Can uncertainty be your best opportunity for growth?

Contributors: Carlos Leal, Jennifer Greenhorn, Sulagna Gupta, Warren Anthony, EY Canada Consumer Sector

Adapting to the next consumer, and transforming for beyond

This has been a year full of uncertainty. Uncertainty is present when the probability of future events is indefinite or cannot be estimated. With no recent precedents, COVID-19 has impacted projections, changing the course of some trends while accelerating others.

Influenced by this disruption, consumer behaviours have been rapidly transforming as they adapt to new realities across all eight consumer forces,¹ impacting the way we work, shop, use technology, stay healthy and play. Brands can effectively seize the opportunities that arise in this kind of uncertainty. To get there, they must understand how these forces redefine the future consumer and transform their business models with agility to meet evolving expectations.

In Part 1 of our series, we unpacked three themes emerging from the FutureConsumer.Now hackathon EY hosted in Vancouver in the summer of 2019 with local futurists and innovators:

• Adoption of a global mindset – Canadian consumers will embrace a global perspective that challenges traditional hierarchical systems, favouring brands that embrace accessibility and inclusiveness. Hack participants raised two prominent forces: diversity as a competitive advantage and inclusion of the silver economy.
• Design of purpose-driven strategies – Canadian consumers will adapt their shopping preferences based on their personal beliefs and values. Hack participants discussed two influencing factors: purpose sold as the commodity of the future and the rise of purpose-driven communities creating new customer niches.
• Demand for transparent value chains – Canadian consumers will demand more visibility into the supply chain of the products and services they buy. Hack participants analyzed two factors: brand loyalty earned through trust and environmental stewardship, and radical transparency throughout the lifecycle of products and services.

See Part 1 of the series: “How will rapidly evolving societies change the way consumers and brands engage?”

How have COVID-19 and its ripple effects across most aspects of society impacted consumers? How have the future world themes explored before the pandemic evolved? What are the implications of these changes for brands, and how can they respond without any sort of certainty about the future?

When looking back at 2020, it’s evident the pandemic has accelerated some consumer behavioural changes that were already well underway, such as increasing digital platforms’ adoption for social engagement. However, some shifts have been entirely new, born of the immediate need to embrace lower-touch services, like telemedicine and curbside pickup.

Through EY’s Future Consumer Index, where we asked consumers how COVID-19 has impacted their lives since the start of the pandemic, and conversations with business leaders and innovators during our virtual retail event on September 29, Redesigning retail for the future consumer today, we identified four themes. Understanding each theme and adapting your strategy accordingly can fuel your transformation in ways that work for your future consumer.

Here in Part 2 of our series, we unpack the following four themes:

• New consumer segments emerging and continuously evolving
• Accelerating innovation through diversity and inclusion
• Purpose as an anchor for long-term value
• Value chains transforming to become more resilient

New consumer segments emerging and continuously evolving

Different consumers respond to crises in different ways. In April 2020, we launched EY’s Future Consumer Index to conduct regular surveys that reached over 14,000 consumers worldwide, including Canadians, to track and understand changes in behaviours and preferences now, next and beyond COVID-19. According to our most recent study, four distinct consumer segments have emerged, and could transition into what we are calling the “beyond” segment post-COVID-19 as shown in this diagram.

These consumer segments emerging from the crisis are likely to continue evolving in the near and long term until consumers feel more confident and certain about the future.

To learn more about each of the key segments, refer to the three waves of the EY Future Consumer Index Canadian edition:

• Wave 1
• Wave 2
  
• Wave 3
  
  

What have we learned about these segments?

While top concerns are receding, they remain relevant

EY’s Future Consumer Index identified a common consensus among Canadian respondents (between 80%-90%) that they are concerned about their family’s health, freedoms, financial wellbeing and job stability since the lockdowns began in March 2020.

These concerns have ultimately influenced the way consumers shop, although some behavioural changes are becoming less pronounced as consumers adapt to the new normal. While 92% of respondents indicated changes to the way they shop in May, the percentage decreased to 81% in October. Similarly, when asked about the types of products they bought, 80% of respondents indicated in May that these were likely to change, compared to 59% in October.

