According to data released by the Government of Pakistan, consumer prices rose 13.8% this month from a year earlier. The sudden price hike of fuel and groceries particularly has put us all in a state of panic. Pakistan resides a diverse range of socio-economic classes. While some might not be affected by inflation, some lower their living standards, and others are fighting for survival. One thing that inflation and economic downturns bring is a shift in consumer spending, be it any class. History proves even in severe economic downturns and recessions, some companies are able to gain an advantage.
No two downturns are exactly alike, thus every recession puts marketers in uncharted waters. Although analyzing companies’ strategies that either propelled or undermined their performance through previous recessions and especially covid crisis helps. As a business founder operating in such circumstances, it is your prime goal to identify your customer base, understand the evolving consumption patterns and fine-tune your strategies accordingly.
Before we go on to discuss the shifts in spending behaviours of customers, we must acknowledge all socio-demographics within our country would react differently to inflation and economic downturns. The population of Pakistan consisted of mainly three income classes, that are upper, middle and lower.
A study on the Impact of Inflation on different socio-economic classes
A study was conducted in the financial hub of the country, Karachi, surveying people from all three of the mentioned classes. The descriptive statistics discovered that inflation caused a compromising change in the behaviour of consumers from the lower class in terms of the buying capacity and shift to local brands. The study further found little change in both these dimensions among the consumers from the middle class. However, the study did not find any large change in the behaviour of the consumers from the upper class. It concludes that income level is the real determinant of consumer behaviour while inflation is merely a catalyst.
Adaption of local products is highest during Inflation
The above-mentioned study regarding the impact of inflation on different socio-economic classes shows a shift to local brands among the lower and middle classes. Since the majority of our population lies in these 2 categories, inflation seems like the ideal time to introduce good-quality alternatives to renowned expensive products. Since people are already looking for cheaper alternatives, your product has a high chance of succeeding.
Digital Spending growth among Millennials and High-Income Citizens
Once covid became more of a lifestyle than a life threat, the trend of online shopping saw an all-time high all around the globe. Pakistan was no exception in adopting the new-age trends from e-commerce to last-mile deliveries. Though it might have started off as an emergency response to circumstances, the digital future is here to stay. If your company doesn’t have a digital presence that too an active one, your future is arguable.
A surprising result of the pandemic was an unprecedented level of channel switching and brand loyalty disruption. Gen Z and high earners are most prone to switching brands. Among these, 36 per cent of consumers trying a new product brand and 25 per cent incorporating a new private-label brand as per a report by McKinsey. Most of these converts have continued using these new brands even after the covid crisis. Among other causes including availability, price, and quality, the most common reason for this switching is the reflection of their personal values. This brings us to our next point, which is purpose-driven consumers.
Purpose-driven consumers, who choose products and brands based on how well they align with their values, now represent the largest segment (44%) of consumers. Society has recently become highly accountable, where celebrities are judged on their opinions and values, and so are brands. Today’s customer chooses brands that depict their values through campaigns or highlighting social issues.
The increasing discussions on green living when joined with economic instability, make people more vigilant of the sustainability of the product they are buying. Customers now prefer sustainability over fast fashion. Recycled raw material, zero-waste, increasing shelf-life and re-usable products are most preferred by particularly educated young customers.
Among many things covid taught us, one is the hygiene transparency of services. Though covid has subsided, a new wave can emerge anytime, thus people dining out or availing of other services expect a highly hygienic setup. Restaurants that opened up their kitchens for customers to come and see their working conditions received admiration and popularity both.
Cutback of Non-Essentials
As an individual, the first step we take to survive inflation is cutting down on non-essential items. But the thing is what we consider necessity and luxury. Some brands make their products in a way that builds a narrative of that product being an absolute necessity.
For example, for the longest time, I considered my organic curl shampoo a necessity. The number of benefits it has over ordinary shampoos along with the ads showing what my hair would look like if I stopped using it, I was convinced I needed it no matter what. However, now that I analyze it, it’s all just great marketing that makes me consider an expensive shampoo a necessity. This is the power of great marketing.
Rise of Homebody Economy
Surveys showed a huge rise in furniture, home decor and other home-related products amidst the worst of the pandemic. The time people spent at home made them redecorate and equip their houses with more entertainment options. Along with these, there was also a hike in sports apparel and stationery items. When outside activities were restricted people shifted to in-home projects and activities thus increasing the demand for such items.
Similarly, inflation restricts spending on luxury products, services and entertainment. But, everyone needs something to do, and people would probably shift to cheaper entertainment options. This would give rise to some industries, businesses that can provide such items would make money out of this inflation.
Invest in Outdoor Activities
The past two years have given time for people to analyze their life trajectories and behaviours. A lot of individuals decided to invest more in experiences than products. We saw youth from the middle-class spending on international travel primarily to Turkey more than ever. More options for fun activities are available in the cities now apart from the traditional cinemas and restaurants. Using such shifts in customer mindsets to your favour can be beneficial in a time of crisis.
These developments in customer behavior might not suit your business as it is. But, this article gives you an overview of how customers have previously reacted to crises be it economic or social. To rise to fame, you need to find the opportunities disguised in crisis. Airlift pivoting to grocery delivery right at the beginning of the pandemic, Swvl realigning their strategy of mass transit amidst hyped fuel prices or bookkeeping apps like creditbook using fragmented financial conditions of Kiryana stores to their favor, are a few of the many examples within Pakistan that benefited from inefficient systems and uncertain situation. To know more about strategies to adopt to use the inflation to your favor, read this article “How to respond to changes in consumer spending in 2022?”. This article shares way to tackle the economic downturn with Metric’s insights.