Consumers Unmasked: EPAM Continuum Says…
In the Consumers Unmasked report, we asked our EPAM Continuum Consumer Council to share their current buying decisions as we prepare to explore how these habits change over the next 12 months. But what’s truly behind their actions?
Érica Moreti, Head of Strategy and Innovation at EPAM Continuum, explains why, after a year of upheaval, uncertainty continues to play a starring role in consumer thinking.
Our first installment of the Consumers Unmasked report shows us that value (the elusive combination of price, quality and convenience) is the main driver behind consumers’ spending decisions. This is hardly a new phenomenon, but the reason for why it has shifted in importance is due to the pandemic.
If we look at the other results of the survey—and the themes woven throughout—at the core lives uncertainty. More than ever, consumers aren’t sure how to best manage their finances because they don’t know what’s going to happen next. While the initial wave of COVID-19 ignited the change in consumer habits, there are even more ongoing factors that are continually impacting the feeling of uncertainty. The pandemic is far from over.
Behavioral economics tells us that uncertainty could lead to one of two scenarios: overspending, as people begin to lean on credit cards or new typologies of payments and don’t feel the “pain of paying” as readily, or reduced but continuous spending due to lack of future job security and assurance of spending power only in the short term.
If consumers are uncertain of future circumstances, they may try to become more conscious of how much they’re spending and on what. They will look for quality products that will last, without the perception of overspending and preferably with a generous discount. In these moments, purchases are typically driven by emotional factors rather than rational ones.
The Uncertain State of the World
The current state of the world impacts many facets of our daily lives. When our current environment feels unpredictable, the fear of not knowing what might happen is constantly at the back of all of our minds. Collectively, we were cautiously optimistic about the world reopening. But with the emergence of the Delta variant—and Greek letters on the horizon—many feel anxious on how to best handle their finances while also ensuring they have what they need.
That, combined with political instability and troubling reports of the worsening climate crisis, have left consumers in the thick of figuring out what works best for them since the first wave of COVID-19. Though uncertainty has been no stranger to all of us over the past several years, that doesn’t mean it’s any less challenging to navigate.
In many ways, uncertainty sits at the heart of the sustainability conundrum our consumers are facing. It’s a great example of a social norm that drives purchasing patterns. An unclear future should be making sustainability a big topic right now, which it is important, but uncertainty about the present means paying a premium for a sustainable product remains an aspiration. Paying this premium may not be the priority since many are unsure of the future state of their wallet.
We don’t yet know if or when competing factors like the reputation of a brand, accessibility or quality of sustainable products or the genuine need to buy responsibly will shift the needle. External drivers—like consumer education, when nations will legally require certain sustainable measures to be taken, and industry-wide standards—will affect when and how consumers will prioritize purchasing sustainable products. This shift may be gradual or sudden depending on the state of the where consumers reside.
Looking through a different lens, sustainable shopping doesn’t particularly mean paying a premium when it comes to secondhand clothing, which is an effective way to manage this uncertainty. It doesn’t hurt that many think supporting a circular economy is trendy, with the perceived sustainability of buying secondhand adding additional incentive to do so. Ultimately, resale clothing enables consumers to find new looks for less, especially younger generations, and it’s good to save during a period of uncertainty. Some bigger retail companies are even creating new programs that offer secondhand items that are repaired or given some new flair at a cheaper price.
The New Showroom
It’s not just consumers who are contending with an unusually high number of unknowns at the moment.
The role of brick-and-mortar physical storefronts was already in flux before the pandemic struck, but the need to address the digital/physical merge inherent in retail, specifically fashion retail, is more relevant than ever. Digital services like curbside pickup, or click and collect, and new payment technologies changed the way people buy, shifting how people will likely visit physical stores in the future. This is perhaps driven by the situation: What was readily available and accessible by consumers during a pandemic? Moving forward, will these behaviors stay? With the unpredictability of our current environment, it’s hard to say which will stay. But what is clear is businesses must create hybrid solutions to meet everyone’s needs.
For instance, do we really need brick-and-mortar stores if most business is done digitally? Maybe not. But even if physical stores never enjoy the same levels of traffic as they did pre-pandemic, there may still be value in maintaining a presence that acts as a collection and return point. Stores could serve as a hub for employees to expand the personal shopper role by connecting with customers through apps and helping them pick their items one-on-one. Rather than becoming the site of the purchase, the role of stores could transform to becoming showrooms or a point on the continuum of the online experience. Retaining a physical presence may affect consumer trust in the brand, playing with the perception that the brand actually exists in the real world (think Amazon Go, Google Store, etc.).
This inevitably drives change, not just in the reduced scale of retailers’ real estate, but in the shape of that space. In Germany, for example, stores are beginning to mix categories you wouldn’t traditionally have found in same aisle, section or sometimes, even the same store. But when the purpose of the store is to act purely as a showroom, why shouldn’t items like cars or sports equipment be displayed in the same space and organizations share the costs of that space? Why shouldn’t brands share spaces to provide accessibility and ease-of-purchase while cutting costs of storefronts that aren’t necessary?
Consumers changed. In every sector, this shift is leading brands to look anew at how they package their offerings and which channel strategies and business models may need to shift as a result. That, of course, has a major knock-on effect. All of the sudden, the back of house—fulfilment, logistics and recruitment infrastructure that once served a vast physical infrastructure—now has the opportunity to become leaner, nimbler, faster. For example, some companies who used to have flagships now have rethought their formats to better cater to consumers. Some stores have brought their manufacturing lines to their actual storefronts, producing products while people buy—all in one place. While some industries, like fashion, are not quite there yet, many in the food industry—particularly grocery stores—are demonstrating how this can be done well.
Overall, this vision will take place in the near future… not today. The timeframe between the present and future is a tricky landscape, especially with so much changing day-by-day. Fortunately, the Consumers Unmasked report can help us navigate these uncertain times. We’ll continue to explore drivers of change over the several months to uncover correlations within our council’s actions and understand why they are behaving as they are and how it influences the industry. Through this, we’ll strive to make a world filled with too much uncertainty a little more certain.