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Consumer behavior—what’s changed, what hasn’t: A leader’s guide

Harmony Internal - McKinsey

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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities

The strong consumer spending of the past two years may have lulled companies into taking their customers for granted. But now, as high inflation and increasing pessimism about the economy push many people to cut their spending , leaders should watch for new consumption patterns: “These times call for a nuanced understanding of how consumers are feeling and reacting given an increasing number of external shocks,” says McKinsey partner Tamara Charm . “The need to reassure consumers is paramount so they know they’re making smart purchases.” Whether your organization’s customers are businesses or consumers, it’s important to monitor—and cater to—their behaviors and preferences closely, as we discuss in this issue.

AN IDEA

Image of a worker manually updating a gas prices board

Prepare for fluctuations

Amid high inflation and economic uncertainty, “companies should continuously track swings in sentiment and spending,” suggest McKinsey senior partner Kelsey Robinson and colleagues in their article on the findings of our latest Consumer Pulse Survey. With pessimism about the economy increasing, more people are tightening their purse strings by delaying purchases, adjusting the quantity or pack sizes of what they buy, or trading down to lower-priced products. Still, some categories and channels—for example, retail apparel, electronics, restaurants, and grocery stores—continue to do well, and higher-income consumers of all ages expect their spending to grow regardless of whether they’re buying essential or nonessential goods. In this unpredictable environment, companies may need to work a lot harder to satisfy their customers. That could mean designing highly personalized offerings , placing big bets for long-term growth, and creating agile operating models that enable adaptation to rapid shifts in consumer behavior.

A BIG NUMBER

94%

That’s the percentage of respondents to a McKinsey survey of B2B decision makers who say that omnichannel sales models are now as effective or more effective than the ones in place before the pandemic. In omnichannel commerce , customers engage with sellers through a variety of channels—for example, face-to-face, videoconferencing, online chat, self-service, or online marketplaces. Most B2B customers now use ten or more channels to interact with suppliers, up from five in 2016. B2B sellers rank e-commerce as their most effective channel, but they don’t write off in-person contact just yet: “59 percent of customers say they will buy from a supplier only if they’ve met in person at least once before,” according to McKinsey senior partner Steve Reis and colleagues.

A QUOTE

“Most leaders’ thinking about e-commerce is too small.”

That’s from a recent McKinsey article on how organizations can become indispensable to customers. Companies should think big and upgrade digital capabilities “to move past basic transactions and provide experiences that solve a much broader set of their customers’ problems,” suggest McKinsey senior partners Arun Arora and Kevin Wei Wang and their coauthors. Six major forces—among them sky-high customer expectations and advances in technology—are pushing companies to rethink how they approach the customer experience. Organizations may want to begin by evaluating their current e-commerce status unflinchingly and assessing their weak spots in areas such as profitability, operational efficiency, technology, and coordination across the enterprise.

A SPOTLIGHT INTERVIEW

Image of a woman taking a photo of her food at home

When COVID-19 was at its peak, many people adopted new behaviors, such as baking bread, cooking meals at home, or taking in pets. But companies should ask, “Which of those consumer behaviors are truly going to persist and be ‘sticky’ coming out of this pandemic?” says McKinsey partner Kari Alldredge in this McKinsey on Consumer and Retail podcast . The answer no longer lies solely in traditional market research, which asks consumers how likely they are to buy a product; rather, companies should consider mining online data—such as ratings and reviews on e-commerce sites—to help with truly understanding what consumers are thinking, feeling, and, ultimately, buying, Alldredge says. Based on what they learn, organizations could even quickly test and adjust products online rather than invest in mass product development for store shelves. Alldredge’s advice to leaders of consumer companies? “Listen; don’t tell.”

HABIT FORMING

Image of several people performing exercises in a class

Leaders should be nimble in keeping up with customers’ changing preferences. But old habits die hard. For the most part, people have returned to pre-COVID-19 lifestyles and buying patterns; they’re flocking to shopping malls and gyms and no longer hoarding toilet paper . Nevertheless, they’re not giving up online entertainment or videoconferencing anytime soon. Understanding this balance of old and new behaviors can help organizations better seize and hold customer loyalty.

Lead by knowing your customers.

— Edited by Rama Ramaswami, senior editor, New York

Update: The Spotlight Interview in last week’s Leading Off did not include the recent change in leadership at Majid Al Futtaim. The content has been updated to reflect that Alain Bejjani is no longer CEO.

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by "McKinsey Leading Off" <publishing@email.mckinsey.com> - 02:14 - 6 Feb 2023

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Consumer behavior—what’s changed, what hasn’t: A leader’s guide

Prepare for fluctuations

“Most leaders’ thinking about e-commerce is too small.”