Frugal Shopping Habits During a Cost-of-Living Crisis

Passion Digital Passion Digital 22/06/2023 6 minutes

Frugal shopping is seeming to take centre stage given the effects of inflation and  today’s fragile global economic condition. Rituparna Chatterjee, from our Insight & Strategy team, takes a deep dive into these consumers who are being frugal and thrifty and cutting down spending on non-essentials, to understand their consumption dynamics and what this means for brands.   

Consumer Spending Outlook

Academic research reveals that during turbulent times, consumers look for “economic level-headedness, adopting and assuming new behaviours that allow them to accommodate the reduced income, which also translates into increased social responsibility”. Consumers aren’t only switching to cheaper options during tougher times but are also adopting new behaviours and strategies like frequent shopping, organised and planned behaviour, less stocking and less wasting, showing how crisis can push consumers to become socially aware and embark on a frugal journey. 

Let’s take the UK as an example. Rising prices are the leading concern amongst consumers (67%) which comes as no surprise – with the annual inflation rate reaching 11.1% in October 2022 and maintaining its double-digit position in the subsequent months. As a result, we can see an overwhelming majority of consumers planning to reduce their spending this year. According to a December 2022 KPMG survey on 3,000 UK consumers, a whopping 61% of the respondents said that they are planning to cut discretionary spending in 2023 whereas only a meagre 4% are hopeful about increasing their non-essential spending. To manage expenses, consumers are looking to make cutbacks wherever possible – with energy efficiency and reusing products being among their top five priorities. Apart from making cutbacks, consumers are also changing the way they shop by seeking more value-based and promotional/discounted products and services, switching to affordable retailers, buying more pre-owned items and using more credit while shopping.

Their frugal attitude also seems to be reflected in their search behaviour on Google. Over the past 12 months in the UK, there has been a rise in search interest for “cheap recipes”, “batch cooking” and “best credit card”. Search interest also rose in 2021 for “smart radiator” and “smart thermostat” showing that consumers are seeking energy-efficient technology to help them save money.  

The Frugal Consumer 

Let’s first identify and understand these frugal consumers. As per GWI’s recent research, there seems to be no correlation between frugality and income as frugal shoppers appear to be evenly spread throughout the different income segments with most of them sitting within the medium-income segment (34%). In terms of age, older consumers seem to be thriftier than their younger counterparts, which can be a result of their upbringing or the tendency to become thrifty with age. For instance, 31% of baby boomers considered themselves to be frugal, followed by 26% of Gen X, 21% of millennials and 20% of Gen Z. The comparatively lower percentage for millennials and Gen Z could be a result of their positive outlook towards their finances. For instance, a survey on US consumers by Goldman Sachs found that 77% of Gen Z and 54% of millennials expected their financial situation to improve this year. 

Frugal consumers appear to be money-savvy. GWI states that they are likely to research a product or service online before buying (71%), seek online reviews and expert opinions along the way (48%). This shows that they are value-conscious consumers seeking bang for their buck. They are also looking for discounts (68%) and loyalty programmes (49%) which means that they are likely to get drawn and stay loyal towards brands that offer these schemes. Frugal shoppers also seem to be socially aware by showing an inclination towards environmental (45%), socio-political (43%) and local issues (40%). Interestingly, they are creative, showing interest in DIY/home improvement projects (48%) and handicrafts (36%), which are also effective ways to save money.

What Are Frugal Consumers Seeking?

Now that we know who they are, the next question that arises is, what are they looking for this year?

Engaging experiences

As the world moves to post-pandemic normalcy, frugal shoppers seem to be eyeing experiences to make the most of their lost time. This is quite a dichotomy because while they are keen on reducing their discretionary spend, they also want to compensate for the time they have lost. As per GWI, concert and travel tickets, domestic and international holidays and experiences like day trips, day outs and spa treatments have witnessed the biggest growth among this consumer group since 2021. Even though this cohort is looking for experiences, they seek affordability and value. 

Let’s look at the travel sector. According to Skyscanner’s 2023 report, 41% of consumers are planning to have the same number of holidays this year as 2022 and one in three are even thinking of going on more trips this year. However, they also want to maximise their spend as one in three consumers shared that they will look to save on hotels whilst in-destination. 

