MARKET MATTERS

MARKET MATTERS - LEAH CIOCCIO

MARCH 30, 2023

Meaningful market analysis is about people - what they are thinking and feeling, not just doing.

The beginning of 2023 has been filled to the brim with market updates, economic forecasts, and jargon-laden trend predictions. There is no shortage of information about what might be or what was and as I try to brush up on my worldly wisdom, I zig and zag between what information sources pique my interest and what holds my attention (sadly, the rigorous economic reports make my eyes a little glassy as opposed to giddy). I know that the benefit of reading and listening to a wide range of sources/voices/authors is that you eventually begin to see common threads in the commentary – and they become a shortcut to what you really need to know. I’m going to share one thread that has piqued and held my attention - but I also highly recommend at least scanning the reference material that hits your inbox before filing it away for that rainy day.

Markets are more than economics.
Meaningful market analysis is about people - what they are thinking and feeling, not just doing.

Recently, Professor Scott Galloway from NYU wrote that “the economy is a function of psychology (and markets)”. This statement was used to describe the drivers of inflation and the course to disinflation. The lynchpin in his writings is that emotion is a powerful force in the economy – while governments might hold the throttle to an economy via cash rates, people have the power of choice to spend and speculate, both of which are dictated by how they feel.

In reading multiple 2023 reports, forecasts and news articles, I’ve learnt that looking beyond the headlined economic data point is important.

Take consumer confidence, for example. Right now, consumer confidence is wavering.

ANZ reports on consumer confidence levels every month. In February, the announcement of the plummeting rating was combined with the news of a decade-high interest rate rise by the RBA. Consumer confidence is at its lowest since April 2020 at only 78.1 (well below the long-term average of 111.7). The pairing of these two factors suggests to the average reader that consumer confidence is directly linked to the purse strings of Australians.

When you consider other economic-related headlines that centre on metrics like the increased cost of living (energy prices are expected to increase by 20% this financial year and an additional 30% next financial year[1]), the decline in home values (-7.2% in the last 12 months[2]) along with decreasing household discretionary income (the interest payment burden went up by 24% in the September 22 quarter[3]), you can see why Australians would be feeling less optimistic about their prospects in the land of opportunity at this moment in time.

However, digging a little deeper into the economic analysis (perhaps my eyes didn’t glass over so much after all),

Australians largely feel secure in their financial situation - mainly because they feel safe in their jobs (unemployment is at a 50-year low[4]).

Further, business confidence is faring well (currently in line with the long term average[5]), and population growth has bounced back to pre-covid levels, so while the cost of living pressures are real (inflation is still expected to be nearly 5% by the end of 2023), there must be more behind the sense of doom and gloom that can be associated with declining consumer confidence.

At this point, I took my glance a little wider into the sphere of social research. While economists have been tracking fiscal metrics, social researchers have been tracking the mood of Australians.

Multiple data sources show that optimism is in decline. A 2022 report by Oracle indicated that 48 per cent of Australians have not felt genuine happiness for more than two years, and up to 1 in 3 say that they have forgotten what it means to feel truly happy, the second highest in the world after the UK (35 per cent)[6].

The same 2022 report found that 80 per cent of Australians attempted to find happiness in online shopping during the pandemic, and almost half of all Australians said that receiving packages made them happy.

As we disconnected from our communities, we connected to a new form of happy hit – instant gratification, courtesy of the add-to-cart, same-day-delivery, or click-and-collect advancements in e-commerce.

In the tough times of the recent past, spending has been our saviour, even if it has only been superficial. And we could spend almost thoughtlessly because disposable income was high, and money was cheap.

However, access to ‘low cost’ money has been severely stifled with the RBA lifting interest rates more aggressively in the past 12 months than in 30 years prior[7] and in perfect unison, intention to spend has already begun to decline. Takeaway meals and eating out, spending on clothing and accessories, and purchasing electrical products are the areas that Australians plan to cut back on[8].

The willingness to cut back on the same material possessions and conveniences that brought Australians instant happiness during the past two years seems paradoxical, if not deflationary (for mood and mindset).

McCrindle Research has shed some light on this reality by suggesting we are entering a ‘recessionette’, where even though there is not a technical recession, from a consumer perspective, it already feels like one[9].

Given that a combination of economic and social research confirms that it is human nature to retreat (or cut back) when pressure exists (perceived or real), it is important to consider how a business might find prosperity in this time ahead.

Getting down to business
In the context of market growth, extensive evidence highlights the importance of advertising during tough times. Advertising is an engine for business, and if it is turned off, the business will stop moving – or growing.

Given the conundrum of how Australians are feeling right now and their intention to cut back on consumable goods and services, brands need to be cautious in how they approach advertising.

Price based promotions might work in the short term but they can have long-lasting effects on the price elasticity of your brand. Another paradox is that customer transactions are only one of the metrics to focus on during recession-like periods. For brands with longer purchase cycles, it is possible to ride the wave without seeing significant dips in transactions, however, it will be necessary to prime audiences and position your brand so that it is the preferred option when that purchase cycle re-ignites.

The market in which we ‘do business’ is legitimately tough right now, but by taking the time to understand why, a brand can survive and thrive. The why is partially in the macro conditions, partially in the health of individual markets, partially in the ‘invisible hand’ of governments, but it’s also very much in how Australian’s feel. So, as marketers reach for their ‘marketing-during-a-recession’ playbook, consider not only the importance of holding your investment in advertising, but what that investment can do to help the mood of the nation, or at least the segment of the market that you are trying to connect with.

[1] ‘Australia in 2023’, Charlie Nelson, December 2022
[2] ‘Monthly housing chart pack’, Core Logic, February 2023
[3] ‘The exploding cost of living and interest rates’, Charlie Nelson, February 2023
[4] ‘Australia in 2023- update’, Charlie Nelson, January 2023
[5] NAB Monthly Business Survey, January 2023
[6] Oracle CX Happiness Research Study, Global Report 2022 (AU 1,212)
[7] Reserve Bank of Australia cash rate target, 1990-2022
[8] ‘Australia in 2023’, Charlie Nelson, December 2022
[9] ‘Top trends of 2023’, McCrindle Research, February 2023

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