Adapting to changing consumer behaviour: Small business perspective

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How small businesses can find ways to break consumers’ old habits and reinforce new behaviours that better suit their products and brands.

Over the past 12 months, the pandemic has disrupted many aspects of our personal, professional, and social lives as we make changes to the way we live. Some of these behavioural changes might be transient, but many are expected to continue, even after the successful vaccination rollout and the reopening of the economy.[1]

To succeed in the post-COVID world, small businesses will need to know their customers and understand their circumstances and motivations, especially their concerns for financial uncertainty, health, and safety. Small businesses will need to find ways to adapt their operations to cater for these new purchasing and consumption patterns.

Cautious spending

With the K-shaped recovery (read more about it here), the upward part of the economy is feeling more financially secured and comfortable. This reflects in consumer confidence and optimism among Canadians that quickly rises to almost pre-pandemic levels.[2]

 However, the uncertainty of the pandemic continues to make consumers cautious.[3] Last year’s massive job loss and economic crisis were a harsh reminder of everyone’s financial fragility. Irrespective of how they feel, all consumers reported that they planned to spend less, save money more carefully,[4] [5] and delay major purchases.[10]

 Consumers plan to shift their spending more towards essentials such as housing, food, utilities, transportation and medicine; and less on discretionary expenses such as dining out, entertainment and travel.[1] [6] [7] To minimise exposure to Coronavirus, consumers prefer reducing the number of shopping trips by using one-stop shops and shopping less often but buying more in one shopping.[8] [6]

Value for money

Even though consumers prefer trusted, reliable brands[6] in times of uncertainty, the decrease in spending drives them to look for value,[5] which prioritises prices, but also quality and longevity. Values and purposes such as wanting to support local businesses and the environment are main reasons why consumers want to switch brands. Meanwhile, convenience and availability are a key consideration for consumers when trying new stores.[1] [5] [14]

Consumers’ search for value is not just for the short-term, as it will lead to a major change in purchasing decisions in the future.[10] Many of those who switched to new brands or stores plan to continue using them.[8] [9]

Digitalisation

The lockdown fuelled a surge in e-commerce with a major growth in online grocery shopping[1], which is likely to become a long-term behavioural change. Many consumers intend to continue shopping online even when brick-and-mortar stores reopen.[5] Consumers expect a seamless, multichannel (offline and online) shopping experience, or omnichannel with touchless shopping and contactless payments. For example, they can order on the phone or online through an e-commerce platform, social media, or brand app with options for drive-through, in store, curbside pickup, or home delivery.[6]

Ease of access and navigation, product availability, together with relevant and useful information are the key to winning over consumers online. Implementing e-commerce is an urgent priority. Small businesses need to consider which option will be best suited for their investment (read more about different options here).

Digitalisation goes beyond online shopping as consumers also change the way they engage with businesses. Almost half of consumers’ responses indicated that digital channels would become their main connection to brands.[5] Small businesses should divert their spending from traditional media to digital communication and promotion using two-way social media and messaging, as well as influencers.[6]

Health and wellness priority

The pandemic has made everyone prioritise their health and wellbeing. Whilst the Coronavirus has made people pay attention to their physical health, the lockdown has also put focus on people’s mental wellbeing.

Consumers have become more health oriented and are looking for ways to stay healthy and safe.They are seeking fresh and organic food, immunity building and nutritional supplements, exercise equipment, virtual classes,[6] [11] and hygienic packaging[9]. When going to a physical store, they would like to see visible signs of enhanced sanitisation and physical barriers.[9] Small businesses should promote their health and safety measures, making it clear that their customers’ and employees’ health and safety is a priority.

Homebody economy

Home is now a place for work, play, and rest. Seeking ways to break the day-to-day monotony, consumers are driven to find creative things they can do inside their home such as growing their own food, cooking their own meals, baking, joining virtual exercise classes, watching TV, and renovating their space.[4] [11] Since remote or hybrid work is expected to continue in the future, small businesses could tap into the new behavioural change by offering products and services to support home-based and DIY activities.[12] [3]

Buy local

The trend of buying local had already started before the pandemic. A majority of consumers intentionally choose to buy local or Canadian-made products to better support the local economy and for environmental benefits.[13] The preference has been accelerated as the lockdown devastated local businesses and consumers expressed desire to support their community. They seek to buy authentic, artisan, and locally sourced products and shop in neighborhood stores. The new preference of environmentally friendly, sustainable, and ethical purchases is expected to continue in the longer term.[3]

Small businesses will need to find ways to engage with these consumers. They could use ‘buy local’ to position and differentiate themselves from their competitors; or partner with other local businesses to share promotional resources and cost. They could also engage with their local community through digital and social media to build customer loyalty.

