Adapting to Changing Consumer Trends for SMB Business Leaders

In a recent article, the consulting firm McKinsey shares key insights on consumer behavior changes that consumer-focused SMB business leaders should address in their own businesses.

1. Consumer Spending vs. Sentiment

U.S. consumers are spending more today than they did before the pandemic, despite persistent pessimism about the economy. This shift highlights a fundamental change in how consumer sentiment aligns with actual spending behavior. Small and medium-sized business (SMB) leaders should take note: traditional metrics like consumer confidence may no longer predict spending patterns. For instance, while consumers express concerns about inflation and higher costs, they continue to prioritize spending on goods and services they perceive as essential or offering strong value. This disconnect suggests that SMBs should shift their focus from general market sentiment to specific consumer behaviors. Businesses like cafes or boutique retailers could benefit by creating promotional strategies that focus on offering tangible, immediate value, such as loyalty programs or bundling deals, even in uncertain economic times.

2. Emergence of the ‘Value Now’ Consumer

Consumers today are not just chasing low prices—they are focused on optimizing their purchases for maximum perceived value. They often oscillate between economizing on some categories and splurging on others. SMB leaders can capitalize on this by understanding what their customers consider "high value." For instance, a local restaurant might focus on promoting health-conscious, fresh menu options if its customer base values wellness. Meanwhile, a clothing retailer could invest in durable, timeless pieces rather than chasing trends. Additionally, showcasing the quality, uniqueness, or emotional benefits of a product can encourage spending. SMBs that emphasize what makes their offerings valuable—whether through storytelling or unique branding—can attract consumers looking to maximize the "bang for their buck."

3. Spending Patterns

Consumer behavior can be broken into three categories: economizing, maintaining, and splurging. For example, many consumers are economizing by opting for generic brands over premium options in categories like beverages. In contrast, they maintain spending on essentials such as pet care or dining at sit-down restaurants. Splurging is often reserved for experiences like travel or unique products that feel indulgent. SMB leaders can tailor their offerings accordingly. For instance, a small grocery store might stock more private-label goods while also providing premium, fresh produce for customers who still value high-quality essentials. Similarly, a travel agency or local tourism business could market affordable luxury experiences to capture spending in the splurging category.

4. Macroeconomic Context

Despite inflation and higher interest rates, many economic indicators remain positive. Real wages have grown, unemployment is near historic lows, and households hold substantial cash reserves. However, SMBs targeting low- to middle-income consumers should remain cautious, as these groups are feeling the pinch more acutely. To adapt, SMBs could offer flexible payment options, like installment plans, to appeal to customers managing tight budgets. For example, a small electronics retailer might introduce a buy-now-pay-later scheme to maintain accessibility for consumers under financial pressure. SMB leaders should also monitor trends in credit card delinquencies and borrowing to ensure their pricing and promotional strategies align with consumers' financial realities.

5. Business Strategies

To succeed in this evolving landscape, SMB leaders must invest in tools that provide real-time insights into consumer behavior. Artificial intelligence (AI) can be a game-changer. For instance, an SMB in retail could use AI-powered analytics to identify popular products or forecast demand, enabling better inventory management and targeted marketing. Tools like social listening can help gauge customer sentiment about specific products or services. Additionally, SMBs should focus on both functional and emotional value in their offerings. A local bakery, for instance, could emphasize the convenience of pre-ordering online while also highlighting the artisanal care that goes into every baked good. Investing in innovation, such as new product lines or digital transformation, will allow SMBs to differentiate themselves and thrive, even amid economic uncertainty.