Future Consumer Index: Third Canadian Edition

Three ways companies can respond to consumer segments emerging beyond

1. Align product and service portfolios to the shifting needs of consumers, focusing on price sensitivities and product assortment.

With uncertainty about what the fall and winter will look like, concerns around economic stability, affordability and health will remain paramount for consumers moving forward. To respond to this unprecedented market environment, brands will need to revisit their product offerings, looking for ways to improve their brand alignment to changing customer values and needs.

Redesigning product and service portfolios will require organizations to find new ways of working. Breaking down silos will become necessary to allow business functions — such as sales, marketing and supply chain — to innovate in tandem. Through collaboration, brands can respond with agility to changing consumer preferences, making decisions efficiently around creating the right product, suitable packaging and labelling, and proper distribution channels at the right price.

As the sociopolitical, economic and health landscape continues to evolve, constantly changing consumer behaviours may require brands to revisit who the ultimate customer is and shift the focus to specific segments whose values are closer in line with the brand.

Companies can leverage external market insights and internal data such as product, sales and customer data to quantify, understand, and respond as their customers adjust to the next normal. Careful analysis can help companies refine demand forecasts that inform decisions about product mixes and improve the understanding of the new variables influencing consumer decisions. Examples include sensitivity to pricing and detecting preferences to respond effectively to private label substitutes and other competitors.

Further, if the strategic priority is to stay affordable while keeping experience standards high, building robust analytics will be critical to realize those priorities. By closely monitoring consumer behaviours physically and digitally, companies can decipher how price sensitivity differs among different segments and delineate those who value affordability and those who value experience. These consumers will value different products, allowing companies to enable dynamic pricing and understand what type of in-store formats are successful and stay true to consumer expectations.

Pandemic-fueled disruption has accelerated digital adoption beyond all expectations, upending the way consumers choose and purchase goods. To differentiate beyond price, companies will need to understand that consumers still demand a seamless shopping experience regardless of where they are now buying products, blending expectations across both digital and physical channels.

Advancing digital investments and crafting a consistent and engaging customer-centric experience at each stage of the buying journey is vital to remaining competitive. Even as spending sentiments fluctuate across segments and products, one aspect remains constant: the surge of e-commerce and digital sales. Online retail penetration has increased across all product segments, with growth rates among key categories at historic levels: grocery (48%), health and beauty (23%), consumer electronics (20%). In contrast, offline retail performance across multiple segments shows depressions: health and beauty (-8%), consumer electronics (-26%), fashion (-33%) among many others.¹

Companies with an established online presence are experiencing unprecedented growth, spanning different product categories. This includes record breaking e-commerce revenue for companies ranging from global footwear and apparel retailers to electronics retailers to home improvement retailers. In contrast, brands operating in similar segments that failed to build or extend their digital capabilities have faced a substantial sales decline. Some, including established brands, have declared bankruptcy in 2020.

Some companies have also launched or expanded digital capabilities to connect customers with employees in new ways. For instance, a global athletic apparel retailer headquartered in Canada added a virtual personal shopping experience, using web bookings and video calls to help customers virtually access products and the people who might typically help them in a physical store. The offering has elevated product accessibility from the comfort of the customer’s home.

Health and safety continue to be top of mind for Canadian consumers, together with financial security. Companies cannot wait idly for the pandemic to subside; instead, they need to take active steps to help consumers feel safe. Demonstrating and communicating a commitment to health and safety across physical retail spaces will help customers make it out to the stores and feel safe to shop.

While the digital journey's importance is evident, companies should not forget about their established physical retail presence. While a sizeable proportion of consumers are unlikely to venture out to malls, concert venues, sports arenas or similar spaces, some will still be willing to do so. Making these consumers feel safe in their experience will be critical in maximizing their experience to potentially capture more of the conservative spending that has captivated many consumer segments. Companies iterating on this capability will emerge successfully and be able to scale based on learnings and feedback from store operations and customers.

Companies can elevate consumer safety by prioritizing the development or deepening of trust with consumers and demonstrating transparency through data-driven evidence in place of vague assurances, whether across the supply chain or at the last mile of purchase. Creating a safe shopping environment is one part — communicating it to consumers is another.

Implications for organizations in preparation for the holiday season

COVID-19 accelerated trends that were already forming and created some new ones as well. However, the upcoming holiday season is likely to hasten these trends even further.

During the holiday 2020 season, it will be imperative for companies to keep open lines of communication with their customers, engaging early and often. In addition, some key considerations have also arisen that retailers should keep in mind in the next few months.

Is your digital store as resilient as your physical store?

With consumers flocking to the internet to avoid physical stores, e-commerce platforms will likely experience unprecedented surges in traffic. Companies should prepare their platforms to facilitate that seamless experience, bolstering service availability, traffic bandwidth and security, including DDoS protection, customer data security and threat monitoring.

How will your products make it to your customers?

This holiday season is poised to see historic goods flowing through the logistic networks from domestic and international origins.

Companies will need to plan and account for spikes in e-commerce demand, ensuring their internal logistics can process the influx of orders. These considerations will need to be addressed in parallel with external factors, such as unprecedented logistic network traffic and congestion from competitors, limits on carrier capacities, and last-mile difficulties so that their products make it to their customers in time.

Companies will also need to understand what the timelines for 2020 and 2021 look like and communicate thoughtfully to their customers to manage expectations and create positive customer experiences, regardless of the channel. There are also health, operational and logistic considerations around safely processing returned goods after the holidays and beyond.

Who will be spending at home?

With travel restrictions remaining in place and consumer priorities around safety staying high, the most in-demand products this year could be much different than in prior years.

Trends materializing outside of Canada, such as “travel to nowhere” experiences, could appear in time for the holiday shopping season and add another competitor for the likely shrinking wallet share this season. Further, limited international tourism and consumer dollars beyond hospitality can also impact some of the spending typically seen in pre-pandemic holiday seasons.

What products are consumers looking for this year?

Consumers’ focuses have shifted. Health concerns, potentially compounded with financial concerns, will transform the consumer holiday spending landscape for 2020.

As people continue to work, learn, and spend more time at home, their shopping patterns, especially at this pivotal part of the year for retailers, will likely reflect these shifted lifestyles. Consumers could especially favour product categories that they can thoroughly enjoy at home, such as home fitness equipment and clothing, cozy living apparel and decor, electronics and video games, or other items.

While this list is not exhaustive, the premise remains true: money spent this year will broadly reflect many Canadians' homebound lifestyle.

Companies should consider looking at the end-to-end consumer lifecycle outside of their product, potentially opening up new ways for consumers to interact with the relevant product or indicate the need for new products altogether.

Are you prepared for in-person shoppers?

Government-mandated reduced traffic does not equal zero traffic. Companies will need to balance operational efficiency and store safety as shoppers make their way to stores. Considerations should also include the health and safety of staff exposed to customers who choose to shop in person. While the digital experience will be necessary, brands should not forget the experience delivered at physical stores. Brands must leverage both channels strategically to maximize getting products to customers safely.