Wealthy families are the group that will cut their spending the most over the next three years, according to a study of consumers across Britain shown exclusively to Marketing Week.
The survey has found that the wealthiest segment of the population, categorised by the Office for National Statistics (ONS) as households with an annual income of £62,200 or above, will be spending £2,700 less annually on products and services in 2014-15.
“Affluent families are really going to feel the pinch,” says Gavin Hilton, director of customer experience at agency RAPP, which commissioned the research. “If you’ve got a product aimed at affluent families, you’d better understand exactly what’s important to them because those are the people who are going to be delaying, cutting and spreading costs with rigour.”
The research predicts how consumers will behave in 2014-15, which is when the full effects of last October’s government spending review will be felt. Forecasting company the Trajectory Partnership has spoken to more than 2,000 consumers on behalf of RAPP, and has used ONS and Institute for Fiscal Studies data to create the projections.
The richest and poorest will be worst affected in terms of overall impact on expenditure for this period, with the least wealthy households cutting back by an average of 4.6% and the richest by 6.5%. Those in the middle income bracket will reduce their spending by between 3.2% and 3.6%.
“Everyone is putting time and energy into saving money. Marketers need to understand the decision-making criteria of their audiences. Increasingly, it’s not going to be about the brands that shout the loudest, but brands that deliver the highest practical and emotional utility to their customers,” Hilton claims.
“To do that they will have to get even closer to their customers, rely on really sweating the data and creating actionable insight that will help win traction, influence and advocacy,” he says.
More than 60% of UK consumers feel the spending cuts will result in a reduction in their own spending, the research indicates. Looking at how discretionary spending will be hit by sector, private education and private health will suffer most during 2014-15, experiencing cuts of 9.4% and 6.5% respectively.
“Private education and health are small but important markets. It’s rich people that can afford private schools and private health care. Rich people are going to be the hardest hit, therefore those markets are going to be the hardest hit,” says Hilton.
Food, alcohol and tobacco will see the least negative impact, although food is a big market, with expenditure being reduced by between 1.5% and 2% respectively in 2014-15, according to the data.
“There is a huge amount of raw ingredient and commodity inflation going on in the supermarkets,” notes Hilton. “People are going to start to feel the pinch because they can’t cut much more out of their budgets. This spending is not discretionary. People have to eat.”
Recreation and culture, a large market, will be hit hard with households spending £3.39 less a week in this sector in 2014-15. In pounds per week, other big losers will include restaurants, transport (fares) and holidays.
“Now, more than ever, is the time for marketers not to be cutting budgets because the stakes are higher. People are working harder to save themselves money, people are making hard choices and you can be on the positive or the negative side of that hard choice,” says Hilton.
The research has identified various coping strategies that consumers are employing to save money, which marketers can incorporate into their long-term strategies.
“Such an overall scenario represents enormous challenges for brands and their marketing but also opens up opportunities for those who can react and adapt to shifting consumer behaviour. People in every income bracket have been found to be using most of the seven strategies we identified. The important thing for marketers to understand is which of these strategies are going to be most prevalent in their market,” Hilton claims.
Consumers are adopting a “manage” and “downgrade” mentality across the board, to regulate their spending on food and drink, suggests the research. Almost 30% of those polled say they have started using cheaper supermarkets and a quarter have started shopping around for groceries where possible.
“The use of Aldi among ABs in the UK has gone up significantly, but that’s not because ABs are rushing out and doing their weekly shop there, it’s because they’re going there to cherry pick interesting prosciutto and cheeses,” explains Hilton.
Consumers are also adopting a “smart” and “swap” mentality. “They are using different means to get to the same end. On Valentine’s Day Marks & Spencer was trying to get you to stay in for £20, Waitrose for £15 and Sainsbury’s for £15.
Another strategy is discounting, with 36% of those surveyed saying they have recently started searching online for vouchers and discount codes.
Some brands are responding better than others to the shift. “Pizza Express is making fantastic use of this trend right now because it has made it perfectly acceptable to walk into that restaurant and get two courses for £10. But Pizza Express’s competitors might be feeling the pinch because people have a finite number of eating occasions and a finite amount of money to spend,” says Hilton.
