By Dominic Shales, MD, Lexis
What a rollercoaster 2016 has been. So much has already been written about the unexpected turmoil caused by the seismic events that I’m not going to reflect back, but try to look forward into 2017 and 2018. How will people in the UK be affected? How will they react? How should brands and companies respond?
In my mind, we are entering the ‘Definitely Maybe’ years: We know that things will Definitely not be the same, but we can’t predict (or plan) except against a host of Maybes – we simply don’t know what will actually happen.
That uncertainty – caused by a whole host of factors such as the Brexit vote, the election of Trump, the resulting economic landscape or even just a sense of malaise – is already infusing life for most people in the UK. And this particularly true for the JAMs (Just About Managings). But it’s having an effect across the whole of society.
Setting aside the political ‘stuff’ let’s look at the economy and the predictions for 2017.
UK GDP growth is forecast to be around 1% – 1.5% for 2017 by leading economists (although there are differences of opinion about this, interestingly to some extent across partisan lines of Leave / Remain!). This is still higher than the forecasts for mainland Europe, but below the pre-Brexit vote trajectory.
At the same time, it is commonly agreed that inflation is set to increase. PWC forecasts 2.7%, others somewhat higher, with the highest from doom-mongers suggesting it could reach 5%.
The EY Item Club (even before Brexit vote) predicted a perfect storm that will affect the ‘squeezed middle’ most. They suggest spending growth will fall from 2.9% in 2016 to 2% in 2017. Martin Beck, senior economic adviser to the EY Item Club, said: “From 2017, a number of factors ranging from a pick-up in inflation to cuts in welfare will create a ‘perfect storm’ which will hit household income growth hard.” Mr Beck said the “triple lock” on state pensions, which guarantees that they rise by at least 2.5pc a year, and the introduction of the national living wage would cushion the impact. “Low earners and older people will be spared from some of the drag, but the rest of the population will see growth in spending power slow sharply from the rates enjoyed recently,” he said.
On the other side of the coin, ongoing low interest rates will continue to benefit spenders! In particular, home owners with mortgages will continue to have historic low repayments, leaving them with more monthly disposable income.
How does this all affect the British consumer psyche?
Against this backdrop, people will obviously react in different ways.
For some, big life decisions may be rushed through with a sense of ‘screw it, I’ll do it’ or (as history suggests from the 1920s and 30s) they may become more pleasure-seeking and carefree.
For others, it may result in putting big decisions on ice, hunkering down and being more sensible and frugal.
A recent Psychology Society report into the impact of the Brexit vote on Brits says: “One thing has become only too horrifically clear, that we are living in a divided nation. The gaps (or should that be the chasms) that exist between us are now crystal clear and they lie on the fault lines of wealth, of race, left- or right-leaning politics, and of geography, and many are scared that it will be evident on almost any aspect of difference.”
We’re basically all swimming around, searching for buoys to hang onto until the choppy seas subside.
And, looking into summer 2017, there’s nothing special taking place that can take our minds off life or transport us away from the mundane. No Olympics, no World Cup, no Jubilee to bring the nation together again. This is an opportunity for brands to jump onto!
What are some more tangible predictions as to how people will change their spending patterns?
In a survey carried out in October, PwC found that, despite the volatile state of sterling, maintaining spending on next year’s main holiday remains a priority for British consumers over the next 12 months. Of those surveyed 35% said that their main holiday would be a spending priority over the next year, after grocery shopping which 45% of respondents saw as more important. Some 22% of consumers highlighted their main holiday as a possible spending cut, with eating out (39%), going out (34%) and clothes, shoes and accessories (28%) remaining as the top three likely savings, should consumer finances tighten.
And a separate Barclaycard survey in October said 81% of shoppers expected to see an impact on the cost of everyday goods from changes in inflation over the next 12 months. Reflecting a more general trend for consumers to favour experiences over things, spending at pubs and restaurants was also up strongly, by 12.5% and 12.2%, respectively. Cinema spending also rose a record 20.9% on a year earlier.
Will there be an impact on the requirement for businesses to ‘do good’?
Not much has been written about the future of ‘ethics’ going into 2017. However, it is probably fair to assume that the relative importance of ethics vs price may be diminished slightly, as it was in 2008/9 following the financial crash.
That being said, the millennial / Gen Z consumer has grown up with a deeply ingrained requirement for ethical behaviours, that is unlikely to be shifted. They want that combination of value and quality AND high ethical standards.
So, I think it is safe to say that ‘doing good’ is truly here to stay as a requirement for all businesses.
How will this context affect brand and corporate communications?
I feel there is a huge opportunity for brands and companies to forge positive reputations with consumers in these uncertain times.
Winning brands will be setting themselves the task of becoming true consumer champions. This could be manifested in any number of ways. Tangibly this could include offering best prices, increasing rewards, launching new products that cater even better to consumer needs, investing in service excellence or committing to continue balancing profit and principles (even when under pressure financially). And these winning brands will also be setting out to show their champion credentials through communications and marketing activities that set a tone of possibility and optimism while demonstrating that they are firmly on the consumer’s side in everything they do.
At Lexis we will be advising our clients to embrace the Definitely Maybe years. They have the potential to be transformative in a very positive way!