As Australian consumer confidence continues to plummet, should advertisers be worrying?
July saw the eighth successive drop in consumer confidence, meaning we’re now back to early Covid levels. Kaimera’s Stewart Gurney runs the numbers – and says there are three things advertisers must now consider.
It’s an understatement to say there’s a fair bit going on the Australian economy. Rising inflation, the surging cost of living, increased interest rates, falling house prices, not to mention fluctuating financial markets and continuing supply issues. Equally panic inducing, for the first time in 15 years. Bunnings is hiking the price of a sausage sizzle.
When it feels like every day there’s a new story of impending economic doom, it’s no wonder that consumer economic confidence has taken a nosedive.
According to the Westpac-Melbourne Institute Index of Consumer Sentiment for Australia, July saw the eighth consecutive drop in consumer sentiment in a row, dropping 3 per cent to 83.8. To put this in context, this is the lowest since April 2020. Right at the beginning of the Covid pandemic, when borders were closing, and uncertainty was rife.
Changes in sentiment will inevitably lead to a reappraisal of purchase decisions. According to recent Trade Desk and YouGov research research 44 per cent of Aussies reported they will be actively looking to buy from cheaper brands or stores whenever possible, and eight in ten have already made changes to their purchasing habits.
But it’s not all doom and gloom. There are some positive economic indicators that paint a very different picture.
Unemployment is still incredibly low at 3.9 per cent and business sentiment (for now) remains stable at 97.3 Household spending is up 8 per cent versus May last year and savings are still higher than pre-pandemic levels.
Closer to home, the advertising market (usually a good indicator of impending economic instability) is still set for 8-9 per cent growth this year, with demand still high across many channels.
Australia is in a very unique economic situation.
We are seeing an interesting mix of financial trepidation combined with latent demand. Consumers who are starting to face financial challenges but are looking at them from a position of stability and security.
There are lots of real-world examples of this. Aussies who are seeing their mortgage repayment increase, but still determined to dip into their savings and wait months for a new car. Consumers who are still treating themselves to ‘little luxuries’ – because after the year they’ve had – they definitely deserve it. Families who are still shopping in their local supermarket, because its more convenient that going out of their way to find cheaper alternatives.
So, amidst some very turbulent and strange economic headwinds, should advertisers be modifying their communication strategies?
The first thing to do is not to panic.
Consumer confidence is a metric for economic perception. It’s a great indicator for how we think we will react, but not necessarily indicative for how we actually will react.
Perception is reality, but claimed behaviour rarely translates into actual behaviour.
If nothing else the marketing literature of the last few years has taught us that our behaviours are often highly emotional and loaded with mental biases. That’s not to say that a reduction in monthly income wont impact behaviour- for many Australians it will, but potentially in a more nuanced and less rational way that we assume.
So, once the initial panic has subdued there are some important actions marketers should be taking to help navigate these unusual economic headwinds:
- Protect brand investment
It’s easy for the media guy to say ‘keep spending’ to a company that is facing growing production costs and inflation. But it is important. There is a raft of evidence to support this. Spending in a downturn protects future sales and can lead to greater ESOV efficiencies.
The other temptation advertisers face is to redirect investment into ‘activation’ tactics like promotions or acquisition media. The logic makes intuitive sense: “People are looking for more value, so let’s give them more value-centric reasons to buy us”. Consumers are rarely logical, and this approach might create short term sales, but it will also hinder brand building and mental availability. Maintain your marketing balance. Brands are arguably even more important in times of economic uncertainty – your customers still want to be entertained and engaged not just sold to.
- Understand your category demand/dynamics
This is a unique economic situation. Societal expectations and tolerances have significantly changed over the last two years, meaning that we are more willing to hold onto that big holiday or be tempted to change jobs, despite the uncertainty. Each category is going to be very different, staying close to shifts in demand are going to be critical and prevent any reactionary decisions. Things like monitoring category searches and share of search are cost effective ways to monitor changes in category demand.
- Prioritise the right channels.
When budgets are reduced its tempting to focus on media channels that are cheaper or have a lower cost of entry. However, this is often a false economy. Even on reduced budgets you should identify and invest behind channels and formats that maximise attention. If a consumer isn’t paying attention to you advertising, it’s not having a demonstrable impact. Focus on building attention threshold and selecting channels that are able to do this. You may have to compromise longevity or reach, but the overall impact of your activity will be greater.
The next 12 months will be interesting. We are in a very unique economic situation that will continue to evolve and place different stresses on Aussies consumers. Advertisers need to stay close to these dynamics, understand how they intersect with the category and build solutions that make people feel like they want to choose your brand.
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