Changing customer values require reimagining customer journeys

Among changing customer values during the pandemic, three fundamental preferences were affirmed by Canadian respondents: affordability (56%), quality (52%), and health (31%). Two additional preferences that have gained relevance over time include convenience (22%) and choice (20%).

The shift to being at home longer than before the pandemic has impacted customers’ buying habits, which, in most cases, has shortened the time span brands have to deliver a compelling value proposition. With less time in stores, customers are spending more time browsing between different e-commerce sites, which allows them to compare products in terms of user reviews, quality and price, among other features. Not surprisingly, during our virtual retail event, one of the industry leaders indicated that her organization experienced over 120% growth of new visitors who are spending more time browsing and ordering online.

According to EY’s Future Consumer Index, this trend is expected to remain in some form after the pandemic and will impact several product categories. Nearly one third (32%) of Canadian respondents stated they would order online and pick up in-store more often after the pandemic, and 54% would consolidate shopping trips into less frequent but larger purchases.

As competition for consumers’ time becomes more ferocious, brands will have to reimagine their customer journeys to intercept their customers with valuable content through relevant digital channels, including a website, social media and mobile applications, to name a few.

Increasing focus on value for money and price sensitivity

Largely affected by the economic turmoil, 60% of Canadian consumers indicated they would be increasingly focused on value for money in the future. As noted in the graphic below, for the affordability first segment (37% of respondents), which is the largest consumer segment estimated to emerge in the post-pandemic world, the price will be the most important purchasing criterion, followed by product availability and the impact of products and services on health.

With consumers seeking a higher return for their dollars while reducing the number of physical touchpoints with brands, how can businesses remain relevant and deliver a compelling customer value proposition that differentiates them in the marketplace?

Beyond: Which purchasing criteria have become more important to consumers?

Accelerating innovation through diversity and inclusion

COVID-19 has amplified accessibility challenges to certain products and services that are essential to Canadians in their daily lives. On some occasions, specific populations have been disproportionately affected and left with no alternatives other than exposing their health to access what they need.

Canada, one of the world’s most diverse countries, is providing companies with ideal conditions for testing inclusive product and service innovations. This allows Canadian retailers to transform how they serve the diverse needs of consumers here who face significant inclusion barriers. In many ways, that innovation is coming to life, from ramping up e-commerce platforms to offering delivery services or in-home consultations.

These innovations demonstrate the value of inclusivity to serve those facing barriers, ignite innovation in service models, and access new, untapped audiences who benefit from the change. As such, we view that COVID-19 has accelerated one of our themes explored in Part 1 FutureConsumer.Now. about the adoption of a global mindset as brands leverage diversity and inclusion as driver for innovation.

Revisiting the concept of inclusion of the silver economy, for instance, it has been incredibly impactful for ageing populations that have been one of the most heavily impacted population segments. From one day to the next, previously a non-issue, medical conditions became contextual disabilities in most situations. Overnight, many groups went from having ready access to grocery stores and pharmacies to limited or no access. Many companies did not have delivery methods, so people had no choice but to walk into physical stores.

Despite 62% of Canadian respondents indicating that they are more aware and cautious about their physical health, not all individuals enjoy the same privilege of looking after their health in the same way, especially when their working conditions do not permit it. Many retailers and grocers have faced the challenge of keeping their customers and workforce safe.

In these sectors, employees have to adopt and communicate different health and safety protocols, change their working schedules, in most cases involving long hours, and work in high-risk environments, causing a lot of distress among the workforce.

Together, these shifts mean businesses need to rethink how they operate and what they offer to foster the kind of inclusive society where more consumers can access what they need when they need it while keeping the employees serving them safe.

Companies that were quick to innovate despite the pandemic have been able to continue serving existing consumers and attract new ones. Having a blend of in-store and digital capabilities or rapidly pivoting to redesign store layouts to accommodate physical distancing, facilitate curbside pickup or even transform certain stores into distribution centers have been common tactics.

