It’s nearly that time of year again! Christmas is coming during a hugely unstable economic time - the cost-of-living crisis has seen inflation rates at a 40-year high¹, placing a financial strain on many. More² than half of consumers have reported they have less money to spend this year, suggesting many may cut back their festive spending.

What factors play a role in people’s festive behaviours? And how will Christmas 2022 be different from previous years? There are countless influences that might have an impact, so we’ve picked three that retailers and FMCG specialists in particular should watch out for this season.

  1. The comfort of traditions – Traditions play an important role in our thoughts, feelings and behaviours around this time of year. Deeply rooted traditions like a festive meal, drinking Irish cream liquor and chocolates may be part of many people’s Christmas celebrations. Traditions help us come together and strengthen our bonds³ (apart from the odd argument!) as well as providing “ with experiences of shared values and comfort”.

    At a tumultuous time, a Christmas tradition might provide us with something consistent and comforting to hold onto. When financial stress and worries may affect other elements of the season, copying what we have done in previous years is an innately human way to avoid danger as well as feel comforted. Traditional favourite foods, drinks, sweets and celebrations can help cement the tradition for another year and bring a sense of nostalgia.
  2. The joy of small luxuries – In tough financial times consumers spend money on little luxuries, known as ‘the lipstick effect’. They might not have money for a new TV but will find money for lipsticks (and other beauty products), or “posh chocolates and coffee to enjoy at home.”

    These purchases can help brighten our mood, and they might play an additional role in tapping into how we want to be perceived. According to consumer psychologist Dr Catherine Jansson-Boyd, “in a downturn people tended to invest in more widely-recognisable brands and items that others get to see - so they may buy a branded lipstick that can be applied in public over a moisturiser that is usually applied at home.” Branded little luxuries, from Starbucks coffee at home to salon-quality nail varnishes, can help make us look financially resilient to the outside world, as well as make us feel good.
  3. New gifting boundaries – It wouldn’t be Christmas without gifting. You might spend hours combing aisles, trying to find the perfect gift, and you may feel ecstatic when you unwrap the paper of the thing you’ve been eying up all year. But the motivations of giving are varied. It can be a great way to show affection, do something nice for someone, and help reinforce a relationship, for example.

    But perhaps more cynically, it also speaks to the idea of reciprocity, where we feel obligated to “return the favour to someone who has done something for us.” That might make us feel trapped in a never-ending cycle of gift giving and receiving, but perhaps a clear agreement to not engage, or to set a strict budget, might help ease the financial burdens of buying gifts for everyone. Even everyone’s favourite financial advisor Martin Lewis has urged people to not buy unnecessary gifts this year¹⁰.

Retailers have responded to the cost-of-living crisis.

Tesco are offering a £25 frozen festive dinner – a move that could help keep costs low for shoppers¹¹ while enabling them to still achieve the traditional festive dinner they have come to know and expect. Similarly, budget-supermarkets, Aldi and Lidl, are also expected to do well this Christmas¹² since they’re already advocated as the cheaper-alternatives, with Aldi, in particular, having ventured into gifting with their middle aisles filled with beauty-dupes and kid’s toys.

That said, the cheapest may not always win - some shoppers may still buy pricier brand names over own labels to allow themselves a little treat, even at a time when cash is short¹³.

Many psychological influences will be at play this festive season. Whilst consumers have reported that they are tightening their belts, the reality could be completely different - we know from extensive research that there can be a sizable gap between what people say they’ll do, and what they actually do, with many competing factors at play when decisions are made. As we write this in November 2022, it remains to be seen the extent to which tensions will play out; we may not see as dramatic an effect on people’s behaviours as the headlines are making out.

What does that mean for retailers and FMCG?

Small differences in brand choice and gift spend are likely, to keep the festive magic alive on a budget. In a recent Verve project on essential spending, we found that people are highly likely to gift this year but intend to trade down. Overall, we expect that people will want to experience the safety and comfort that Christmas brings, especially after the tumultuous year we’ve had, and will stick largely to their deeply rooted traditions.

Brands may be wise to concentrate on promoting their value to consumers – either by being the cheapest or signifying softer signs of value that aren’t related directly to money. For example, reviewing range to ensure that affordable versions of branded products are available, then framing these as ‘little luxuries’ that can suit tighter budgets.

To learn more about Behavioural Science with Verve, watch our ‘Introduction to Behavioural Science’ webinar or get in touch with Dr Adele James.