Connect with us

Air Conditioners

Post-COVID-19 discretionary spending in Asia

A survey of consumers in China, India, and Indonesia shows how the COVID-19 outbreak has affected their plans for discretionary spending–and which shifts could be part of the next normal.

Discretionary spending in some retail categories plummeted by as much as 90 percent at the peak of COVID-19 lockdown efforts aimed at easing the spread of the virus. Given that discretionary spending comprises roughly one-fifth to one-fourth of many countries’ GDP, McKinsey sought to understand how consumers in the most populous countries in Asia–China, India, and Indonesia–are thinking about such expenditures, as portions of these economies begin to reopen. Between April 28 and May 10, 2020, more than 3600 consumers were surveyed across 91 cities about their pre- and mid-pandemic purchases and post-pandemic plans in a broad range of categories, including personal electronics and domestic appliances.

Key insights
Overall, there is cautious optimism in the surveyed countries. Yet, while about two-thirds of respondents in India and Indonesia expected to recover income or savings lost during the lockdown by the end of the year, many respondents in each of the three countries surveyed are planning to delay or forego bigger-ticket purchases, seeking to find better value, and strengthening their desire to purchase from brands they trust. At the same time, some are grappling with guilt about spending in more conspicuous categories.

Ticket size matters. Respondents were more likely to indicate plans to indefinitely postpone or cancel purchases for bigger-ticket items. Notably, Indian respondents were less likely than those elsewhere to say that they would forego their purchases at this point–a sentiment that could change should economic conditions decline.

Value polarization. As with the 2008 global financial crisis, the survey results suggest that the outbreak may affect consumers’ thinking about price and quality, with increased price sensitivity and more careful consideration of nonessential spending. However, the research illustrates how multifaceted the concept of value truly is. First, the findings show that many consumers expect to reduce spending this year. Among respondents in India planning to complete purchases in a variety of categories later this year, roughly one in three stated that they intended to spend less than originally planned. However, respondents made a distinction between price and value. Yet, the findings also suggest that for a subset of consumers, loosening lockdown restrictions could lead to a surge in spending.

Preference for trusted brands. Across countries and segments, respondents commonly cited trusted brand as a top consideration in their purchasing decisions, along with purchases being a good value for money. Even among those planning to spend less than initially intended on a purchase, up to 60 to 80 percent in each country said that their preference was to stay with their intended brand, albeit by actively looking for a discount or promotion, or by switching to a cheaper product within the brand. This brand loyalty seems to be especially true for categories like consumer durables.

Uneasiness and guilt. There might be a feeling of guilt associated with discretionary spending, even among those who can afford it, particularly for some more conspicuous categories. Although respondents consistently cited uncertainty over the crisis’ impact on their income as the top reason for planning to trade down or forego. One in five Indian consumers who planned to trade down or forego purchases of large domestic appliances said their main reason was that it did not feel right to spend, given the current social context. It remains to be seen whether this sentiment will change in the coming months.

Digital shopping accelerated, but physical stores retain appeal. The COVID-19 crisis has naturally shifted consumers toward digital shopping and engagement channels. Yet the findings show uneven rates of acceleration across various types of online channels. Multicategory online marketplaces could be poised to gain the most momentum in the coming months, with the largest increase in net usage intent of any channels tested in the survey. But significantly larger shares of respondents in India and Indonesia said they expected to increase the use of their preferred platforms after the COVID-19 pandemic than said the same about other online platforms. At the same time, respondents also expressed the desire to return to physical stores, particularly to shop for mobile phones, and small and large domestic appliances in India. In India, there is a higher stated intent to visit exclusive brand stores than multi-brand stores.

Implications for businesses
Thriving in the post-COVID-19 future will ultimately require changes in how companies in these sectors think about staying relevant to consumers while managing increased operational complexity as well as potential delays in the rebound of demand and customer traffic. Combined with sales migration toward online channels and the renewed focus on value, these changes could contribute to margin compression. Moreover, there are certain behaviors that are likely to shift fundamentally, requiring reconsideration of the consumer proposition and companies’ go-to-market strategy and operating model. There are five actions that companies can take now to prepare for the next normal.

Do not just reopen: Rethink your store. Companies have already invested significant time and effort to enforce new safety protocols and operating procedures as lockdowns ease. However, online acceleration will require a fundamental reevaluation of the role that stores still play for consumers in the next normal and how to ensure a delightful experience. Shoppers appreciate the touch-and-feel experience of physical stores. As stores enable product interaction, while also generating traffic for e-commerce sales, the traditional way of looking at individual-store profit-and-loss statements might need to change. Also, it is important to consider how this role can be accomplished with a simplified and more flexible store operation. This entails reimagining end-to-end consumer engagement on digital channels and seamlessly linking online and offline experiences to radically accelerate in-store omnichannel integration. Companies that are both digital and offline, rather than one or the other, will be better positioned in the days ahead–especially if they can use both to create a mutually reinforcing customer ecosystem.

Earn and maintain consumers’ trust. The survey results indicate a flight to safety toward trusted brands, potentially accentuated by an environment of uncertainty and inability to test or experience products before buying them. Moreover, with the COVID-19 crisis affecting incomes and savings, respondents seem to be more cautious in their brand choices. Companies with high brand scores can further grow their presence and business by communicating reliability and instilling further trust in the brand. For new and niche players, communicating reasons to trust, and ensuring a first-time right product experience, could become more important than ever.

Radiate value. As shoppers look to purchase items that meet their criteria for value, it will be paramount for businesses to be able to immediately communicate to visitors to an online channel or store how their products fulfill these criteria. This entails rethinking which star products to highlight, as well as reconsidering overall product assortment and promotional calendars to effectively lower the customer hurdle by highlighting relevant products and offers, and by offering accessible entry price points. However, the concept of value can differ significantly by segment. Hence, executing this well requires a strong understanding of customer segmentation that enables a personalized approach. Finally, as consumers search for the best deals, and retailers face overstock from lockdowns, companies can benefit from being nimble amid a heightened promotional environment. Doing so may require adopting a rapid test-and-learn approach so they can quickly pivot to determine the most compelling offers for various customer segments.

Follow the consumer. In the research, consumers were seen interacting with multiple channels and touchpoints like official brand websites, social commerce, online platforms, exclusive-brand stores, and multi-brand stores. As consumers use more channels, it is important for companies to ensure that their experiences at each touchpoint are consistent, generate delight, and further enhance companies’ understanding of consumers. This requires brands and companies to not only be open to shifting their marketing messages but also investing in analytics capabilities and reallocating financial and talent resources as needed.

Communicate purpose. In previous consumer-research efforts, it has been seen that customers and employees appreciate brands that exhibit a social purpose and communicate honestly about how the crisis has affected their service levels and overall business. As companies prepare for what comes next, they may need to rethink and adjust their marketing tone and message to reflect consumers’ new reality, given the social context and consumption guilt that could affect some purchases.

Based on An early view of post-COVID-19 discretionary spending in Asia, an article by McKinsey & Company. TVJ Bureau

Click to comment

Notice: Undefined variable: user_ID in /home/cloudpanel/htdocs/ on line 49

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2021 TV Veopar Journal

error: Content is protected !!