As we all know these are unprecedented times. And whilst it is difficult to think about anything other than the devastation that coronavirus is wreaking across the globe, life; albeit unusual, still goes on. Those of us that have not yet contracted the virus (or have recovered) still have to eat, sleep, work, socialise (albeit digitally) and keep ourselves occupied.
One popular language learning app has claimed increased usage of more than 200 per cent, sales of gardening equipment have skyrocketed and the number of home décor Pinterest boards have multiplied by a factor of at least 50. The old adage is true: where there is chaos there is opportunity. For some brands coronavirus will spearhead growth, for others the complete opposite. Whichever side of the fence you fall, an understanding of consumer behaviour can help you navigate these strange, fast moving times.
The four segments of locked-down consumers
Academic research shows that consumers behave predictably during times of financial stress and four key segments emerge.
- Cost cutters
This segment feels the most vulnerable and the hardest hit financially. They will literally slam on the brakes and stop any unnecessary spending immediately. In addition they will decrease usage of what they consider their essential purchases and where possible substitute these purchases for cheaper alternatives. It is likely that Cost Cutters will be high income customers with investments, those that have lost their jobs, those that are worried about their financial stability over the coming months, despite the government interventions.
Strategy: The key for brands with a high percentage of cost cutters as customers is to keep relationships going. Spend the time during the Covid-19 crisis to understand what customers are interested in beyond the product. It will pay dividends in the future. The most tempting response is to cut prices, which is what we are seeing from many organisations. My inbox has been flooded with flash sales. However, remember this can only ever be a race to the bottom. These customers are ultimately in financial lockdown and no matter how low the price they won’t spend, so all you are doing is devaluing your brand equity.
Typically watchers are consumers that will hedge their bets. They’ll be worried about the short term and their ability to maintain their standard of living and as a result reign in their spending, but they’ll be more optimistic about the future. Research from Populus shows that this is the segment the majority of the nation currently falls into with 78 per cent of people saying this week (beginning of April) that they are going to cut down on what they spend until the crisis is over, but 77 per cent agreeing that ‘when the crisis is over it will be important for all of us to go out and start spending again’. This group represents a wide range of income levels. However, as the pandemic gets worse and lock down continues Watchers will increasingly migrate into Cost Cutters.
Strategy: Due to the optimistic outlook of Watchers, high involvement brands should capitalise on this by finding easy ways for the consumer to buy. Perhaps putting in place more favourable finance deals, with payment holidays until later in the year or for lower ticker items deals which enable customers to spread the cost over a number of months, something that has been a successful strategy for Very.
- Cautiously comfortables
Cautiously comfortable consumers are those that feel secure about their financial position in both the short and long term. They tend to be retired who have their investments in low risk portfolios. It also includes the most well off, high earning consumers, such as professional footballers – although recently it was reported that a number of clubs have cut the wages of their highest paid players. This segment of consumers continues to spend at almost the same level as they have always done. However, they may become more selective with brands swapping from premium to slightly cheaper alternatives. Alternatively, cautiously comfortables will attempt to maintain their current lifestyle sticking with their favourite brands but maybe reducing their consumption. They may even pay a premium for these brands particularly FMCG as BOGOFs have been curtailed and customers conditioned to buying on offer now have to switch to paying full RRP.
Additionally, Cautiously Comfortables tend to be planners and will use lockdown as an opportunity to plan for future purchases such as large home improvements or future holidays.
Strategy: Content should be inspirational. If not now, then when… Give Cautiously Comfortables the ammunition to plan. Already we are seeing some great examples from holiday companies and automotive brands. However, there is scope beyond these categories for brands that could be considered little treats and luxuries. For instance content around creating your own home spa etc.
Finally the indifferents. This segment of consumers will obviously be anxious about the health and wellbeing of their family and friends, but when it comes to their finances they will be pretty unconcerned. This segment tends to be made up of urban, young renters with no savings. Many of whom may be students or first jobbers and will still be supported by their families or student loans. They will carry on spending as usual, particularly online. Clothes, media, beauty products etc. They will, however, put the brakes on major purchases. Although it is likely that they will already be thinking about future spending. This group will be most optimistic about the long term prospects. They will only stop spending if their financial circumstances change dramatically. For instance being made unemployed (furlough will unlikely significantly affect their spending patterns).
Strategy: The Indifferents present a unique opportunity for brands that are brave enough to test new innovation such as Rapid Response Delivery within the hour for metropolitan areas. Adding new channels can enhance the omnichannel experience in the long term.
In addition to the above, there is one more type of behaviour worth noting that is emerging in China now that lockdown and social distancing measures are being relaxed: the revenge shopper.
Revenge shopping, which is the act of retaliation against circumstance through retail therapy, is resulting in queues of people outside luxury stores in Chinese malls seeking retribution for enforced lockdown by spending. It has been reported that an Hermes boutique in Guangzhou made $2.7 million in one day after it reopened. Apparently similar scenes were witnessed in the aftermath of 9/11 where consumers dealt with the trauma by engaging in ‘normal activities including shopping.
Understanding individual customer journeys
The key for brands is understanding the customer journey of individual customers during these unprecedented times and creating campaigns that can ease customer anxiety, build relationships for the long term where necessary and encourage spend where appropriate. This combined with understanding how each segment classifies your brand (essential e.g. food, Netflix subscription, treat e.g. beauty or phone upgrade, planned for the future e.g. holiday or car upgrade) will help you plan your approach based on these determinant variables.
Richard Calvert, co-Founder, The Thread Team