5 minute read 21 Jul 2023
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How consumer affordability, loyalty and trust were redefined in the age of AI

Kathy Gramling
By Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.

5 minute read 21 Jul 2023
Related topics Consumer products and retail Future consumer index
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As consumers redefine core tenets of their relationships with retailers and brands, how can companies navigate these shifts?

In brief

  • Though consumer spending is steady and they feel the economy will bounce back in a year, consumer affordability still rises to the top priority in the future.
  • Sixty-four percent of US consumers will be more focused on value for the money in the future, redefining brand loyalty.
  • As retailers and brands aim to create value in the consumer experience, AI becomes key to consumer trust.

For the last eight months, consumers have remained steadfast in their concerned-but-optimistic temperament. They expect economic impacts to be short-lived, and, as a result, they aren’t materially changing their spending behavior. When compared to macro indicators, like consumer spending and retail sales, it tracks.

What doesn’t track, however, is the stark shift in future priorities. In the 12th edition of the US Future Consumer Index, more consumers than ever before identify with “Affordability First.” So, how can consumers remain the same and change all at once? My assertion is it’s not concerns or behaviors at play here, but rather a new meaning for affordability, brand loyalty and trust.

With these core issues redefined, retailers and brands will need to pivot operations accordingly to drive agility and efficiency across price, product and data. And AI is the name of the game.

Pricing and consumer affordability: It is what it is … or is it?

Consumers are feeling the challenges of economic conditions and rising prices. However, in a story much the same as we saw in our last edition, there’s a grin, bear it and this too shall pass mentality. 

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52%

are currently extremely concerned about the US economy

48%

expect the economy to continue to get worse in the next six months

64%

agree or are neutral when asked whether the economy will recover in a year.

94%

are concerned about the rising cost of living, especially where groceries and household essentials are concerned (85%)

57%

expect rising living costs to worsen in the next six months

41%

say that rising costs are making it hard to afford things, and only 26% say that paying for essentials is a challenge

People have the means and desire to spend but are constrained by high inflation, high interest rates and ongoing volatility.
Gregory Daco,
EY-Parthenon Chief Economist

Overall, optimism wins in the medium term, even with the backdrop of three major bank failures. But there is more to the story. Sure, consumers think things will bounce back in about a year. When asked about three years from now, though, there’s an affordability tension. Of the five future consumer segments, Affordability First jumped from 26% to 38%, its highest level to date.

  • Chart Description#Hide Description

    An interactive line chart showing how the five consumer segments have moved over time starting from June 2020. In April 2023, the consumer segments appear in the following order: Affordability first (38%), Health first (23%), Planet first (13%), Society first (13%) and Experience first (13%).

How can consumers be willing to spend but prioritize affordability? Because they no longer buy “just because.” Economic concern hasn’t made us spend less, but rather spend with intention.

Affordability redefined: from “what I can afford” to “what I want to afford”

For retailers and brands, this still means a continued hyperfocus on price, but in a different way. Consumers are not far from their threshold of price increases, and, as a result, retailers will no longer take price at the shelf. But price decisions driven only by profitability goals won’t hack it. Consumers aren’t sacrificing what they want; they’re just willing to do the work to find it at the price they want to afford. This will require brands to take an approach that is equal parts surgical in price pack architecture and agile in assortment to accommodate consumer spending’s sensitive tipping point.

Second-guessing brand loyalty

One way this affordability shift is manifesting is in the demise of “brand is king” mentality. We’ve always associated loyalty in the shopping and buying experience with a brand or retailer name. But nearly half (49%) of consumers agree that brands are not very important in purchase decisions. When asked what the most important purchase criteria in three years’ time will be, only 14% said brand of product.

Illustrating this further is the increasing interest and confidence in private label, especially in the grocery aisle. 

71%

say that private label satisfies their needs just as well as brands

58%

say that private labels are increasingly better products

64%

say that private labels are the first they notice when shopping for a particular product

  • Chart Description#Hide Description

    A chart showing the US consumers’ willingness to purchase a store brand product: Alcohol (28%), Technology (30%), Beauty and cosmetics (42%), Non-alcoholic beverages (44), Clothing, shoes and accessories (56%), Home and household care (63%), Personal care (64%), Fresh food (68%), and Packaged food (72%).

As 64% of consumers will be more focused on value for the money in the future, the decline in brand importance, coupled with the increase in private label interest, can mean only one thing:

Brand loyalty redefined: from “I’m brand loyal” to “I’m loyal to value”

For retailers and brands, this means that loyalty is going to be much more challenging to obtain. We’ve seen the prioritization of value in the Index data for some time now. It’s clear that a brand-focused proposition may not win in the long term, but a value-focused proposition will. Identify the sources of value for your target consumer beyond product availability and price. Is it product quality or choice? Experience? Personalization? Then evaluate how those sources of value change the attributes of your brand, your competitive set and your commercial strategy.

In the age of AI, touch points become trust points.

If a source of value is in the experience, then using emerging technology and AI is one way that you create that value. Our survey found that, while only 22% of consumers have a good understanding of AI, three in four (77%) are neutral or comfortable if it is used to improve purchase experiences.

The secret to AI applications in the shopping and buying experience is trust. Consumer trust is generally hard to come by. Fifty percent have minimal trust in online retailers, 45% have minimal trust in chain retailers, and 34% have minimal trust in consumer product brands. But the fact that consumers have come around to trust AI-driven experience so quickly was something that many companies did not expect, or prepare for. 

  • Chart Description#Hide Description

    A chart showing the US consumers’ trust in AI-generated things: Auto-refill of shopping carts based on past purchases (47%), Automated order and delivery based on previous purchases (47%), Personally customized recommendations (53%), View in my space or virtual try-on functionality (56%), Product purchase reminders (58%), and Tailored promotions and deals (61%).

But AI depends on data. And, while consumers trust AI, they may not trust you enough to provide its fuel. Only 18% are willing to share publicly attributable personal data to drive tailored advertisements, and only 21% are willing to share publicly attributable data to drive prepopulated shopping carts based on past purchase history. So, how can retailers and brands overcome the data trust gap?

Trust redefined: from “trust is human to human” to “trust is human to anything“

For retailers and brands, this means expanding the scope of trust – using every touch point, whether it’s human to human, machine, company, interaction or information, as an opportunity to earn it. In the future, trust can make AI the steward for your consumer’s cart and their experience. Achieving this takes a holistic front-, middle- and back-office view of AI-enabled applications. Think AI-driven dynamic pricing; generative AI applications like scheduling and labor management to drive productivity in stores; and AI-enabled analytics to plan assortment, define product innovation investments and create a more holistic view of the consumer journey.

These applications build trust over time and increase relevance, profitability, productivity and competitive advantage. And in the age of AI, more than ever before, the first mover advantage will be significant.

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Summary

Despite economic pressures, Americans are still spending, and they feel the things will bounce back in a year. However, more consumers than ever before prioritize Affordability First. How can consumers continue to spend while caring about price and value? They have redefined consumer affordability, brand loyalty and trust, requiring retailers and brands to adapt their operations and focus on price, product assortment and data, with AI playing a crucial role.

About this article

Kathy Gramling
By Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.

Related topics Consumer products and retail Future consumer index
Upvote