Apart from price, value is the other factor that will drive decision making. Skyscanner’s data shows an increasing number of travellers paying for upgrades, evidenced by a 250% growth in seat selection (2022 vs 2019). Similarly, the numbers have doubled for those paying for checked baggage. 

Pre-owned clothing 

The pandemic brought about massive growth in the global resale market, with the apparel category leading the way and carving out a frugal fashion shopper. The growth was driven majorly by Gen Z and their increasing interest in the second-hand market. If we look at the UK, the pre-owned clothing market grew by 149% between 2016 and 2022 and is forecasted to rise by 67.5% from 2022 to 2026. Boston Consulting Group found that Gen Z were most likely to buy (31%) and sell (44%) second-hand items, with millennials close behind. Within apparel, childrenswear has been the fastest growing sub-category which is projected to increase by 493% in the next decade, showing that older generations are also getting into pre-loved clothing. eBay’s research into the top motivations behind UK adults buying second-hand were to “get a better deal or bargain” (32%), “cut back on spending” (31%), “rise of the cost of living” (31%) and to be “more sustainable” (26%). 

Affordable brands and retailers 

2022 was a challenging year for the retail industry. According to Signifyd data, retail sales were down 16.6% mid-2022 in the EU, after witnessing a 10.6% growth during the same period in 2021. This picture is not likely to improve this year with decreasing consumer spending and a shift towards low-cost brands and lower-priced stores, reports McKinsey & Company. Their European survey noticed that six in 10 consumers changed their groceries and essential brands within July-September 2022, among them 72% switched to low-cost or private label household products. 21% of the respondents also planned to switch to a different retailer in the next three months (October-December 2022) with 27% already doing so in the previous three months. A prominent reason behind this changed behaviour comes from their quest for better value when seeking brands and retailers.  

Varied payment options 

Payments are undergoing a dramatic transformation. Today, an increasing number of consumers are looking for different payment options for different purchases and are likely to get disappointed when their preferred method isn’t available. UK consumers seem to be gravitating towards Buy Now Pay Later (BNPL), which accounted for 8% of e-commerce spend in 2022, up from 6% in 2021. BNPL will continue to remain an attractive proposition for consumers with rising costs and the government’s recent regulation to strengthen BNPL. 

How Should Brands Target Frugal Shoppers?

Here comes the final and the most important part – what should brands do to appeal to this consumer base? Whilst there are multiple ways to engage this demographic, we have highlighted some of the most important factors that will help support their decision making and drive them further down the marketing funnel. 

Harness their thriftiness

Your frugal consumer is seeking affordable products and services with better value. Think about offering free samples or trials, offers or discounts to not only entice them, but to also build brand visibility if you are new in the market. 63% of frugal shoppers prefer shopping online, so ensure that they have the opportunity to grab a free sample during their checkout. For instance, beauty brand Elizabeth Arden is offering free delivery and free samples with all their online orders. Easyjet recently launched their affordable package holidays with flights, hotels, baggage and transfers all included. 

Lean into their loyalty 

While free trials or samples, offers and discounts do hook consumers in, rewards (58%) seem to motivate them the most to advocate for brands online. Loyalty schemes, for instance, are a great way for you to lean into their desire to save money and receive awards. In 2022, McDonald’s launched their loyalty scheme wherein customers can earn points on their spending and redeem them against free food.

Offer a diversified payment option

With the cost-of-living crisis and rising online shopping habits, consumers are increasingly looking at short-term financing options like BNPL, which allows them to finance their purchase(s), interest-free, over a fixed period. Case in point, the Frasers Group who recently announced the launch of their own BNPL service called Frasers Plus, that would allow customers of all Frasers brands to defer their payment on purchases up to £2,000. 

While it may take time for the global economy to recover, brands in the meantime need to keep a track on how consumers’ frugal behaviours are playing out to understand and cater to this demographic better. 

As discretionary spending is set to decrease, you are probably wondering how to pivot your marketing strategy to appeal to these cost-conscious and value-focused consumers. If so, then get in touch with us today.