The research also points to consumers adopting a treat mentality, with 15% saying they’ve recently started investing in home entertainment such as a Sky TV subscription or new sound systems.
“It doesn’t look rational from the outside because people are spending money on things that aren’t necessary, but they are rationalising it as saving money in other ways, for example by not going out. People are going to develop ’velvet ropes’ around brands they think are delivering them good use and identify those that are not,” explains Hilton.
Hilton cites the Waitrose Seriously range as a good example of this trend. “Everyone knows the story of Essential Waitrose. As much as consumers want the Essential range, they also want Seriously, which allows them to decide what is a treat. This range is indulgent, calorific and expensive and that allows people to carry out ’swap’ behaviour. Instead of going out, they might stay in and treat themselves to the best they can.”
The idea of experience rather than ownership is also going to become key, according to the study. “People are starting to think, ’I can rent a car for an hour with Streetcar, so I don’t need to buy a vehicle’. There’s an example in the research of a company called MiniLodgers which rents out baby clothes by the month,” says Hilton.
61% of consumers say spending cuts will result in cuts in their own spending
28% of those surveyed say they have started using cheaper supermarkets
36% of those polled have recently gone online to search for vouchers and discount codes
Restaurant owner and manager
The statistics sound about right to me. As a family-run, neighbourhood restaurant, I have a lot of regulars. I don’t have fewer customers, but I’m definitely seeing them less often. On the other hand, when they come, they spend more than they used to. They tell me that they used to go out twice a week, now they go out twice a month. But, when they come, they treat themselves.
Going out to eat is becoming more like it used to be – a treat. We’ve all become so spoilt, going out two, three times a week. For two or three years we’ve been able to do that, but now we’ve got to cut it back a little bit.
In October last year we got involved with the Taste card scheme [which gives consumers who sign up discounts at participating restaurants].
Where you make money is parties. I don’t have set menus. I ask customers how much they and their friends will be comfortable spending. They give me a budget and I give them a menu to match it. People like that because they know the cost before they start.
Whatever budget they give me, I will do a nice meal, where I make sure I make money because I have to, and I make sure they get a good deal.
I’ve been a bit lazy the last couple of years, I didn’t really have to do much marketing, just maintain my website. This year, I have invested in PR to raise my profile. I’ve realised that I’ve got my clientele, they spend more, but they come less often, so I’ve got more spare capacity.
Marketing director UK and Ireland
It’s undeniable that a lot of people affected by the spending cuts are going to be tightening their purse strings this year. Having said that, research that we conducted at the start of the year shows that people treat their holiday as a right rather than a privilege, meaning that holidays aren’t negotiable.
We’ve just launched a new campaign promising that Stories Start Here with Lastminute.com. Rather than simply selling consumers different travel or leisure ’products’, we are actually in the business of creating stories that will last a lifetime and will be told time and again.
We think adopting this strategy will remind travellers, diners, and thrill seekers that booking a trip with Lastminute.com will give them something far deeper and longer-lasting than a trip with one of our competitors.
Last month, we held our annual London Restaurant Week, which allowed people to dine out at some fantastic restaurants for a fraction of the normal cost. On an ongoing basis, we offer our Top Secret Hotels packages, which allow people to book a four- or five-star hotel for three-star prices. It’s not about constantly discounting for the sake of it, but knowing what our customers want and providing timely offers.
UK consumer marketing manager
Bizzybee (cleaning brand)
People are more wary and think through their purchasing decisions, rather than make impulsive ones. Consumers might cut out those daily luxuries but products like ours – rubber gloves and cleaning cloths – that are low priced are not so affected.
Gloves are a product that depends very much on generational use. If your mum used to use gloves, you are likely to use gloves. You don’t see them as a luxury. If it gets a hole, you go and buy another pair because it’s only a couple of pounds at the most.
We’ve got a lot of social media activity – a Facebook page, a Twitter page – where we give cleaning tips and run competitions. We try to engage consumers as much as possible. We want them to know that we look forward to hearing from them. We’ve run monthly testers where we pick ten of our Facebook fans, send them a goodie bag of products and they test them and give us feedback. We are doing on-pack promotions as well.
Looking forward we will look at new products and carry on with social media.