Weathering the Storm of the Cost of Living Crisis

The retail, utilities and credit sectors are facing one of the greatest challenges of the past 40 years: As the economic situation worsens, a recession becomes more and more likely. Households feel the pressure and businesses need to adapt to survive. So, what can companies do to weather the storm and thrive during this new challenge?

The perfect storm

 

In a post-Covid world there were glimmers of growth, but as the world has opened back up, we’ve faced a new wave of challenges. As a result, the UK is seeing a dramatic reduction in spending. On June 24th, the Office of National Statistics (ONS) announced that the volume of goods sold in-store and online in May 2022 fell by 0.5%. 

With inflation at its highest level since the 1980s, we’re experiencing all-time lows in consumer confidence. As food and energy prices continue to rise, this trend is likely to continue throughout the summer. 

Some of the industries most affected by the crisis are retail, credit, and utility. Each industry faces unique challenges and in turn, will need to deliver a unique strategy in response.  

  • Retail businesses will need to be smarter at customer targeting and retention to ensure a healthy flow of new shoppers while preventing the loss of existing loyal customers.
  • Credit providers must address the increased need for credit along with an increased risk of defaults or fraud.
  • Utility companies must improve their processes for supporting vulnerable customers to adhere to regulations, along with a moral duty to support these households.

Data insights and the 2022 consumer

Consumers are adopting more defensive spending behaviours to ensure they have enough money to pay for the essentials. These tactics include self-imposed checkout limits at supermarkets, reducing expenditure on luxuries, or borrowing to fund everything from clothes to food.

The change in consumer behaviour creates a reduction in disposable income for businesses in the affected sectors. With a reduction in income comes a hit to companies’ bottom lines — threatening the survival of many of them. Small businesses are particularly at risk as they lack the cash flow necessary to recover from low-income periods. 

Each UK household is unique. For consumer-focused businesses, understanding each of these, whether they are an existing customer or not, will be key to success. By using data that provides detailed insight at an individual post box level, businesses can gain a true understanding of the UK consumer.

Leveraging customer data science and data modelling provides the ability to turn data into wisdom — which in turn, forms the bedrock for any business or marketing strategy through an understanding of the unique nature of each customer, and the unique issues they are facing. 

Adapt. Overcome

 

In the current environment, identifying which UK households are most likely to be affected by the cost of living crisis helps businesses adapt to the needs of their customers. By knowing the financial status of customers at a household level, businesses get a live snapshot of current behaviours. And through modelling that live snapshot, we can then predict customers’ future behaviours. 

All consumer-facing businesses can use this insight to understand:

  • Who are my customers, and how are they dealing with increased living costs?
  • What is important to my customers?
  • How do I ensure my marketing messaging is effective?
  • Who should I target, and what’s the best channel to use to do it?

But this data can also help overcome unique challenges within each sector. 

For Retail, this insight can identify which physical store locations might face the most amount of pressure from reduced takings. Those located in the most hard-hit locations are likely to see a reduction in foot traffic and profits. Using data science, retailers can implement strategies  ahead of time to address the issue, such as stocking cheaper products, creating targeted promotions or advertisements, or even reducing the number of physical stores. 

Credit agencies and lenders can use the data to pinpoint households that are more likely to default. This goes beyond the process of deciding on whether to extend credit or not at the point of sale. It can identify households that already have credit, but now have a propensity to default. To better support those that face financial hardship as well as to manage credit risk.  

The same is also the case for Utility providers. The current energy crisis has put an increased regulatory burden on providers. Our analysis has identified 5,055,359 vulnerable households out of the circa 30 million in the UK by modelling features beyond simple financial flags. Each one of those is considered a financially vulnerable household that they are obliged to actively provide additional support.

Data science at a household level can help consumer-facing businesses adapt and overcome the challenges that lay ahead. Through understanding where consumers are at this moment in time, and where they might be in  six months, we can identify behaviours and keep your business ahead of the curve.