How to prepare for a dip in consumer confidence

Have you spent more money dining out / filling up with petrol / on home refurbs / on your preferred streaming service than you did a few months ago? You are not alone. Prices are going up across the board, and every consumer feels the pain. 

What was referred to as a cautious post-pandemic recovery has transformed into a pessimistic economic outlook. This is expected to result in less sales in the face of increasing costs, especially among European businesses where the uncertainty is rather more prevalent. How is this so, and what can companies in Europe do to brace for less sales, among others? 

Why are consumers less confident?

According to a study recently conducted by McKinsey, consumer confidence is low among survey respondents from France, Germany, Italy, Spain and the United Kingdom. The study cites the following reasons:

• Adverse effects of rising prices

European consumers are particularly concerned with the rapid increase in prices. Among the McKinsey survey’s respondents, 58% cited inflation and rising costs as their topmost worry. This is further exacerbated by concerns about job security and extreme weather in areas such as Italy. Furthermore, as winter approaches and gas prices remain high, European consumers are bracing their finances, and we can expect them to spend less on luxuries and things that go beyond basic necessities. 

• Lingering Covid-19 habits

Covid-19 is still here, but while its threat is diminished, certain behaviours that stemmed from old pandemic protocols did not. People now have a newfound appreciation for remote work and preparing meals from home, and many are spending more time than before at home. People now have a habit of buying only what they need, and even when they make purchases, there’s a likelihood that they won’t do it in brick-and-mortar stores. 

• Penny pinching

European consumers are keen on maximising their financial resources. Many have switched from known brands to lower-cost labels, and are taking advantage of discounts. In fact, a majority of McKinsey’s survey responders plan not to splurge or avoid shopping altogether.  

Reasons for skyrocketing prices

The prices of goods surely did not increase overnight – it was a gradual and steady creep. The soaring prices came as a result of many different factors, but the main culprit are the lingering threat of Covid-19 and the ongoing conflict in Ukraine. 

• Covid-19 pandemic

The term “post-pandemic” is often thrown around in economic circles, but many will argue that it is a misnomer. Covid is still wreaking havoc on the world’s reordered and recovering supply chains. Global supply chains remain slow and pandemic restrictions and policies still create various logistical issues, causing an inadvertent rise in product costs.  

• War in Ukraine

Russia’s invasion of Ukraine – it’s Day 266 at the time of writing – is a top concern among European buyers. The effects are rather overarching; the sanctions against Russia, boycott of Russian gas and disrupted supply chains all have tangible effects on the prices of consumer goods. 

How can the private sector fight back?

As many as 63% of consumers said that they are switching to brands with better value for their money, better quality and better promotions/rates.

Better Value for Money – Companies need to highlight how their products and services can address their target market’s pain points. This will give customers the assurance that they’re investing their money in the right product.

Better Promotion Rates – Run marketing campaigns that talk about how customers can benefit from your offerings.

Better Quality – Is your firm providing the best products/services to meet, and even exceed, customer expectations.