How Consumers React to Uncertainty

What psychology and consumer research tells us about how people cope with negativity and uncertainty around them

Layoffs, furloughs, closures, sickness…these days negative news seems to be all around us. As we struggle with the COVID-19 lock-down, the future looks all but certain. No one is quite sure what that future will be like when we walk out of the current crisis. How does all this uncertainty and negativity affect the consumer psyche? How are behaviors different? One of our researchers, Leila Khoshghadam, dived deep into the psychology and consumer behavior literatures to look for answers. Here is what she found.

Five Reactions to Negativity and Uncertainty

1. Consumers seek more Information.

When all is well, people tend to simplify their decision making and rely on easy habits and routines for their everyday decisions. But when the environment is filled with negativity and uncertainty, it shakes people out of their comfort zone and forces them to make more informed choices. People want more information and are more likely to search for and process information before buying. Seeking information helps them make sense of an uncertain situation.

2. Consumers become more trusting and more vulnerable to persuasion.

Even though people want to be fully informed, information search during an uncertain time is often biased. People tend to take shortcuts and rely on information that is more readily available, e.g., commercial information. They are also more vulnerable to efforts at persuading them. This inclination to trust, sometimes blindly, has at least two explanations. First, an optimism bias (i.e., belief that the world is benevolent and that everything will be OK) simplifies the complex situation and helps people cope. Second, at times of negativity and uncertainty, people are usually so busy monitoring the environment that their mental resources become depleted very quickly. This lowers their ability for self-control and focus them more on short-term gain, often at the cost of long-term loss.

3. Consumers are more likely to switch brands

In an economically uncertain environment, consumers are more likely to switch brands. The feeling of being economically stuck often drives people to seek variety or engage in other types of self-change as a way of regaining some personal control over the situation. This is a prime time for disruption in habit and loyalty, and people will be more likely to make impulsive choices. Already, we are seeing consumers switching brands more when buying groceries in this pandemic environment, according to iBotta’s CPG Purchase Insights. According to the report, brand switching is up an average of 27% across all categories in March 2020.

4. Consumers become more value-conscious.

If consumers are more likely to switch brands, which brands do they switch from and which do they switch to? The predominant tendency is to switch from bigger, more expensive brands to smaller value brands. It is not surprising, as a period of economic instability and job uncertainty drives consumers to make more shrewd choices and conserve financial resources. The same CPG Purchase Insights report shows that private label purchases are up 47%, and coupon usage has jumped as well.

5. Consumers are sensitive to regrets and missed opportunities.

Somewhat opposite to the above tendency to become more frugal and value-oriented is an opposite pull from not wanting to miss good opportunities. When the feeling of uncertainty is high, it makes people more sensitive to not only what they get but also to what they might have gotten if they had decided differently. They become more reluctant to let go of good opportunities for fear of feeling regretful later. This reluctance can make consumers buy more impulsively.

Takeaways for Businesses

What do all these consumer reactions mean for businesses? Here are a couple of takeaways.

Try not to cut back on advertising if you are a smaller brand

With the economic uncertainty, your business’s first instinct may be to cut back on advertising in order to save money. Think twice. Your advertising messages are a ready source of information for potential customers, at a time when they are particularly receptive to such information. Further empirical research by Leila shows that sales become more responsive to advertising for small brands in a negative and uncertain environment. Put differently, smaller brands will be getting more bang for their buck by advertising during this time. (The findings for bigger brands are a bit more complex. We will devote a future post to discussing this further.)

Protect customer loyalty fiercely

Big mainstream brands are in danger of losing customers during this time because of consumers’ tendency to look for something different. Although offering discounts may be helpful, ultimately discounts are not what keep a customer. Instead, be empathetic, connect with customers in more meaningful ways like what USAA, Nike and others are doing, and most importantly show your appreciation of your customers. Deep engagement with your customers are more important now than ever.

Offer a sense of control

In a chaotic and unpredictable environment, most people are eager to restore a sense of control over their life. Sometimes even being able to decide the little things can ease the feelings of disorganization, anxiety, and uncertainty. Offer your customers choices, let them customize their own experience, and involve them in your business decisions if it is feasible. At the same time, step back from controlling actions of your own, such as strict policies or rules and intrusive one-sided “creepy” recommendations.

Be ready to rebuild customer habit

If your business relies on strong customer habit, be prepared for significant disruption in that. Habit tends to work on auto-drive. The changing circumstances of everyday life in the current environment are very likely to break existing habits. We may not have enough stability at the moment to build new habits yet. But it is possible to turn habit into loyalty. Also be prepared now for rebuilding habit later. Think through the process, especially in terms of designing the contextual cues to associate with the habitual behaviors you want to build.

About Loyalty Science Lab

Loyalty Science Lab is a loyalty think tank housed in the Strome College of Business at Old Dominion University. The Lab’s mission is to create and promote cutting-edge scientific research on brand and customer loyalty. Through collaborative efforts between marketing practitioners and academic researchers from multiple disciplines and multiple industries, the Loyalty Science Lab identifies high-priority loyalty-related issues, engages in deep, evidence-based scientific research on these issues, and disseminates the insight to benefit loyalty research and practice. Follow us on LinkedIn through the Loyalty Science Lab page to stay informed about important loyalty research insights.