Consumption is essential for businesses and economies. When consumers spend, the economy grows. When they don’t spend, it shrinks. But even when there’s an economic recession, we invariably find a way to spend ourselves back to growth. The levers used to generate growth in any economy are almost always based on encouraging people to buy more stuff through cheaper debt and increased wages. New product launches, seasonal fashion, increasing portion sizes and an endless aisle of choice have collectively supported growth in consumer spending.
But there are now signs of fatigue. Consumers have learned to live with less. Many have come to adopt simpler and less consumerist values. Where people were once posting their latest buys on social media, they are now posting pictures of healthy meals or home-made products. Businesses will need to find a way to adapt.
EY’s Future Consumer Index reports that 54% of consumers have seen changes in their values and the way that they look at life. Technology platforms and new business models are enabling this with a growing number of reselling, rental, and repair services allowing consumers to moderate their consumption without compromising their lifestyles.
As part of its exploration of future consumer needs, EY has identified over 200 “drivers of change” that will collectively reshape the consumer landscape. Many of these drivers cite an increase in asset-light lifestyles, which will have inevitable implications for business:
The growth story of consumption is something that governments and companies have come to rely on as a foundational building block of the global economy and society. It’s become an accepted principle that progress is measured through growth and growth is driven by consumption. Companies are measured by how much they can grow revenues and margins; national economies are measured by how much they can grow GDP. Consumer spending is essential to both.
But, when owning more things no longer appeals to consumers, companies will pivot to compete for a share of their wallet in new ways. Brands will reconsider their value proposition, strategies, and business models to rethink how they serve consumers who want fewer products but more experiences, advice, rewards, and convenience.
The fundamentals of what good growth looks like will shift too, accelerated by other drivers of change. For example, the scarcity of some resources and a growing abundance of others will shift value creation away from physical to virtual economies. Non-financial priorities will push impact on time, people, and the planet up the agenda at the expense of hard currency. Shrinking population growth will undermine the demographic dividend that has supported economic progress for centuries while automation could reduce working hours and create an imperative for new welfare measures, which also blur the boundaries between corporations and policymakers.
The license to operate that a company enjoys could depend as much on its ability to generate positive social and environmental outcomes as its ability to generate profit, and growth. Products won’t just be measured on how much and how many are sold, but what services they can enable, what impact they have and what values or communities they can support.
Consumer product companies may find that success hinges as much on their ability to improve consumer health or address systemic environmental issues, as it does on their ability to sell products to people. Retailers may be valued as much for their role in the community, their contributions to employee wellbeing, or the insights and data they share back to brands as they are for the revenue they generate.
Meeting consumer expectations will drive a shift toward service-based models that span different categories and sectors, enabling consumers to share in value creation through peer to peer selling and brand collaboration. These will be underpinned by a new corporate purpose that meets expectations on wellbeing and impact by assessing the true cost and benefits generated beyond those measured in dollars and cents.
As digital connectivity increases the awareness and influence of stakeholders, new definitions of success will challenge the prioritization of growth or margin.Kristina Rogers, EY global consumer leader
All of these factors point to one business driver that will rule them all — long-term value. Intangible assets are becoming more visible as drivers of value, with social and environmental KPIs joining financial metrics.
These changes are weakening the links between consumption, growth, and success. Today, growth and margin are indicative factors of how well a consumer company has delivered to the needs of the market. Tomorrow, companies will be directly accountable for how they deliver to the needs of people and the planet. How we define economic and business success and what we think good looks like is open for reinvention.
Find out more about what’s driving change for consumers.
This article’s content was created by EY.