After decades of low inflation, companies and consumers worldwide are struggling to cope with the rising cost of living. In 2023, global inflation is forecast at 7.0%, while the global disposable income per household is forecast to grow at 3.8%, failing to keep up with inflation. In this context, cash-strapped consumers are adopting cost-conscious habits, with many of these habits likely to be long-lasting. As a result, businesses must navigate the new consumer reality, in which the focus is firmly on affordability, value, and the cost of living.
Balancing budget and lifestyle
As the cost of living rises, consumers have become more conscious and selective in their spending. Buying higher quality to enhance durability, repairing broken items instead of replacing them, and even renting instead of owning, are some examples of the shift in consumer behaviour towards more selective consumption. In addition, consumers are cutting back on their purchases of unnecessary items that do not affect their lifestyle or standard of living, trading down to cheaper brands and private label, and frequenting discount stores.
At the same time, consumers still give themselves permission to indulge. In 2023, 65.3% of respondents to Euromonitor’s Voice of the Consumer: Lifestyles survey said they bought small indulgences for themselves because they made them feel good. Consumers do not evaluate purchases simply in terms of value for money, but also in terms of overall quality of life, health and wellbeing, new experiences, and joy.
An example of a business successfully catering to consumers seeking out indulgent treats, which give them a sense of security by reminding them of the past and simpler times, is Parle Products – India’s leading manufacturer of sugar confectionery. The company has been relaunching discontinued brands and product lines – such as Rol-a-Cola, following a social media campaign, #BringBackRolaCola. As a result of its response to the consumer demand for nostalgia and affordability in indulgent treats, Parle Products has achieved healthy sales growth (7.0% year-on-year in 2022), despite sales of sugar confectionery stagnating in India and globally as consumers pursue healthier eating habits.
Navigating the new consumer reality
In the face of high operating costs, businesses may be tempted to resort to raising prices, reducing pack sizes (shrinkflation), or reformulating ingredients and compromising on quality (skimpflation). However, there are more effective strategies to compete in the new consumer reality, where consumers are feeling the squeeze, but remain discerning.
To remain relevant, businesses need to find innovative ways to offer affordability and value to consumers. Importantly, value is not just a “nice price”, but also relates to quality, convenience, consumer experience, novelty, nostalgia, authenticity, sustainability, and more. As consumers grapple with rising living costs, businesses that deliver comprehensive value have a better chance of gaining loyalty.
Consumers always want to be valued, appreciated, and supported, especially during difficult times as they struggle with the cost-of-living crisis. In this context, the key to business success is for companies to put consumer needs at the heart of everything they do and align with consumer values, rather than putting profitability first. In doing so, companies build a partnership with consumers, help improve consumers’ lives amidst the cost-of-living crisis, and foster loyalty and trust, which will ultimately translate into profitability and competitiveness.
Where do opportunities lie?
Obviously, opportunities exist in categories with strong forecast consumer spending growth:
- In education, a category that witnesses strong demand during times of economic uncertainty, opportunities exist for providers that offer courses that are affordable and accessible to a diverse range of students.
- In food and non-alcoholic beverages, with rising demand for healthy and sustainable options there is clearly a need for technologies and solutions that can help reduce food costs and at the same time offer health and sustainability benefits – for example, urban farming, or meat and seafood substitutes.
- Growth in consumer expenditure on communications and transport is accelerating, indicating hidden potential for businesses both within and outside these industries. There will be greater demand for tech-enhanced products, such as those incorporating the internet of things (IoT), AI, and collaborative solutions that reshape the work-life environment. In transport, as they demand convenience and sustainability in spite of rising living costs, consumers will seek shared mobility and mobility as a service.
Even if businesses operate outside the strong growth categories of education, food and beverages, transport, and communication, they can still uncover significant opportunities by investing in technology and pivoting towards service-oriented approaches.
The best opportunities benefit all stakeholders by creating avenues for growth, innovation, and value creation. Businesses gain new revenue streams, driving profitability and competitiveness, while consumers benefit from improved products, services, and choices. Ultimately, all stakeholders will thrive, which contributes to economic prosperity, social wellbeing, and sustainable development.
Read our report Affordability, Value, and the Cost of Living for more in-depth analysis and strategic recommendations to navigate today’s business and consumer reality.