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When consumers want less but demand more, how will your business grow?

Photographic portrait of Kristina Rogers
Kristina Rogers

EY Global Consumer Leader

Contributors

15 minute read 13 Apr 2023
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By understanding what’s driving the evolution of consumer consumption, you can identify growth opportunities and adapt your business.

In brief

  • Multiple drivers of change are shaping new consumption patterns as people buy less, buy better and buy in different ways.
  • Consumption is essential for economic growth, but as consumers prioritize experiences and digital products over physical goods, businesses will need to adapt.
  • Companies must understand what’s driving change, how it will impact what they sell and do, and what success looks like in the future.

The consumer is truly king. Not just in the store but driving economic growth – consumer spending accounts for more than half (60%) of global GDP.1 When consumers spend, the economy grows; and when they don’t, it shrinks. Even in a recession, we invariably find a way to spend ourselves back to growth – the levers used are almost always based on encouraging people to buy more stuff through cheaper debt and increased wages.

Governments and companies rely on consumer spending as a foundational building block of the global economy and society. It’s become an accepted principle that progress is measured through growth and growth is driven by consumption. Companies are measured by how much they can grow revenues and margins; national economies are measured by how much they can grow GDP. With consumer spending essential to both, changes in consumer values and spending behavior have a critical impact on their success.

The experience of two years of lockdowns has had a lasting effect on consumer priorities. According to the Future Consumer Index, which surveys over 21,000 consumers in 27 countries, 54% of consumers have seen changes in their values and the way that they look at life. By learning to live with less, many consumers have come to adopt simpler and less consumerist values. Technology platforms and new business models are enabling this with a growing number of reselling, rental and repair services allowing consumers to moderate their consumption without compromising their lifestyles. These changes in consumer priorities now need to be factored in.

At the same time, the relentless pursuit of growth is increasingly coming under scrutiny. Concerns over sustainability have raised questions on the social and environmental costs that economic growth can have. Current macroeconomic volatility is also adding pressure to consumption as well as rising interest rates and persistently higher than normal levels of inflation. They’re all dampening the appetite to spend our way out of a crisis with the potential to also redefine what growth looks like and how to measure it.

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1

Chapter 1

What’s driving a change in consumption?

Discover the drivers of change reshaping consumer values and buying behaviors.


For many decades, consumption growth has come from encouraging people to consume more. New product launches, seasonal fashion, increased portion sizes and endless aisles of choice have collectively supported growth in consumer spending. But there are now signs of fatigue, and brands must reconsider their value proposition to encourage people to consume better, not more.

Let’s not signal the death knell of consumption just yet. People need to eat and drink, although they might buy food and drink in different ways. They need to wear clothes, though they may not always choose to own or buy as many of them. They will still have hopes and aspirations that depend on goods and services, although these may be less focused on physical items. Private consumption will remain significant in any measure of economic activity. But what consumption is comprised of is evolving.

From the 200-plus drivers of change that we’ve identified and explored, dozens point to changing modes of consumption, and five in particular may change consumption patterns long term.

Five drivers that could reshape consumption patterns

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Three perspectives on change for consumer-facing companies

Learnings from the Future Consumer Index coupled with insights from our drivers of change point to three key ways that consumption patterns will evolve in the coming years:

 

1. Physical products will decline as a proportion of overall consumption

Experiences, digital products and longer product life cycles will drive down the overall volume of physical products needed. Share of wallet is moving toward less-tangible consumables such as experiences, repair services to keep products in circulation longer, or virtual goods and services that are traded in online economies.

 

2. Basket and product sizes will change for asset-light lifestyles

Less will be more in a future landscape where frugality confers status, everything can be rented or subscribed to, and changing household sizes dictate how much people choose to buy. Bulk buying will be less prominent as single-person households increase in number, while buying “better, not more” and renting the rest will become more common as consumers rethink whether they need to fill the limited space in their lives with possessions they don’t need to own.

 

3. Consumer choices will be enabled by simplicity and transparency

Artificial Intelligence (AI) will increasingly allow consumers to cut through complexity, enabling purchase decisions framed by seamless convenience as much as price. But consumers will also make considered choices in areas that matter to them. They may give little thought to the delivery of everyday essentials, as long as the goods meet price and purpose expectations. Consumers will, however, spend their time and money on the products and services they truly care about.

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2

Chapter 2

What will influence drivers of growth?

As business adapts to shifts in consumer spending, what drives growth and progress will change.

How EY can Help


If the fundamentals of consumption are evolving, then so too will the metrics used to measure progress and growth. National and corporate models apply tried-and-tested financial indicators as a bell wether for the health of an economy (such as GDP, growth and debt), or for a company (such as revenues, growth and profitability). Progress is defined by growth, a robust GDP or revenue growth — all signal that things are going in the right direction or, when they decline, start alarm bells ringing. But how important will growth be in the future? Pressure is mounting from some quarters to transition national development indicators from financial metrics to a “wellbeing economy,” which uses the health of people and the planet as a measurement of success.
 

