I am guessing that like most Australians you are being bombarded with news that we are in a cost-of-living crisis, and every piece of research seems to confirm that this is true. Without any doubt, there are some people reining in their spend, focusing on the essentials, choosing to cancel overseas holidays and may be on the verge of cocooning in the wait of a looming recession.
Yet this truth is only true for a portion of Australians. The truth for many is one of perception over reality. Instead, of a cost-of-living crisis, I suggest that we are witnessing the creation of a distinct two-tier economy, of those whose lives are restricted, versus others whose lives go on as normal – dare I say a pre COVID normal!
When it comes to analysing the data, the signals are mixed. On one side we have the recent CommBank IQ Cost of Living Report (May 23) that highlighted the growth of discretionary spend in 2022, despite the significant increase in interest rates. And, even though discretionary spend has tapered off in the first quarter of 2023, it remains positive. On the other side, the amount Australians are spending on essential items is barely growing in line with inflation. The data seems counter intuitive, until you realise that inequality is in full effect.
That inequality continues when reading NABs Wellbeing Survey (Q2, 2023) that identified cost of living as the number one negative impact on wellbeing. Yet, and importantly, standard of living remained the fifth largest impact on positive wellbeing. If your standard of living is not compromised by cost of living, then is cost of living really an issue?
Interestingly, Pets, Family, Home, and Personal safety ranked higher for creating positive impact on your wellbeing. If we put that in a bucket, then family groups, with a home and a pet are maintaining their quality of living despite an increase in cost of living. I am lucky enough to tick those boxes, and as a sample of one, we are not in a crisis, although we have become even more price conscious.
However, we are constantly told that we are in cost-of-living crisis, so we must be in one, or is this a strange self-fulfilling prophecy?
Staying with the subject of home, and I do not wish to underplay this, mortgage stress is very real for a third of mortgage holders (Australian Bureau of Statistics - ABS), yet two thirds of mortgage holders are either ok or unaffected. At this point, it is worth noting that many Aussies (47% of Eastern Seaboard owners S2,2023 Nielsen) do not even have a mortgage and are “basically immune” to the effects of rising interest rates!
In fact, the ABS reports that typically a quarter of residential properties sold each year across the Eastern states were bought with cash, by older Australians making a sea or tree change.
And what are these older cashed up Australians doing? They are buying expensive Electric Vehicles EVs that typically cost between $60,000 to $100,000. Across Jan-Jun 2023, a staggering 43,092 EVs were delivered to delighted customers. That equates to 8.8% of all vehicles delivered for the same period, compared to only 1.8% a year ago. Yet more proof of an ‘inequality crisis’.
Still, the worst example of this growing ‘inequality crisis’ is being created by some noticeably big companies whose prices have risen above inflation, leading to some very strong (possibly obscene) profits.
We can debate their business smarts, or their ability to make some shrewd operational decisions, yet the price increases become questionable considering such disparity.
It was not that long that ago that we had a huge fuel surplus as the world ground to a halt thanks to COVID. Yet since the world got moving, average fuel prices for 91 RON increased 40% in the space of 12 months to $1.82 in June 2023 compared to June 2022. Today, those prices have crept to well over $2 per litre. Is this simply inflation or opportunistic profit?
And, if you are renting, well you have been hit by a third whammy according to Domain’s rental report. Metro rents went up by 16% for houses and 33% for units in just 18 months Dec 21- Jun23.
Who is feeling the inequality of life?
If your customers are any one or combination of the following – renters, mortgage owners with a low income, under 35s, or low to no income earners – then they are feeling those inequality pressures. They make up a percentage of many brands’ customers and, in this inequality crisis, they may be questioning whether your brand adds real value and meaning to their lives.
What does this mean for marketeers?
If your planning cycle is once every 12 months, I recommend you speed up the cycle to account for these changes. Brands need to be able to adapt to the world they live in today, not tomorrow, so if the audience is experiencing real inequality, you need to think about whether the value you bring aligns to the meaning they place on your brand.
The experience economy (the sale of memorable experiences to consumers) continues, so brands that have real meaning (and I do not mean purpose – that is something vastly different) have an opportunity to cement their customer relationship. Although, as my colleague in a previous blog pointed out, you may choose to find your favourite brands in unfamiliar places if it will save you a dollar.
At the end of the day, only time will tell if consumers vote with their feet when it comes to brands that appear to prioritise profit over people.