Brands going above and beyond are embracing diversity and inclusion as a competitive differentiator, as we envisioned in Part 1, by introducing specialized services for profoundly impacted groups, adopting innovation to “include,” such as seniors-only hours, priority pickup, or contactless pickup for older populations and first responders.

Locally relevant, custom and catered consumer experiences are emerging to fill the void created by global and local travel grinding to a halt by leveraging new partnerships and ecosystems.

High-end restaurants are responding with cook-at-home options, focusing on broader regional distribution by delivery as opposed to traditional à la carte options. Fitness and yoga companies are realigning their business models to changing consumer needs by offering in-home services and virtual personal training.

Brands that embrace diversity and inclusion through collaboration with different stakeholder groups have more access to new ideas and contexts, allowing them to become more innovative.

Purpose as an anchor for long-term value

Some fundamental changes in consumer values have emerged during the pandemic. EY’s Future Consumer Index indicates that 58% of Canadian respondents will reappraise how they spend their time on things they value most. Half (50%) indicated that their values and the way they look at life have changed due to COVID-19. Even 42% reported that they would pay more attention to the social impact of what they purchase.

These values are being reflected in the way customers align with brands and buy products and services. We are seeing consumers favouring local brands (33%) in increasing numbers, placing their trust in brands that offer high quality (38%) and sustainable products (20%).

With COVID-19 being considered the most disruptive force in 2020, it becomes clear that purpose matters more than ever as brands define what they stand for, including how their business practices look after the environment. How companies act now will define their relevance or even their existence in the future as consumers judge with their dollars. As such, our second theme from Part 1, which suggested that Canadian consumers would prefer brands that aligned to their personal beliefs and values remains relevant, is more pronounced as a result of the pandemic.

In Canada we have seen brands respond to align with these expectations. At the start of the pandemic, one Canadian outdoor clothing company that manufactures high-quality apparel for outdoor activities pivoted production to create medical gowns for local frontline workers. They even made gown designs and patterns open source. This innovation was a powerful demonstration of living their purpose – going above and beyond their bottom-line interests to do something that matters to the community. The initiative engaged staff, partners and the community, generating positive coverage and consumer sentiment. The company took the opportunity to develop new collaboration opportunities, build closer partnerships, and design a faster and more responsive operating model.

Another example involves a Canadian fashion shoe designer that celebrated a provincial health officer’s crisis leadership and her iconic “be kind, be calm and be safe” mantra by designing a custom shoe for sale through its new e-commerce-enabled website. All 200 pairs sold out online instantly, generating profits for local food banks.

These are just two stories of local companies that continued to operate by staying true to their purpose. They supported and celebrated their communities in the toughest of times, all while facing significant declines in retail sales. Evidence shows that consumers are taking note.

EY’s Future Consumer Index indicated that 20% of respondents are willing to pay a premium for sustainable goods and services. A further 17% of consumers say they’ll pay a premium for brands that give back to the community.

Brands that anchor their strategies to a meaningful purpose, with a focus on creating long-term, sustainable impact across stakeholders, are best positioned to benefit from, demonstrate and measure the value they create.

Value chains transforming to become more resilient

During our virtual retail event, we asked business participants about the biggest challenges they faced during the pandemic. The polling results indicated that logistics and supply chain ranked as the number-one issue. These respondents are not alone. Close to 94% of Fortune 1,000 companies are experiencing supply chain disruptions tied to COVID-19.² From shuttered factories to surging demand for essential goods, and supply chain shocks to panic-buying consumers, disconnected operational and strategic functions make it harder than ever for consumers on the front lines to be agile.

With consumers having to adapt to the new “being at home” reality, it has impacted their buying process, mainly switching from in-store to online. We learned from our two industry panellists during our virtual retail event that they experienced significant sales growth through e-commerce, meaning customers are shifting online. We also learned that specific product categories, especially those deemed as essentials, experienced higher demand. Still, for the most part, consumers are buying less, which has resulted in brands having to rethink their marketing and distribution strategies.

