers expected to leave their parents’ home (2.9%, down from 4.1%) while the number of people hoping to retire within the next year almost halved, from 2.1% to 1.3%.