The Economy and Its Impact on Consumer Behavior

The Economy and Its Impact on Consumer Behavior

Share this Article

By: Shea Posey, Senior Account Executive, and Jake McKenzie, Chief Executive Officer

Let’s face it – we’ve had to deal with a lot of uncertainty over the last two years. As if a global pandemic, supply chain issues, inflation, soaring gas prices, and a war in Ukraine weren’t enough, the hits keep coming. We’re now facing baby formula shortages, even higher gas prices, and food prices continuing to climb as the U.N. warns of a crippling world grain shortage. It feels like someone turned on a never-ending firehose of suck with no end in sight. Oh, and if whoever released the monkeypox could take that back, that’d be great.

Despite all that, the U.S. remains the richest country in the world with an overall GDP of $23 trillion. So why is consumer confidence dwindling? To quote James Carville, “It’s the economy, stupid!”

According to McKinsey & Company’s latest Consumer Pulse survey, consumer spending dropped significantly from February to March of this year. And by all accounts, consumer spending continued to fall over the last couple of months. This major retraction in consumer spending due to inflation helps explain why the stock market is on its longest losing streak in over 20 years.

The survey also highlights one of the biggest implications of an economic pullback: how consumers change their spending habits. Now, we already saw major changes in consumer behavior when the world went into COVID lockdown. People utilized curbside pickup more, had groceries delivered and left on their doorstep, used food delivery apps for a bag of Skittles…even bought cars online. The latest trend? Consumers are dramatically more willing to change brands.

This could be for several reasons. Because of supply chain problems, many consumers found that their usual brands were just no longer available. Others may have switched because inflation outweighed their loyalty so they opted for a lower cost brand. And, as discussed in Why Consumers Are Most Likely to Break Brand Loyalty in Spring, the season of change may have inspired some consumers to try new things.

Another reason is one we’re all hesitant to talk about. Like it or not, all economic indicators point to the U.S. heading for a recession. There’s been a lot of talk in the news about it, which leads to pessimism and that pessimism has most likely already seeped into the minds of consumers who are starting to brace for impact. It’s worth mentioning that in ALL recessions, people become more willing to change brands.

Regardless of the reason, almost all of the consumers who broke brand loyalty – a whopping 90% – plan to continue doing so. This opens up new opportunities for marketers to lean more into brand differentiation and to reach new customers by increasing their conquesting efforts. To discuss how we can help you turn psychological insights into great creative advertising, give us a call at 833-579-1905 or email us at [email protected]. And for a deeper dive into how much consumers have changed over the last two years and what marketers can do to adapt to those changes, check out our Psychology Behind the New Normal webinar!