There has always been a correlation between wealth and wellbeing. Focusing development on the latter rather than simply assuming the former delivers it would be a step change in how economies develop. This is increasingly being reflected in how company strategies evolve. Environment, social and governance (ESG) factors are taking a greater role in shaping investment decisions. Social or environmental goals are often reported in tandem with financial ones, leading to a rising number of companies aspiring to gain B-Corp status.
 

When a consumer company presents its quarterly financial results, it will typically use the platform to also discuss its priorities on plastic waste, Scope 3 emissions, consumer wellness, and diversity and inclusion. That’s if a consumer company wants to share quarterly results at all.
 

Over the last decade, many have opted out of quarterly reporting because it puts too much scrutiny on short-term financial goals and not enough on long-term value creation. As with changing consumption patterns, there are dozens of drivers of change that could reshape perceptions of growth and progress.
 

Five drivers that could reshape perceptions of growth

Implications for consumer facing companies – rethinking what creates value

The above drivers demonstrate that measuring financial growth may no longer be enough. The scarcity of some resources and a growing abundance of others will shift value creation, for example, away from physical and toward virtual economies. Non-financial priorities will push up the agenda the impact on time, people and the planet at the expense of hard currency. National agendas will merge environmental and citizen welfare with financial stability and economic expansion. Shrinking population growth will undermine the demographic dividend that has supported economic progress for centuries, while automation could reduce working hours and create an imperative for new welfare measures. This is likely to also blur the boundaries between corporations and policymakers.

The license to operate a company enjoys will depend as much on its ability to generate positive social and environmental outcomes as its ability to generate profit and growth.

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Chapter 3

How rethinking what good looks like will reshape business

What we recognize as success and how we measure progress will reshape business, its impact on the economy and contribution to society.


As consumer companies adapt to thrive in this changing environment, they will need to revisit their strategies, business models and operational structures to ensure they are relevant to the definitions of value that are emerging. The changes companies must plan for won’t happen overnight. The 200-plus drivers we’ve identified range from trends that are already well underway to those that may take decades to have a business impact. Other drivers such as Transhumanism (the potential to rapidly extend lifespans through health and life science innovations) or The Singularity (where AI and technology enable the integration of humans and machines) are outliers that may never come to pass but will be hugely disruptive if they do. However, trends we’re seeing today illustrate some substantive changes in how consumer companies will create and measure success.

Five drivers that could reshape measures of success

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Chapter 4

If you can imagine the future, you can shape it

Nobody can predict the future, but by imagining it, you can identify opportunities and choose to shape your own future.


In a world where development and success have definitions that lie beyond growth and money, companies will need to adapt. However, there will be opportunities to explore. By understanding what has the potential to change consumer expectations and behavior, businesses will be able to shape their own future.

1. Creating new value pools

Some of the traditional value pools will continue to deliver revenue and margin, but others will contribute in other ways, creating a more holistic vision of what “good” looks like. Healthy financial balance sheets alone won’t generate the value a company needs to win in the market, especially if they come at the expense of other factors. A company won’t be measured just on how much it sells a product for or how many it sells, but what services it can enable, what impact it has and what values or communities it can support.

2. Meeting needs in new ways

Technology will enable consumer companies to do more for less by scaling AI, unlocking new manufacturing techniques and efficient operating constructs to deliver personalization at lower cost and resource use. Meeting consumer expectations will drive a shift toward service-based models that span different categories and sectors, enabling consumers to share in value creation through peer-to-peer selling and brand collaboration. These will be underpinned by a new corporate purpose that meets expectations on wellbeing and impact by assessing the real cost and benefits beyond those measured in dollars and cents.

3. Rethinking contribution and impact

Retailers may be valued as much for their role in the community, their contributions to employee wellbeing, or the insights and data they share back to brands as they are for revenue their stores generate. Consumer products companies may find that success hinges as much on their ability to improve consumer health or address systemic environmental issues, as it does on their ability to sell products to people.

Looking at long-term value

All of these factors point to one business driver that will rule them all: Long-term value. Intangible assets are becoming more visible as drivers of value, with social and environmental KPIs joining financial metrics. As connectivity increases the awareness and influence of stakeholders, new definitions of success will challenge the prioritization of growth or margin.

Today growth and margin are seen as indicative factors in the relative success that consumer companies have in delivering to the needs of the market. Tomorrow companies will be directly accountable for how they deliver to the needs of people and the planet. The success companies enjoy in the market will depend on those factors


Summary

Changes in consumer buying behavior are weakening the link between growth as a product of buying more stuff. It means how we define economic and business success and what we think good looks like are open for reinvention.

About this article

Photographic portrait of Kristina Rogers
Kristina Rogers
EY Global Consumer Leader
Global leader for consumer industries. Marketing strategist. Worked in 20 countries. Harvard MBA. Photographer. Scuba diver. Canadian fiction reader. Mother of two.

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