Social responsibility

Consumers expect more from businesses beyond purchasing transactions. To cultivate long-term brand loyalty, consumers would like to see their brands demonstrate a sense of purpose and serve the common good of their community.[4] These actions include demonstrating care and concern for people’s health and wellbeing, putting their employees ahead of profit, and taking care of the environment.[10]

Businesses that can establish and communicate their environmental and social credentials will gain a differentiated advantage over their competitors.[12] Be warned, consumers need to see the genuine alignment between the talk and the action. Businesses that try to commercialise social issues will be called out and their reputation could be tarnished.[11]

Shifting long-term consumer behaviour

For many consumers, this might be the first time they have worked from home, tried online shopping, switched to new brands, or joined online classes. If new experiences are positive, consumers are more willing to continue the behaviour even after the pandemic is over.[11] This presents a unique opportunity for small businesses to break consumers’ old habits, and to shift and reinforce new behaviours that better suit their products and brands.

Many of the new consumer behaviours such as seeking value for money, and buying local are inherently already part of small businesses’ offering. Small businesses could also join the trends with new offerings in health and wellness, and home-related products and services. By positioning themselves with clear value propositions that resonate well with post-COVID consumers, small businesses can gain long-term competitive advantages to help them compete with bigger national and international companies.


Reference

[1] Charm, T., Grimmelt, A., Kim, H., Robinson, K., Lu, N., Mayank, Ortega, M., Staack, Y., and Yamakawa N. (October 2020). Consumer sentiment and behavior continue to reflect the uncertainty of the COVID-19 crisis. Retrieved from https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/a-global-view-of-how-consumer-behavior-is-changing-amid-covid-19

[2] Hagan, S. (March, 2021). Vaccine, Housing Drive Canada Consumer Confidence to 3-Year High. Retrieved from https://www.bloomberg.com/news/articles/2021-03-08/vaccine-housing-drive-canada-consumer-confidence-to-3-year-high

[3] Accenture. (August 2020). COVID-19: New habits are here to stay for retail consumers. Retrieved from https://www.accenture.com/ca-en/insights/retail/coronavirus-consumer-habits

[4] Kotler, P. (May 2020). The Consumer in the Age of Coronavirus Sage Journals. Retrieved from https://journals.sagepub.com/doi/full/10.1177/2394964320922794

[5] KPMG. (January 2021). COVID-19 is changing consumer behavior worldwide; business needs to adapt rapidly. Retrieved from https://home.kpmg/bh/en/home/media/press-releases/2021/01/covid-19-is-changing-consumer-behavior-worldwide.html

[6] Fabius, V., Kohli, S., Timelin, B. and Veranen, S. M. (July 2020). How COVID-19 is changing consumer behavior—now and forever. Retrieved from https://www.mckinsey.com/industries/retail/our-insights/how-covid-19-is-changing-consumer-behavior-now-and-forever#signin/download/%2F~%2Fmedia%2FMcKinsey%2FIndustries%2FRetail%2FOur%20Insights%2FHow%20COVID%2019%20is%20changing%20consumer%20behavior%20now%20and%20forever%2FHow-COVID-19-is-changing-consumer-behaviornow-and-forever.pdf%3FshouldIndex%3Dfalse/1

[7] Weintraub, M., Verma, S., Chandru, S. and Nolan, K. (n.d) COVID-19 Voice of Canadians and impact to retailers. Retrieved from https://www2.deloitte.com/ca/en/pages/finance/articles/covid-19-voice-of-canadians-and-impact-to-retailers.html

[8] Dua, A., Mahajan, D., Oyer, L. and Ramaswamy, S. (July 2020). US small-business recovery after the COVID-19 crisis. Retrieved from https://www.mckinsey.com/industries/public-and-social-sector/our-insights/us-small-business-recovery-after-the-covid-19-crisis

[9] Arora, N., Charm, T., Grimmelt, A., Ortega, M., Robinson, K., Sexauer, C., Staack, Y., Whitehead, S. and Yamakawa, N. (July 2020). A global view of how consumer behavior is changing amid COVID-19. Retrieved from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Marketing%20and%20Sales/Our%20Insights/A%20global%20view%20of%20how%20consumer%20behavior%20is%20changing%20amid%20COVID%2019/20200707/covid-19-global-consumer-sentiment-20200707.pdf

[10] KPMG. (n.d.). Consumers and the new reality. Retrieved from https://home.kpmg/xx/en/home/insights/2020/09/consumers-and-the-new-reality.html

[11] Charm, T., Dhar, R., Haas, S., Liu, J., Novemsky, N. and Teichner, W. (July 2020). Understanding and shaping consumer behavior in the next normal. Retrieved from https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/understanding-and-shaping-consumer-behavior-in-the-next-normal

[12] KPMG. (n.d.). Responding to consumer trends in the new reality. Retrieved from https://home.kpmg/xx/en/home/insights/2020/06/consumers-and-the-new-reality.html

[13] BDO Canada. (September 2018). Emerging consumer trends info graphic for Canadian entrepreneurs. Retrieved from https://www.bdc.ca/globalassets/digizuite/10508-infographic_five_must-watch_trends.pdf

[14] Rogers, K. and Cosgrove, A. (April 2020). Future Consumer Index: How COVID-19 is changing consumer behaviors https://www.ey.com/en_ca/consumer-products-retail/how-covid-19-could-change-consumer-behavior

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