Keeping Pace with Ever-Changing Consumer Behaviors
Economically, the last few years have been a wild ride between COVID-19 and inflation, and unfortunately, 2023 will bring even more economic uncertainty. That’s why retailers must continue to find new ways to keep up with constantly changing consumer behavior. Based on my experience working with over 50,000 brick and mortar retailers, here’s what I’ll be watching in 2023:
Although consumer attitudes toward the economy are at some of the lowest levels since 2011, household spending was at a record high in 2022. But this could change if a recession materializes in 2023 and consumer sentiment catches up to consumer actions.
Targeting and incentivizing consumers using standard demographic information like interests, needs, age, or region won't be an effective way to change their behavior during an economic downturn. This kind of segmentation often provides a sub-optimal consumer experience because it treats everyone within a group as if they're motivated by the same things.
As consumers become more price-conscious than they already are, retailers will need to focus on the individual, using personalization (not segmentation) to hone in on what makes each unique customer tick and change their behavior to increase profit margins on a per-user basis. A McKinsey & Company survey found companies that grow faster drive 40 percent more of their revenue from personalization than their slower-growing counterparts.
Moving beyond segmentation
As consumers become more price-conscious than they already are, retailers will need to focus on the individual, using personalization strategy (not segmentation).
Leveraging Retail Media Networks
Expanding multi-category products or leveraging marketplaces
Prepared for 2023
During difficult economic times, many businesses react by cutting discretionary costs, such as marketing spend. Some retailers are moving beyond cost-cutting and beginning to invest in additional revenue streams. Recently I've seen grocers of all sizes looking into what retail media networks (RMNs) can do for their business. These channels are expected to generate over $40 billion in revenue for numerous brands, the largest of them being Amazon.
While these tools initially gained traction with multi-category stores like Target and Walmart, RMNs allow a wide variety of retailers to sell media space on their website and digital platforms to third-party consumer packaged goods, so those brands can reach more consumers both within the retailer's brick and mortar and digital stores.
A multi-category strategy is an effective way to increase the visibility and value of your business. The best examples of multi-category products are the ones that pair grocery and fuel, two essential, inelastic goods consumers must buy even during inflationary times. Both Walmart and Sam’s Club’s fuel transactions boosted their overall same-store sales during its most recent quarter.
But if retailers can’t implement a multi-category strategy — or if they want more diversity in their retail offerings — they can instead list their business on marketplaces. These platforms can have wide consumer reach and position retailers next to other brands and categories that consumers need, which increases your business’s relevance to consumers. For example, when Upside users use the app to decide where to fill up their tanks, they also see personalized cash-back offers for nearby grocery stores and restaurants. This visibility on a customer’s phone screen in the buying moment puts our partners’ businesses top-of-mind for users, creating a virtuous cycle between all the categories on the platform — and doubles their transactions per site each day.
Although 2023 will bring more economic uncertainty, I'm optimistic about the year ahead. The last few years have shown that retailers are resilient and adaptable in the face of significant economic disruptions. And with the help of technology and evolving marketing strategies, retailers will continue to keep pace with ever-changing consumer behaviors.