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Understand retail consumers' mindset

The 'why' behind the 'buy' series - article 1

A deep understanding of consumer mindsets is critical to maximizing sales in increasingly volatile, saturated markets.

Winning in retail is harder now than at any point in the past 15 years. Inflation continues to bite, unemployment is rising, and Central Bank actions are far from being fully felt by consumers. We have discussed that understanding consumer mindsets and needs is critical to crafting effective Customer Journeys, but this is never more important as retailers are increasingly feeling the stresses of depressed consumer confidence, and continually increasing pressures on disposable incomes.

For example, in the UK 60% of fixed mortgage deals set before rate rises began will expire between H2 2023 and the end of 2024. With the average impact per household calculated at £2,900 per year, relief for many consumers appears a long way off. Sentiment measured by the GfK 2023 UK Consumer Confidence study reflects this, showing that almost 50% of those with a mortgage expect their household finances to be worse in 12 months, compared with around 30% of those who own their home outright. Meanwhile, the harshest tightening effects of the US Federal Reserve’s rate hikes will soon be felt in the North American economy, and by its consumers.

Clearly, a large proportion of global consumers remain stressed, and with circumstances beyond their control hammering expendable incomes, it is likely retail sales growth will remain anemic.

In addition to battling the impact of reduced disposable income and the reluctance to spend associated with low consumer confidence, retailers are facing increasing difficulties in accessing liquidity at affordable interest rates. This is driving even large retailers into difficulty; in recent months we have seen several high-profile retailers filing for bankruptcy or going into liquidation or administration.

Even ecommerce retailers are not immune with some share prices reaching lows not seen since 2009, and online retailers are turning to fundamental strategic changes to save money. A growing number of online fashion retailers have sacrificed free postal returns — giving up a key competitive advantage in the process. Meanwhile, Amazon Prime UK is now charging members for same-day delivery on orders under £20.

The era of free deliveries and returns seems to be crumbling. While retailers scramble to preserve profits in any way they can, already-stressed consumers will — ultimately — pick up the tab. While the effects on retailers may not be as significant as during the financial crisis of 2007–2009, it’s clear that the current set of challenges will continue to separate winners from losers.

Globally, retailers are facing a squeeze on several fronts. Debt servicing is more expensive, supplier prices are going up, and consumers have less disposable income to spend. In this environment, retailers on a weak financial footing will struggle to survive. But in a highly stressed market, a strong balance sheet may not be enough — especially with no end in sight. It is critical for retailers to read the mood of consumers correctly if they want to maximize their opportunity to drive revenue and profitability both short and long term. By understanding key shopping triggers and what drives the decision to buy, retailers can better position themselves as the option of choice to meet consumer needs."

Iain McGowan

GfK UK Head of Retail for Consumer and Marketing Insights

Understanding consumer mindsets to find white space

Uncovering shoppers' triggers, or what drives their decision to buy, entails successfully identifying category entry points, shopper missions, and the relationship between additional vs replacement products. Meanwhile, identifying which products are associated with these triggers and which retailers and brands are most mentally available in different scenarios is key to finding white space in increasingly saturated markets.

The category retailers serve will impact which buying triggers are relevant to their growth strategy. For example, in the Dishwashers category in Germany, most sales are triggered by the functional requirement to replace a broken machine, though where purchases are more discretionary (upgrading, or buying your first or an additional machine), home moves and redecoration/renovation are key motivators. Meanwhile, in fashion, we find that triggers and reasons spread across a much wider range of emotional desires (e.g. want to find a bargain, want to treat myself), along with more functional needs (e.g. need a new outfit, clothes for a holiday).

Depending on their category, retailers may find value in building up a thorough understanding of which products typically drive the most revenue and profit — this provides context for focusing research into identifying consumer purchase triggers and needs. To be efficient, retailers should focus initially on the products they can deliver well, but which also drive significant revenue in their category. They can then expand into other products in their portfolio. This would be especially relevant in home furnishings, for example, where marketing often focuses on specific products and rooms in the home. Here, knowing the specific products that drive consumers to visit the physical or ecommerce stores can help determine where to focus efforts when designing a questionnaire to uncover key purchase triggers.

This deeper understanding of how consumer needs and behaviors differ depending on context, and what drives choices within specific moments of consumption, will help retailers optimize their product range so it is relevant in the context of key shopper triggers and missions, and will help uncover hard-to-find whitespaces. It also broadens the range of opportunities retailers have to target consumers in these moments, with better messaging and products, and more innovative ideas.

