Three ways to stay connected to the increasingly independent consumer

For many consumers, the switch to private label was a way of saving money in a time of rising prices. Now it’s become a habit — across all income bands, consumers are embracing private label, finding that these less expensive alternatives are satisfying needs just as well as their branded alternatives. 

This change in consumer behavior means CPG companies are losing some of their traditional advantages, while retailers are trying hard to capitalize on the opportunity. Retailers are promoting private label aggressively — with eye-level shelving and front-of-store placements — and increasing the range of products they offer. Instead of just emulating branded products at a lesser price, they’re offering a range of product options with differing price points and analyzing their point-of-sale data to identify early trends. It means they can respond to buying behavior in real time, something CPG companies are not able to do.  The closer they get to the consumer, the more power they have to curate buying choices, and the more they can drive lasting loyalty.

These strategies are playing out as consumers are increasingly brand agnostic. Younger generations in particular love hunting for low-cost alternatives to high profile brands, and then celebrating their discoveries on social media. The rise of “dupe culture” has made bargain hunting fashionable.

The influence brands have is weakening, compounded by the negative backlash as some brand owners raise prices and/or shrink pack sizes to maintain profits. Although price and shrink are tried and tested growth levers, consumers today have access to far more choice. They’re becoming increasingly savvy about alternatives to higher-priced brands, learning about them through social influencers and other digital channels. Brands are increasingly struggling to innovate in ways that differentiate their products and drive category growth.

Driving relevance with tomorrow’s consumer

Most CPG companies continue to focus now on volume recovery. Efforts to simplify the portfolio and drive down costs are important, but this must happen alongside innovation and marketing — they need to keep their brands inside the consumer’s circle of trust in order to maintain their margins and fund their growth agendas.

For retailers, better data analytics capabilities will help them target and reach consumers. They can use retail media and loyalty programs to incentivize private label purchases and create alternative revenue streams by promoting their partner brands. CP companies will need to take a balanced approach promoting their brands to meet today’s goals, while also pursuing ways to keep these new consumers and earn their loyalty. Innovative new products that are differentiated from private label and that consumers find valuable will be key.

This creates a dynamic relationship between retail and CP companies, which will become increasingly important to the success of both. But retailers can win on both sides of the balance — they can compete using private label, while partnering to help brands sell more effectively.

[Back to top]

People are returning to physical stores for reasons that investment in AI and technology alone can’t meet. Or not yet anyway. They want to see, touch and feel items before they buy them. They want to talk to people who can help them make high-value purchases and give them confidence that they’re making good choices. They also expect the companies that serve them to offer a seamless experience across all their channels, and to manage this complexity with ease.

Consumers are happy to receive offers and promotions that have been personalized by AI.  They are also happy for AI to recommend alternative products that are less expensive or healthier. However, there is a clear line of frustration when it comes to “smart” chatbots that fall short in addressing their concerns or when they think recommendations are not made in their best interest.

Consumer-facing companies need to artfully blend human service with supporting technologies. AI transforms what’s possible. It can help consumers make satisfying buying decisions, and it can help sales associates to make those decisions profitable. The key lies in striking the perfect balance — engaging customers at the opportune moment with a message that resonates and that they trust.

Achieving a comprehensive 360-degree view of each customer with the use of AI will be crucial, yet many are still in the process of realizing this vision. But there is also a customer service gap, and investing in technology alone will not bridge it. Consumers are frequently dissatisfied with the online refund process and the quality of customer service received.  These concerns highlight the critical need for a more integrated approach that combines advanced technology with a strong human element to address and resolve customer frustrations effectively.

Finding the right balance of tech and human

Technology is not the enemy of human interaction; rather it can be a powerful ally. Consumer companies that use it to support a human-centered experience are more likely to succeed. But context is key. Retailers and CPG companies need to develop offerings that are either seamless or engaging, tailored to the consumer’s immediate needs, while at the same time gathering information to anticipate their future needs too.

The better technology connects offline and online channels, the easier it becomes to curate experiences that put people first. Companies must not only leverage data and analytics to gain consumer insights but also to uncover points of friction in the consumers’ experiences that need to be addressed. They must strike the right balance between how they overcome these challenges with technology to help identify issues as they develop along with customer service training that is responsive, empathetic and creates value for the consumer.

For example, investing in better inventory management systems can enable store associates to be equipped with more current information to help consumers purchase items in-store or order online for delivery, enabling personnel to serve needs and complete a transaction all at once.

AI-led product recommendations can deliver incremental sales, but they won’t resolve more complex, service-oriented customer needs. Addressing AI’s capabilities in this area will improve profitability and enrich the overall shopping experience, but this must be coupled with opportunities for meaningful human interaction. So, investing in people, both in terms of experience and expertise, is equally as important and must go hand in hand.

[Back to top]

The home continues to grow in its role as the center of consumption albeit for different reasons. Four years ago, confined to their homes, consumers valued convenience and at-home entertainment soared, providing solace from the isolation imposed by the pandemic.

Today a shift in consumer behavior is evident. Consumers want to spend less on streaming services, grocery deliveries, take out/prepared meals and fashion or technology trends. Instead, they are embracing a more grounded lifestyle, focusing on the tangible aspects of life that hold personal significance. This includes spending more time at home — preferring to cook and entertain more in their homes — perhaps reflecting a desire to invest in experiences that resonate on a deeper level.

Although consumers have steadily felt more in control of their lives since 2020, and continue to feel more confident about the future, financial concerns persist, particularly regarding the affordability of groceries and other essentials. Consumers have demonstrated remarkable resilience, adapting to economic pressures by trading down to cost-effective alternatives, such as private label goods, while maintaining a focus on the essentials. This current preference for at home experiences over convenience services is a pragmatic response to the sustained inflationary pressures that have continued to challenge household budgets. 

Staying in is the new going out — and it’s not limited to older demographics. Younger generations, often perceived as the most social, are also embracing this shift towards more intimate and personal home-based activities. They are finding value in preparing meals and entertaining friends within the comfort of their own homes, which is resulting in reduced needs of non-essentials consumption. It is also signaling a broader cultural movement towards authenticity and personal connection.

Valuing time means paying less attention to brands

To sustain growth and remain relevant, consumer companies must reevaluate their strategies for engaging with consumers, particularly the younger demographic. As consumers are less willing to pay for digital conveniences, businesses will need to recalibrate the role that digital channels play in driving revenue and profit margins and prioritize physical distribution outlets.

The key lies in recognizing that fulfilling physical and digital desires is not an either-or proposition. Companies must create value by adeptly navigating the digital landscape to streamline consumer experiences while also cultivating a physical presence that fosters deeper connections.

Achieving this balance will require new value propositions to seamlessly address both digital convenience and the craving for immediate, tangible experiences. For instance, a consumer who lacks the time to prepare a meal from scratch may still seek an engaging and inspiring culinary experience rather than simply ordering takeout.

Consumer companies must constantly innovate their brands to be able to adapt to meet the evolving preferences of their audience, blending the efficiency of digital solutions with the authenticity of real-world interactions to create a harmonious consumer journey.

Special thanks to the following individuals who significantly contributed to the development of the EY Future Consumer Index – the survey, analysis and visualizations: Sneh Bhat, Data Visualization Engineer; Lourdes Canizares-Bidwa, Global Consumer Products Marketing Leader; Rebecca Edwards, Global Consumer Marketing Leader; Andreas Waelchli, EY Global Consumer Analyst; and Michael Wheelock, Research and Analytics Leader.

[Back to top]