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    Research Digest

    Consumers Find Ways To Cut Costs During Economic Uncertainty

    Abstract

    • Though consumer spending has been slowing, household spending actually rose 8.6% in May, in part due to inflation
    • Consumers expect brands to prove value while times are tough, and are willing to switch to new brands more than ever
    • 75% of consumers who have dropped subscription streaming platforms or plan to in the future would reconsider for a lower priced, ad-supported option.

    With a potential recession on the horizon, consumers are changing their behavior to fit a more cost-conscious lifestyle.

    General outlook

    Consumers are hyper-aware of the current economic uncertainty and potential recession. With inflation raising the prices of products like beef and gas, and a slight drop in hiring during June, it’s no wonder that many consumers have already started to change the way they shop. According to the US Commerce Department, household consumer spending only rose 0.2% month-over-month (MoM) in May, as compared to the 0.6% increase in April. And when those numbers are adjusted for inflation, this is actually a 0.4% drop—the first MoM decline this year.

    Ultimately though, consumers are expected to continue to spend. eMarketer found that their YoY household spending rose 8.6% in May. Instead, it’s the way that they spend that is likely to change. We have already seen some of the effects on specific categories—spending on durable goods such as furniture fell 3.2%, indicating that consumers are pulling back from big-ticket items for now.

    And these kinds of adjustments in spending are expected to continue to affect many other categories. A survey from YouGov in early June found that many consumers have already made changes to their household budgets. The categories where consumers indicated they will be making the highest cuts include expected spending categories like dining out (28%) and clothing (23%), but also essential categories such as staple foods (19%) and gasoline (27%). Streaming services (13%), on the other hand seem to be considered on a similar level as semi-essential categories such as cell phone services (10%) and home internet (9%), though some cut backs on more expensive, premium ad-platforms is to be expected. 

    Consumers Expect Value from Brands

    So what will this mean for brands seeking to retain their customers in times of economic turmoil? We saw the effects of this during the supply-chain shortages of the pandemic—many consumers decided to forgo brand loyalty in order to purchase much needed products. A recent McKinsey & Company report found that consumers are seeking value, and that price is one of the main reasons consumers might switch to a new brand over one they are more familiar with. 

    This kind of competition will become even more fierce during a recession, meaning some customers will be up for grabs for those brands willing to give them a better deal. As Barbara Connors, 84.51°’s VP of Consumer Insights, said in a recent interview, “A risk to one brand in losing a loyal shopper is now an opportunity for another to engage a new customer and actually build brand loyalty.”

    So brands who are looking to retain their loyal customers (and maybe grab some new ones along the way) should be making sure to center their messaging around that kind of value. By adapting campaigns to drive urgency and provide deals, advertisers have a better chance of appealing to consumers who are looking to save their money for the best price and most important purchases.

    Also, brands should make it as easy as possible for new customers to hear their campaign message. That means a new focus on omni-channel marketing, and taking advantage of channels like Connected TV. After all, brands which kept their CTV campaigns running during the period of economic uncertainty at the beginning of the pandemic saw 26% higher ROAS in the following months than brands that were inactive, according to MNTN data.

    The Rise of Ad-Supported Connected TV Use

    One way that consumers are offsetting some of the effects of this economic uncertainty is turning to ad-supported streaming over more expensive options like premium, ad-free tiers and even linear. It’s true that streaming services are likely to also be affected by any economic upheaval as consumers continue to cut back on expensive services. One study found that while nearly two in three US consumers said they have either canceled some streaming subscriptions or are likely to do so in the next 12 months, 75% of those respondents would reconsider for a lower subscription fee—even if that meant trading that fee for ad-supported content.

    This falls in line with industry projections, which have indicated increasing interest in ad-supported video-on-demand (AVOD) services. eMarketer projects that 41.6% of the US population will watch streaming content through AVOD services this year, and that figure is expected to reach nearly 50% by 2026. Streaming services are aware of this rise in interest. Netflix recently announced that they are working with Microsoft to introduce a lower-priced ad-supported tier to their lineup, Warner Bros. Discovery’s upcoming streaming rebrand will potentially feature ad-supported channels, and Disney+ is similarly on track to do the same later this year. 

    Streaming services that have already introduced ad-supported content are also seeing increased interest from their subscribers. HBO Max, which just launched an ad-supported tier earlier this year, already sees almost 30% of their users watching their content with ads. And for Peacock and Paramount+ (which launched with ad-supported content) rates of subscribers who watch with ads reach 73% and 64%, respectively.

    Conclusion

    Ultimately, we can expect consumers to reduce their spending in the next period as they gear up for a tumultuous economic environment, but some spending categories will be hit harder than others. Advertisers should be seeking new ways to reach their audiences over the next few months with offers to prove their value for those consumers who are cutting costs on non-essentials. And with ad-supported streaming platforms expected to hit new highs in user numbers due to their lower price point, there is an opportunity to find these audiences on Connected TV that should not be missed. 

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