McKinsey & Company: adapting to the consumer of tomorrow

FacebooktwitterredditpinterestlinkedinmailFacebooktwitterredditpinterestlinkedinmail

By Orsi Jojart, associate partner, McKinsey & Company

Jojart: investing in digital is key

E-commerce saw strong growth at the onset of the pandemic. Consumers quickly embraced digital behaviours, developed higher expectations around experience and weren’t afraid to try new brands. In doing so, they cast aside long-lasting relationships for convenience and value. The UK Consumer Sentiment reflected the uncertainty of the time, with 63 percent of consumers who purchased online in 2020 adjusting their purchasing behaviour to meet the demands of pandemic living.  

Consumers became instinctively more creative with their purchasing habits, focusing on price and availability. The cost was brand loyalty and sales growth for many. Digital transformation became the retaliation engine for growth. The brands that flourished, did so by investing in digital and building out their omni-channel capabilities.  

Goodbye brand loyalty

The 18 months of on-off lockdowns caused shoppers to revisit their buying habits. Almost three quarters of consumers tried new brands or new ways of shopping and consumers switched brands at incredible rates. Gen Z and high earners were the most prone to switching. This shift coupled with the rise in digital shopping created a perfect opportunity for retailers to benefit from.  The brands that were able to foresee how consumers’ behaviours had changed and the new ways in which they were shopping were those that got ahead. 

With brand loyalty up for grabs and a gold mine of information at their fingertips, retailers had a new-found opportunity to capture the wandering consumer. They began to invest in analytics and personalisation more heavily.  The more granular analytics, the better. It helped them understand customer wants and needs and determine when demand will surge, and where. Understanding, interpreting and acting on this data helped define how fast retailers could grow. 

The growth power couple

Retailers found that investment in “intangible assets” like R&D, digital transformation, and employee training strongly correlated with increased productivity and growth. Deeper research: Getting tangible about intangibles: the future of growth and productivity’ indicated that retailers who grew their business over the pandemic invested eight times more in IP, creativity, research, technology, software, and human capital than low growers. In some European countries, investment in intangibles rose to 29 percent in 2020. To do this effectively, Chief Digital and Chief Marketing Officers needed to work hand in hand with the CEO to embed their differentiated strategy in purpose – this requires boardroom cohesion. It’s a collaborative two-way process: they can weld the creative and analytical sides of the organisation to bring to life experiences that matter and cement loyalty with new and existing customers. This helps drive and sustain growth over the longer term.  

The growth triple play 

With the CMO working in partnership with the CEO as a growth driver, there are three key elements that these dream team’s typically focus on: Creativity, Analytics and Purpose – the Growth Triple Play. 

Companies that implemented this Growth Triple Play boosted their average growth by 2-3 times compared to those that didn’t. The growth triple play relies on creative marketing strategies fused with analytics and a driving purpose to elevate the status of a brand to achieve higher goals. 

 The creative aspect focuses on seeing gaps in the market and discovering new ways to cater to customer’s needs and wants. When combined with analytics, the power of creativity becomes laser-focused on developing data-driven strategies to deliver the best results. Finally, with the addition of purpose, marketers and decision-makers can determine what data matters to the brands’ higher vision and push forward in these areas.

Optimism for the future

Despite retailers facing challenges including skyrocketing shipping container prices, staffing pressures and supply shortages, they are starting to see growth above pre-pandemic levels, as shoppers return to stores in greater numbers.  People are starting to return to pre-pandemic lifestyles, with a high percentage of people looking forward to attending social events and increased spending in the months to come.  Gen Z has displayed an eagerness to get back to “normal” out-of-home activities. However, a lot hinges on government restrictions and the status of the virus, as some people (especially older generations) are wary of spending big until they see a clear path to normality.

Striking the right balance

Online spending continues to thrive as a channel. Its share remains eight percent above pre-pandemic levels, despite the re-opening of stores. This is due to both consumer preference and the fact that many retailers have improved their online economics and are now happy to support the channel’s growth. For those that have mastered their digital offering, their attention is now drawn back to in store. Whilst the role of the in-store shop has fundamentally changed, it has an important place in the digital world. How can the retail store be used to drive engagement with the brand, grow product knowledge, and make shopping a fun experience?  The retailers who get ahead will be those who hold on to their newly acquired digital consumers by improving digital experiences, investing in “phygital,” and putting consumer trust at the heart of all they do.