The NielsenIQ Intelligence Unit has been getting underneath the motivations of spending in these strangest of times. What it has uncovered is that consumer behavior, for the year, will continue to change in ways marketers have yet to experience. While some people will remain insulated from financial harm, many consumers are now identifying as ’newly constrained.’ Nielsen’s Scott McKenzie explains what this means for brands.
Despite desires for the world to revert to pre-coronavirus behaviors, all the signs point to something far more complicated.
Let’s start with the less complicated: there are ’watchouts’ that need to be recognized before the rest of 2021 can make sense. The first is that the inevitable, and understandable, interest in projecting what 2021 looks like compared to 2020 needs to be a more nuanced conversation. If governments are struggling to forecast GDP and unemployment numbers and public companies are reluctant to provide guidance to Wall Street, then how can one be confident of the direction consumers might run? Hint: it’s not by looking at consumer behavior in 2020 and expecting it to be similar. Yes, there will be certain habits that stick, but the fundamentals will be very different.
In 2020, we saw a clear polarization of consumer behavior. We stacked them into two groups — insulated and constrained consumers. The insulated were typically those who kept their jobs and were actually saving money because they were working from home, not taking vacations, buying new cars, etc. The constrained were those feeling a financial impact of the pandemic; that could be as tough as unemployment or, as the year went on, feeling the need to spend with caution.
In 2021, the constrained and insulated cohorts will shift and multiply into related cohorts. We are seeing a massive increase in the number of people who identify as “newly constrained.” We’re not talking about those who were constrained with financial pressures before COVID-19; we’re talking about a new group that is likely to be the dominant segment in the coming months, if not years.
For brands, the necessity of running towards this reality is here and now. Brands with value-for-money propositions may already be paying attention since they’re the obvious beneficiaries of this growing financial caution.
But for brands that skew towards more premium offerings, there is still opportunity. A small, though shrinking segment, will still be very well-insulated consumers who are lining up for their vaccine shots and then shifting as quickly as possible towards ’revenge’ spending. Vacation spending and auto spending will all become targets of redirected spend, and quickly.
Still, the overarching reality is, as we cast around the world for hints of what is to come, many consumers expect their financial situations to get worse this year, in part driven by an anticipated withdrawal of support schemes such as stimulus packages and furlough schemes. In a new study we will release later this month across 16 countries, 33% of consumers told us they feel insecure about their future income.
As a consequence, consumers are now continually reassessing their spending capacity. Of those newly constrained consumers, 30% told us they were ’constantly’ reassessing their household spend. 40% say they are sticking to a fixed budget. And, as we looked at the consumer-packaged goods space, most consumers were recalibrating their spending.
The risk of not paying attention to these dynamics is significant. Category or brand abandonment will happen in ways we’ve not seen. Pricing considerations will play an important part, but pricing won’t matter if these challenged consumers’ emerging need states aren’t recognized and responded to. Relevance in 2021 may look nothing like relevance in 2020.
Scott McKenzie is the global head of the NielsenIQ Intelligence Unit