Consumer values and their role in identifying growth opportunities

History is littered with retailers that failed to read the changing mood and needs of the market, and who faded away or went through considerable pain as a result. Some global retailers did not recognize fast enough that what they offered, and how, simply did not resonate with the local consumer.

With 40% of global consumers agreeing with the statement, “I only buy products and services that appeal to my beliefs, values or ideals,” and no end in sight to the cost-of-living crisis, understanding consumer values is a further opportunity for retailers to align their tone of voice as part of their efforts to match what consumers want.

Further, getting underneath how consumers want to shop, and – equally important – what channels they engage with throughout the customer journey, will be crucial to ensuring retailers retain relevance through the consumer decision-making process.

These insights are doubly important as the cost of doing business continues to skyrocket, driven by higher input and staff costs, and more costly borrowing. Failing to tailor to these needs will quickly erode even the strongest finances — with commercial bankruptcies climbing by 17% in August 2023 alone, according to Bloomberg.

Understanding consumer mindsets, and their priority values, gives retailers the ability to:

Focus on the missions that matter.
This ensures retailers identify which factors drive frequency vs revenue, how best to compete against competitors, find growth opportunities in underserved areas, and pinpoint the most relevant product categories for different target segments. Subsequently, retailers who prominently display relevant product categories for consumers navigating their store or website for the most important missions, and incorporate them into their marketing messages, can connect with consumers’ purchase motivations — the ‘why’ before they buy.
Optimize the purchase journey based on how consumers shop in the category.
Here, retailers must identify the relative importance of an omnichannel presence for their offer; which touchpoints should be optimized for each channel to ensure consumers stick with them through the different stages of the purchase journey; and identify key barriers — for category, brand, and competitors — and their importance to market share.
Align tone of voice and offerings with key values of target consumers.
Two-fifths of consumers say they only buy from brands that align with their values, for example. GfK GreenGauge consumer research uncovered that over 60% of global consumers say they are willing to pay a 10%+ premium for items such as clothing, refrigerators, a vehicle, and smartphones — if they were guaranteed to be more environmentally friendly than similar products. This suggests that aligning with consumer values offers a significant opportunity to stand out and drive sales.

We have discussed shopping triggers and missions, but when it comes to leveraging consumer values in pursuit of growth, retailers need to understand how important values are to their target shoppers. Our research also shows that while consumers claim they act according to their principles, their intentions are often tempered by the pragmatics of price. Even the most well-intentioned consumers, if they are under financial stress, will likely only be influenced by aligning brand values if they can afford the brand’s offer. The implication is that it might be less important for a discount retailer to focus on values, compared to a premium retailer. In the next article of the series we discuss the importance of retail in more depth.

When it comes to omnichannel strategy, whilst COVID-19 drove a significant spike in online share for retail sales, we cannot assume that online trumps offline in terms of importance. It is key to look closely at where target audiences interact with brands throughout the journey. For which shopping mission they go to which channel - online or offline - and where they ultimately shop.

For example, in the dishwasher category in Germany, gfknewron data has demonstrated a post-pandemic recovery for offline share of purchase, channel preference returning back to the long-term trend. Where consumers are researching their purchases also makes an impact — and post-pandemic, in-store research is still in favor.

Brands and retailers must ensure target consumers can find, learn about, and purchase their product of choice effortlessly — when, where, and how they want it, at a price they can afford. This need to be accessible is reflected in our retail brand management research, which shows a strong relationship between accessibility and consumers' reported share of wallet and retailer brand choice. However, just being accessible is important, but not enough to win consumers over.

Understand your consumer’s “why” to unlock sales

Retailers who make the effort to understand their consumers’ mindsets through uncovering key triggers, missions, and needs will put themselves in the best position to drive sales and market share despite market turmoil. Aligning your target market’s values with your brand, whilst understanding how to ensure your retail brand is accessible throughout the purchase journey offers the potential to take these growth opportunities to the next level. The next article in this series will show how a focus on developing your brand can help unlock nuances in the key drivers of brand choice.

Grab attention and growth with a deeper understanding of your customer

Understanding consumer missions and values in relation to the markets they’re in is critical to optimizing your retail brand’s offer and fueling captivating marketing creative. At GfK, our Brand and Marketing Performance team leverages proprietary data and expert custom research design and analytics to deliver holistic insights about your target consumer’s purchase triggers, so you can:

Map the customer journey for timely influence
Track and recover lost shoppers from your competitors
Identify and overcome consumers’ perceived brand barriers
Align your brand positioning with consumers’ evolving needs
Optimize pricing and promotions for growth

Start today. Get a deeper understanding of the ‘why’ behind the ‘buy’ — unpick the mindset of your target audience to find growth even under the toughest market conditions.