Insight Report: The changing landscape of the UK market
Over the past quarter, the mood has changed, and in the UK we seem to be intoxicated by the heady scent of recovery. But the truth is that very little has changed yet, either for the better or for the worse.
The priority now has to be to think through where consumers and businesses will be in 12 to 18 months time. The big hope for the economy has to be that consumer spending will prove to be resilient, and that businesses are still able to grow off the back of that resilience.
In the UK we find that consumers are changing and businesses will need to adapt with that change. Across all segments, the recession is forcing a rethink of spending patterns. Interestingly, it isn’t all about cheap. It is about value.
And value means more than ever it did before. It means green, it means great service, it means trusted by other consumers. And trusted by consumers doesn’t mean the company tells you that, it means other consumers do – and they do it directly. Potentially a seismic shift in consumer needs, there is a huge opportunity for market share gain.
So what can we see out there? Risks, to businesses – but a prize that nimble, adaptive companies can go after. Supporting those businesses, and winning that prize offers the potential to maintain consumer spending, the potential to bounce back.
The business landscape
What has surprised many commentators is that the downturn in the UK has been fairly broad-based across industry sectors. While initial forecasts had the recession concentrated in financial services and construction, the severe decline in output in the past six months has been far more widespread: the service sector, which has supported growth in recent years, has endured a marked period of contraction, led by distribution and business services.
The relatively broad-based nature of the downturn, together with an inherent flexibility and agility, may indeed explain why the smallest firms have proved themselves so resilient, with an insolvency rate below that of their larger counterparts.
Overall, conditions remain weak as the global recession depresses exports, while domestic demand is undermined by low levels of confidence, falling business investment and house prices and a weak labour market. Business investment in particular has been hit hard by the worsening of the global financial crisis in the wake of the Lehman Brothers’ collapse. While some commentators talk about green shoots appearing, trading conditions will remain extremely tough in the short term.
Businesses of all sizes will now be looking for the stabilisation in the business economy. Factors driving that recovery will include the renewal of lending to businesses and an increased export demand, buoyed by the weak pound. But this recovery curve will be restrained by weak export markets, particularly within the European Union, rising unemployment and a further rise in the savings rate, as households continue to worry about job security.
As a result, recovery is likely to be slower than during the last recession and without the booms in key sectors witnessed in the past. While start up activity will get a boost as confidence in the economy gradually increases, we will not see the same rapid expansion of the business services sector again.
Market participants in all sectors will have to grow accustomed to slower rates of growth as the boom years of the 1990s and 2000s become a distant memory.
On the whole, the business landscape itself is unlikely to look a great deal different. Survival of the fittest means that weaker firms will fall by the wayside, particularly in those sectors with an abundance of suppliers and organisations that aren’t able to differentiate themselves on the price, loyalty and service fronts (these marketing tenets will be significant in the business environment too…). The business base as a whole is likely to emerge stronger and more stable. Good news for those businesses ready and prepared to ride the recovery curve.
The consumer landscape
From previous recessions, it has become evident that consumer spending has improved at only a modest rate in the years following. This recession will be no different. UK consumers will start spending again, of course, and the hope has to be that businesses will be able to grow off the back of this spending. Retail, the sector which has remained surprisingly resilient during the downturn, will be a lead indicator for signs of recovery.
But across all consumer segments, the rules of the game have changed and in some cases there is no going back. From a culture of consumption we’ve moved to one of thrift; a make do and mend mindset that has become fashionable in itself. It’s a mindset that has galvanized consumers across all geodemographic segments and developed a momentum that is likely to continue even as the upturn comes. This thriftiness and drive for value doesn’t always mean looking for the cheapest option. Instead, it’s about maximizing, using an exacting set of selection criteria to make the best value for money and most rational choice on everything from mobile phones to washing machines to shampoo.
Consumption when it happens will see a shift from conspicuous to conscious consumption. Maximising, showing our green credentials and being particular with our brand loyalties are all part of a new concerned and considered consumption. In this new world, brands will need to focus on price, loyalty and most of all, service.
The price/value equation consumers are tuned into will require brands to work harder than ever to offer flexible payment and seek to lock consumers in with all inclusive packages at great prices. Alongside this will be a greater focus on loyalty card schemes and offering customers tangible rewards. Finally, in the post-recession world, exceptional customer service will be the making or breaking of a brand, and personal recommendations driven by successful interaction with your business, will be a key element of any brand’s success.
Charlotte Hogg
Managing Director
Experian UK and Ireland
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