With the increased prices on energy, food and mortgages/rent, we are all focused on value and getting the most from what we can afford. For all income groups, making ends meet and reducing outgoings will remain priorities this year.
All income level households are suffering with finances
Energy bills are due to rise to £3,000 from April. Taxes will increase as the personal allowance will be frozen at £12,570. The 40p rate will be held at £50,270. Due to interest rates increasing, three million borrowers will be forced to pay more. Alongside that, the average house price is expected to fall from 4% up to dangerous double digits.
2023 marks us being only halfway into a two-year challenge that will leave the average working family £2,100 worse off. When combined with a weak recovery expected from 2024 onwards, this would leave typical household incomes below pre-pandemic levels. This is expected to last until 2027-28.
A Citizens Advice poll revealed that 37% of adults would find it “difficult” or “impossible to cope” with just a £20 increase in their monthly outgoings. 23% of adults said they could not afford to replace or repair big electrical items, such as a fridge or a washing machine. This was just 8% when the question was asked before the pandemic, showing a hugely unprecedented increase.
The implications are clear
Brands can expect customers to increasingly discard loyalty in their search for better value. Experience designers will have to accept that price are going to remain critical purchasing decisions.
For instance, the number of people intending to downsize their homes has jumped by more than a third in the past year,according to estate agency Knight Frank. This decision to scale down is being made at an ever-younger age based on the combined impact of the pandemic.
As ever, families on the lowest end of the income scale have fewer financial options in how they can respond. But for some, the choices have been even starker. StepChange reported more people have been using candles or not putting the cooker on as they are “scared of the bills”. Some people are turning to charities such as StepChange and Citizens Advice for help with their finances for the first time.
How can good CX help?
Organisations need to model the relative size of these customer segments and plan accordingly. Tactics can include:
- Redesigning value propositions and becoming more proactive in terms of competitor benchmarking. This will help to reduce the risk of customer churn
- Ensuring that you have the best possible data
- Ensuring that your team is well-informed about the needs of the most vulnerable customers, so they can design human-centric solutions
- Recognising that your colleagues need as much support as your customers
Looking ahead with guarded optimism
How should we expect these consumer challenges to evolve over the next six months? Will the national mood change for the better or worse? Despite challenging times ahead, organisations can still maintain a positive growth mindset.
52% of UK businesses expect to generate higher revenues in 2023. Nine out of ten said that they are planning investment drives to bolster growth. The inflation of annual consumer prices is forecast to decline from 11.1% in October 2022 to between 3.5% – 5% by December 2023. This is a 41-year record. This is the majority view of 40 economists surveyed annually by The Times.
According to the Resolution Foundation, real incomes among the poorest households will fall by 4% compared with 9% for richer households over the next two years. This comes with the government’s decision to raise the energy cap to £3,000, and end the £400 universal energy subsidy in April.
The benefits will be gradual with more upfront pain before the cost of living starts to ease. More than half of the surveyed economists thought interest rates would need to rise further to curb inflation. Consumers with mortgages will feel it; as will businesses looking to invest in growth.
It will also take time to rebuild disposable income levels and consumer confidence that things are improving. Widespread good news looks more like a possible narrative for the second half of the year.
The overall story of customer behaviour during the first half of 2023 will continue until inflation declines and interest rates follow suit. Customer experience management has a new set of priorities as a result.