Last Updated: March 8, 2023
5 key considerations when monitoring changing consumer behavior
- Consumer confidence is vital but varies by segment
- A challenging economy increases price sensitivity
- Consumer trade-offs are an inevitable response to price increases
- Behavioral trends vary by consumer demographic
- External data provides a full view of changing consumer behavior
What do chicken nugget sales say about changing consumer sentiment? It turns out a lot.
Consumer sentiment data provides insights into business trajectory and growth opportunities. Proactively identifying changes in sentiment and behavior empowers organizations to be more nimble in their planning and forecasting processes—pivoting to mitigate risk or take advantage of opportunity.
In this blog, we cover 5 key considerations to monitor consumer behavior in a down market. Plus, we provide an example of how consumer confidence correlates to the demand for chicken nuggets.
Understanding evolving consumer behavior is critical to navigating an uncertain economic climate, and we’ve found the following to be essential considerations in monitoring evolving consumer behavior.
1. Consumer confidence is vital but varies by segment
Consumer confidence is a widely tracked metric as an indicator of economic outlook. This is one of the best leading indicators of financial performance. Understanding consumer confidence on a macroeconomic level is helpful, but categorizing it down provides richer insights.
The ‘average American’ is representative of very few companies’ core demographic. Segmenting consumer confidence by income, demographic, and family status provides the granular insight needed to plan for each category adequately. Since consumer confidence varies across categories, it is essential to correlate how each group moves cyclically or counter-cyclically to the economy.
2. A challenging economy increases price sensitivity
Pricing goods in a volatile economy is complex. Companies need to determine when a price point passes consumers’ threshold and create shifts in brand loyalty.
During the pandemic, consumers had pent-up savings and were willing to take on price increases from producers. Since wages have not kept up with inflation, consumers’ spending power has decreased. Depleted savings and inflation have caused consumers to spend more on credit to keep up with basic needs.
In the current economic situation, consumers have higher price sensitivity. As a result, companies passing on prices risk consumers partaking in trade-off behaviors.
3. Consumer trade-offs are an inevitable response to price increases
Consumption is a significant driver in the U.S. economy, but personal consumption is slowing down. A down economy lowers consumer buying power and creates a more budget-conscious mentality. At all income levels, consumers engage in more trade-off behaviors in response to price increases.
Consumer trade-offs are inevitable and already happening in the current market. Where there is a risk for some industries, there is a parallel opportunity in other sectors. While savvy consumers can be a threat to specific industries with potentially higher price points, industries with lower price points have the chance to increase their market share. Businesses need to understand price increases may not be widely accepted by consumers. Articulating value for high prices or competitive advantage of pricing provides business opportunity.
4. Behavioral trends vary by consumer demographic
Shifting consumer behavior will vary by consumer demographic. Combining macroeconomic insights with demographic or regional factors will provide a more holistic approach to planning.
In a down market, lower household income brackets feel price sensitivity more acutely. This leads to changes in purchasing mentalities from want-based to need-focused behaviors. These consumers will engage in ‘bargain shopping’ and price comparison tactics. Understanding the specific behavior trends of their target demographic allows organizations to proactively prepare for shifting behavioral trends.
5. External data provides a full view of changing consumer behavior
There is not a single economic factor that determines a company’s trajectory. Consumer behavior at a macro level must be matched to business-specific microdata. Determining which factors are headwinds versus tailwinds allows businesses to plan accordingly for upcoming market shifts.
Through leveraging external and syndicated global data, companies can augment their internal data to deliver always-on forecasts. Quantifying shifting consumer sentiment allows businesses to grow or prepare for potential areas of retraction. Planning can only occur when companies have a complete macroeconomic view of what will come.
So how does consumer sentiment relate to chicken nugget sales? Looking at the consumer confidence of a specific demographic, consumers with children in their household, broadly differ from the confidence of the ‘average American.’ When consumers with children in their homes have low consumer confidence, they participate in different behavioral trends. Lower consumer confidence creates consumer trade-offs where consumers engage in behavior designed to maximize their spending power. Using global data allowed Prevedere to help a food manufacturing company determine category-specific consumer sentiment.
When consumers with children in their household have low consumer confidence, their behavior trends lean toward consumer trade-offs where they purchase less expensive cuts of meat. Prevedere’s data, combined with global data, determined lower consumer confidence in this category had a counter-cyclical relationship to the economy. When consumer confidence was low, consumers with children in the household purchased more chicken nuggets. Consumer confidence is a three-month leading indicator. This food manufacturing company leveraged consumer sentiment insights to prepare its supply to meet the upcoming consumer needs.
Prevedere’s AI-powered modeling engine helps identify leading indicators, quantify the relative impact of those factors, and monitor those signals in real-time to deliver an always-on forecast that reflects the external forces affecting your business. Connect to a business representative at Prevedere to learn business-specific insights for your organization.
For more on this topic, watch the on-demand webinar “Leveraging Consumer Sentiment Data for Agile Business Planning.“