The Influence of Inflation on Consumer Spending Trends for 2023

Inflation has become a central theme in the analysis and understanding of shopping behavior in 2023.

The Influence Of Inflation On Consumer Spending Trends For 2023

Inflation has become a central theme in the analysis and understanding of shopping behavior in 2023. American consumers are bracing for the impact of inflation, expecting to feel its financial effects for an average of 1.64 years, or approximately one year and eight months. Retail brands should expect to work harder than ever to communicate with today’s shoppers. In a market where options are limitless but consumers are aware that the value of their dollar is finite, brands need to justify why consumers should choose them.

The 5W Public Relations (5WPR) agency, a leading consumer PR firm and award-winning digital agency, has recently released its Fourth Annual 2023 Consumer Culture Report. This report provides an in-depth analysis of upcoming trends and insights for the year ahead, offering valuable information to businesses looking to understand the evolving consumer landscape.

The report, conducted by Censuswide, an independent market research consultancy, surveyed a nationally representative sample of 2,000 US consumers between November 21st and 24th, 2022. The data collected offers a comprehensive view of consumer behavior, including spending habits across different age groups and the impact of Buy Now Pay Later (BNPL) schemes.

One of the key findings from the report is the influence of inflation on consumer behavior. Despite the ongoing discussions around rising prices, the report reveals that consumers continue to demonstrate a willingness to spend. Interestingly, the report also found that inflation is not the predominant factor driving consumer decision-making.

The Influence Of Inflation On Consumer Spending Trends For 2023
2023 Consumer Culture Report, Categories consumers are most likely to splurge on

Notably, all age brackets, except for those aged 35 to 44, ranked health and wellness among their top three categories for splurging. This finding raises questions about whether this particular age group is less interested in health and wellness or if brands are failing to effectively target or market to them.

On the other hand, the report found that dining out was a top-three splurge-worthy category only for individuals aged 25 to 34. This was the sole experience-based category to make it into the top three, suggesting that while this demographic continues to prioritize and spend on experiences, other age groups might need more motivation or tailored messaging to indulge in such activities.

The Influence Of Inflation On Consumer Spending Trends For 2023
2023 Consumer Culture Report, Ways consumers feel retailers can help them save

Today, shoppers are not only scrutinizing product prices but also the overall shopping experience. They are making or altering their decisions at every stage of the checkout process. For instance, regarding shipping fees, 30% of consumers believe that no same-day shipping fee is justifiable, while another 40% think that same-day shipping should cost up to $10 only.

The average amount consumers are willing to spend on shipping has decreased to $6.64 in 2023 from $6.78 in 2022, indicating a growing aversion towards shipping fees. From a retail perspective, the report highlights the need for retailers to innovate and provide creative solutions to help consumers save without compromising on the overall shopping experience. This could include providing loyalty rewards, waived shipping fees and value-based alternatives, among other options.

In the current market, retailers must cater to the demands of savvy shoppers who expect their favorite brands to shoulder most of the burden. This could involve reducing costs or removing the commitment from purchasing decisions through free returns or try-before-you-buy programs.

The Influence Of Inflation On Consumer Spending Trends For 2023
2023 Consumer Culture Report, A Look At Today’s Selective Shoppers

While electronics and technology have been the top splurge category for three consecutive years, it was not the top category in which consumers spent their money. Younger consumers, aged 16 to 24, spent more on clothing and fashion (46%) last year than any other category, indicating a shift in spending habits among this demographic.

The Influence Of Inflation On Consumer Spending Trends For 2023
2023 Consumer Culture Report, Comparing how consumers spent disposable income in the past two years

Contrary to the trend of the past three years, electronics and technology did not emerge as the top category for consumer expenditure. Instead, the report highlighted a shift in spending patterns, particularly among the youngest consumers, aged 16 to 24. This demographic demonstrated a significant inclination towards the clothing and fashion industry, with 46% of their annual expenditure directed towards this sector.

This made them the only age group to rank clothing and fashion as their top spending category. Furthermore, they exhibited a substantial interest in beauty and personal care products, allocating 30% of their disposable income to this industry. Interestingly, this surpassed their spending on electronics and technology.

The Influence Of Inflation On Consumer Spending Trends For 2023
2023 Consumer Culture Report, Areas where disposable income is most likely to be spent in 2023

The data shows that the proportion of consumers planning to spend on these items has risen from 27% to 29% over the past year, equating it with dining out and surpassing travel and experiences. This is a significant change from the previous year when dining out and travel & experiences were the top two categories where consumers expected to spend most of their disposable income. In 2023, clothing and fashion have also emerged as one of the top three splurge categories for two different age groups of consumers.

This suggests that consumers may be more inclined to invest in high-quality, durable items rather than transient goods such as meals or one-off events. However, the report also highlights notable differences in spending intentions across different age groups. Consumers aged between 45 and 54 indicated a preference for spending a larger share of their disposable income on travel experiences and dining out. On the other hand, those aged 55 and above showed a greater interest in dining out above all else.

Final Thoughts

The 5W Consumer Culture Report provides a comprehensive analysis of consumer behavior, particularly focusing on the factors that influence consumers to splurge on products. There is a noticeable 10% difference between the younger group (34 and under) who can identify a specific channel that influences their spending and the older group (35 and over) who claim no such channel exists. This disparity may be attributed to generational differences, with younger consumers being more aware of targeted advertising due to their upbringing in the digital era.

Among the consumers who identified influential channels, the top three were primarily top-of-funnel tactics, albeit with some generational variations. Paid ads on social media feeds were the second most influential factor, especially among younger consumers, with one in four shoppers under 34 admitting to being swayed by these posts.

For brand marketers, it’s encouraging to note that both ‘paid ads on social’ and ‘an influencer’s post on Instagram or TikTok’ were influential in convincing consumers under 44 to splurge. These categories received almost equal responses from consumers within these age groups. This insight, coupled with the platform’s influence on splurging, underscores the immense impact of social media on the purchasing power of younger generations. Whether through paid ads or influencer posts, these consumers are increasingly shopping from their social feeds.

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