As the pandemic evolves, brands will continue seeing consumers move from visiting physical locations to using digital channels. While in Part 1 we had explored the theme of demand for transparent value chains, during the pandemic this theme is shifting towards efficient and resilient value chains that enable customers to get what they need on time and at a good price.

How can brands adapt their supply chains to thrive during times of uncertainty?

During the retail event, we asked attendees how their investments in technology have changed throughout the pandemic to address some of the disruptions. The consensus was that most organizations have accelerated their digital transformations and investments in technology, including opportunities to optimize their supply chains.

Technology tools, like advanced analytics and the Internet of Things, are now critical to accurate forecasting. Companies that employ these tools can mitigate risk, deploy logistical assets more efficiently and tweak production based on real-time insights. Similarly, visual supply chain networks are allowing many retailers to track and distribute risk more quickly.

The ability to flex, while being resilient in the face of numerous challenges, is already helping companies succeed. One global e-commerce giant tackled supply chain constraints to meet soaring fruit orders by taking apart bulk fruit boxes originally intended as Lunar New Year gift sets and selling the produce individually to locked-down customers.

In another case, a multinational electronics contract manufacturer reconfigured its original plan to manufacture liquid crystal display panels to instead produce masks and ventilators.

Both examples show the power of agile organizations to not only expect the unexpected, but also to pivot quickly and efficiently.

The more siloes you have in your manufacturing, consumption, recycling, resale or disposal process, the harder it is to track updates and plan for the future. The pandemic has illuminated the need for end-to-end transparency – mainly as consumers take an increasing interest in knowing more about core issues, like sustainability efforts. Anything less puts companies at risk of unparalleled losses in inventory, counterfeiting in gray and black markets and a host of other threats that become even more dangerous in a time like this.

Adapting value chains by revising cost structures to attain price competitiveness and optimizing the supply chain network to maintain product accessibility will be vital to sustaining brand relevance.

How might brands respond today?

1.  Become customer-centric by placing humans at the centre.

With reduced touchpoints available through traditional channels like brick and mortar stores, establishing new approaches to engage consumers and convey the brand’s value proposition become of paramount importance. As organizations consider strategies to engage consumers, transparency is vital. Your customers need opportunities to learn more about what you’re offering (i.e., create the consumer experience of the offering before the purchase decision) to feel confident they’re making the right purchasing decisions.

Conclusion

There’s no question this has been an exceptionally challenging time for companies. However, the crisis is also presenting companies with significant opportunities to better understand their customers and get closer to their evolving needs in ways that cultivate brand equity and loyalty.

Canadian companies can unlock new results and help drive better, profitable consumer relationships for the long term if they consider the following themes:

• New consumer segments are emerging and continuously evolving: COVID-19 is disrupting consumer behaviours and preferences, influenced by concerns about health and finances and exacerbated by the lack of clarity about the future. Putting humans at the centre and leveraging data and analytics to learn about your customers and determine the best way to engage and meet their needs has become of paramount importance.
• Accelerating innovation through diversity and inclusion: Consumers are choosing brands that show empathy not only to their customers but also to their employees as they come together and innovate in response to the pandemic. Strengthening inclusivity through collaboration with different stakeholder groups is delivering a boost to innovation while earning customers’ trust.
• Purpose as an anchor for long-term value: Consumer values are shifting, favouring brands with authentic purpose, especially those adopting strategies focused on creating long-term, sustainable impact across stakeholders, including employees, consumers, suppliers, communities, government, investors and shareholders. Communicating the brand’s promise and values and aligning it to the business strategy can help build customer loyalty and earn the capital markets’ confidence.
• Value chains transforming to become more resilient: Consumers’ buying processes are changing, favouring brands that offer good value for money and support the local economy. Adapting value chains by revising cost structures to attain price competitiveness and optimizing the supply chain network to maintain product accessibility will be vital to sustaining brand relevance.