Building resilience in your business amid dropping consumer confidence
- Consumer confidence is an important economic indicator that indicates expected future spending and saving
- Conference Boards of Canada’s Consumer Confidence Index continue to drop in 2022; inflation and rising costs, as well as geopolitical tensions, are likely contributing factors
- To combat the effects of low consumer confidence, businesses can focus on strengthening their brand, marketing to the right audience, and providing products or services that matter most to their customers
- Vaughan Economic Development is here to help you succeed – connect with us today to grow your business with confidence
The Conference Board of Canada announced at the end of February that the Index of Consumer Confidence dipped below 100 for the first time in nine months, driven by concerns about future finances. Only 16% of respondents had a positive outlook six months from now, below pre-pandemic levels. However, confidence in the job market remains; 23% of those surveyed by the Conference Board of Canada were optimistic that despite job losses seen amidst winter public health restrictions, opportunities will return in six months.
What is consumer confidence and why does it matter?
Consumer confidence is a leading economic indicator measuring the health of a country’s economy, telling a story of how the recent past has affected general economic outlook and what expectations consumers have in the near-term future.
As an economic indicator, consumer confidence offers a signal of future households’ spending and saving. The Conference Board of Canada’s Consumer Confidence Index is based on a survey of Canadian households, measuring their optimism on the economy’s health. It looks at answers related to respondents’ anticipated financial situation, how they feel about the general economic climate, their employment outlook and capability of savings, and their expectations in the short-term future. It is important to note that consumer confidence is often seen as a lagging indicator, as survey results may be largely covered by what has already happened in the economy.
Understanding consumer confidence helps businesses plan for the future. Well-informed businesses make decisions to strategically adapt to a changing landscape.
This index is a critical indicator of near-term sales and can have a profound effect on the financial health of businesses. The index assumes when consumers have higher levels of optimism, they will increase spending – in turn stimulating the economy. If consumers turn pessimistic, they will spend less money, dropping revenues and this could lead to a recession. Understanding how attitudes and outlook affect consumers’ purchasing habits allows you to better anticipate imminent changes to trends.
Why is consumer confidence dropping?
Canadian confidence has been tempered by inflation and associated rising costs, increased geopolitical tensions, and decreased purchasing power as wages fail to keep up with inflation.
Increased inflation and rising fuel prices are affecting consumer spending while increasing the amount consumers are saving. Wages have failed to keep up with inflation, which means consumers will alter habits to adjust to their decreasing purchasing power. Wage data from January’s Labour Force Survey from Statistics Canada found Canadian wages rose 2.4% during the same period, as inflation surpassed 5% on a year-over-year basis. Prices rising faster than wages means that Canadians are experiencing a decline in purchasing power.
The Bank of Canada reported in January that concern over inflation is widely shared by many Canadians, and many think that it will continue to be high for the next two years due to global supply chain interruptions seen during the pandemic.
Three steps you can take to combat dropping consumer confidence
Focus on strengthening your brand, market in a meaningful way to reach the right customers, and supply high-quality products or services that meet expected consumer needs.
Many of the factors affecting consumers’ confidence are beyond the influence of individual companies, but there are steps you can take to mitigate the effects of low consumer confidence and the changing economic landscape. Be proactive to maintain the financial health of your business – here are our recommendations for steps you can take in any climate for long-term security:
Build brand reputation to drive confidence
Having a reliable brand with a strong reputation builds repeat business and brand reputation is critical to reaching potential customers. The foundation of brand reputation is brand awareness – consumers need to know you exist and recognize your products or services for your company to be in consideration. Cultivating a strong brand reputation means choosing your product or service becomes easier for your end consumer. Naturally, delivering on a strong reputation, you can simultaneously build long-term loyalty with your customer base, which in turn helps to further expand awareness of your brand. On top of the positive effects on sales and customer relations, improving brand reputation can help improve talent retention – when employees also buy into the reputation and work their company does, job satisfaction increases.
Re-visit market research to focus on market segmentation
Making your marketing count is especially important during a downturn, and revisiting market research to better understand your customers can help your marketing be more impactful. When consumer confidence drops and spending tightens, customers begin assessing their spending priorities and re-evaluating what is valuable to them. What may have been true previously about your target market may be evolving. Target markets will need to go beyond basic demographics and home in on psychographics. Psychographics look at the attitudes, motivations, personalities, and values of end consumers, which may shift during periods of lower consumer confidence. Revisiting market research and re-examining your market segmentation is integral as your customers reassess priorities and reevaluate what values are now important to them. Focusing on market segmentation will allow you to create messaging and value around new consumer behaviours and motivations, adapting to make sure your marketing speaks in the right way to the right potential customer.
Use innovation to add value and increase competitiveness
During periods of low consumer confidence, companies may see a tightening of available cash flow. While this may trigger firms to look at cutting costs in other areas, continuing to invest in innovation can position you to better weather any uncertainties in the economy. Innovation doesn’t necessarily require major spending. After re-visiting your market research, focusing on market segmentation, and really understanding your target market, especially the psychographics, it is now time to look at what it is you are offering to the end consumer. Prioritize innovating on what is important to the customers you’ve identified and differentiate your business to increase customer loyalty and profit margins. Find problems that you can address as well as brainstorm potential new opportunities. Innovation could look like changing or creating business models while adding value to existing products and services (such as adding services to product-based businesses), creating collaboration opportunities, or building strategic partnerships. By reflecting and adapting to a changing landscape and investing in innovation, you are positioning your business for improved longevity and resilience.
From supporting small businesses through the business planning process, to end-to-end site selection assistance, to research and business intelligence, Economic Development is here to support businesses of all sizes to succeed in Vaughan and is your go-to source for insight into Vaughan’s economic community. Connect with us today.