Nielsen reports on consumer confidence in the United Arab Emirates shows a marginal decrease from 111 index points in the Q3’18 to 110 index points in the Q4’19 showing stagnancy in consumer sentiment. It also shows the impact of VAT, introduced in 2018 at 5 percent, is being absorbed by UAE residents. In another research by yallacompare, the proportion saying they are struggling with VAT dropped to 14.8 percent in Q1’2019, from 16.1 percent in Q4 2018 and 26.9 percent in Q3 2018. This shows that consumers are now accustomed to VAT and have factored it into their household budgets. As a result, confidence levels are now back to where they were at the start of 2018.
What does this mean to marketers?
There’s a strong correlation between consumer confidence and consumer spending. While there is no significant dip in the index, it’s better to note that there’s no spike too. Hence, marketers are best prepared to make the next couple of months work in their favour, whichever way it swings next. The good news is that low consumer confidence doesn’t necessarily mean dip in consumer spends across categories. While there is a larger sentiment that governs consumer confidence and willingness to spend, there is also a sentiment that drives consumer behaviour in specific categories.
For instance, when the overall sentiment is negative, consumers’ coping strategy is about ‘breaking free’ and ‘making up’ for the sense of compromise and compensation, which means categories or brands that are associated with quick, low cost indulgence such as QSR, chocolates, café, domestic tourism, fashion, etc. begin to spike faster than usual. Similarly, for a home owner, rising property prices may lead to a more positive sentiment resulting into spending positively. However, the opposite is true for someone saving for their first home – if house prices are rising it directly diminishes their disposable income because they would need to save more. While luxury and big-ticket items would likely experience a decline in such an environment, retailers who operate as ‘value leaders’ or FMCG brands with value driven SKU (pump packs or family packs) see an uplift in sales as consumers prefer to trade down. Hence, marketers must definitely study the shift in consumer behaviour during such times to plan ahead & move their brands in the market in a way so that they achieve their set business objectives.