How Economic Conditions Influence Consumer Behavior

Despite a year marked by unfavorable economic factors, consumers have increasingly leaned into purpose-driven commerce, making purchase decisions that align with their values, even in times of financial uncertainty. Discover how economic conditions influence consumer behavior, and get predictions for the future of retail and charitable giving.

With less than favorable economic conditions over the past year, it’s evident that several factors impact the way that people shop and make purchase decisions. However, in the growing climate of purpose-driven commerce, consumers are increasingly purchasing with their values even during times of economic uncertainty. 

This means that companies who prioritize social responsibility and charitable giving are better positioned to succeed in a retail landscape that is increasingly driven by consumers who demand alignment with their values. In this era of conscious commerce, social impact stands as a powerful force shaping the future of retail and charitable giving.

While Consumer Spending was Down, Charitable Giving was Up

In 2022, American consumers were hit with rising inflation and interest rates, and by June 2022, consumer prices in the United States had spiked by a staggering 9.1%. Simultaneously, increased job layoffs and economic uncertainty led to market swings, with the Dow Jones, Nasdaq, and S&P 500 suffering their worst year since 2008. As a result, the S&P 500 dropped by a substantial 19%

With concerns around inflation and the uncertain macroeconomic climate, consumers found themselves realigning their purchasing habits. PWC’s 2023 Global Consumer Insights Pulse Survey reported that 50% of customers are “extremely or very” concerned about their personal financial situation, and 96% of consumers surveyed indicated they intended to adopt cost-cutting strategies to stretch their dollars over the course of the next six months. 

However, consumers indicated that they were still eager to put their money where their values are. More than 70% of surveyed consumers said that ‘to some or to a great extent’ they’re willing to pay more for food produced by local farmers and for goods made by a company known for ethical practices, such as supporting human rights or avoiding animal testing.

ShoppingGives found this same sentiment within our own community. Despite the economic challenges of 2022, ShoppingGives' community of merchant partners reported that average sales with donations per merchant increased by an impressive 67% year-over-year (YOY), while the average amount of donations per store surged by 58% over the same period. 

This means that there isn't always a direct correlation between economic headlines and consumer spending. When looking at donation behavior, Forbes pointed out that despite the economic uncertainty in 2022, charitable giving seemed to increase and Americans continued to support nonprofits. Fidelity Charitable reported a record 2.2 million grants worth $11.2 billion to 189,000 charities in 2022, a 9% increase from the previous year.

Following the global pandemic, Americans are making it clear that they’re ready to step up their giving in uncertain times. Furthermore, they’re expecting businesses to step up and take on social responsibility as well. 

How the AmazonSmile Shutdown Impacted Nonprofits, Businesses, and Consumers

At the beginning of 2023 and following the economic turmoil from the previous year, Amazon announced that they would be shutting down their philanthropic program, AmazonSmile. This announcement left many nonprofits, especially those without the same name recognition as larger national charities, needing to fill the fundraising void that was previously filled by passive donations from AmazonSmile.

The discontinuation of the AmazonSmile program sent a ripple effect throughout the retail industry, highlighting the significant role that corporate philanthropy plays in shaping consumers' perceptions and loyalty towards purpose-driven brands.

In today’s era of conscious commerce, consumers are becoming more drawn to brands that align with their values. According to a recent study, 63% of people buy or advocate for brands based on beliefs and values, and 71% of Millennials even say they would pay more for a product if they knew some of the proceeds went to charity.

Consumers’ increased preferences towards purpose-driven brands may have been heightened by the growing lack of trust in government. Consumers increasingly believe that brands, not the government, have the power to lead social change. A recent study found that 62% of respondents see business as both competent and ethical, compared with just 50% for governments.

Many consumers believe that businesses have a moral responsibility to support charitable causes, given their substantial access to resources and influence. As a result, the pressure on other retailers and eCommerce merchants to engage in philanthropic efforts and enable their own charitable giving strategies has increased. Brands that fail to meet this growing consumer expectation may risk losing customers to competitors who prioritize social responsibility.

So what can businesses do to meet these growing consumer demands? 

Strategic Partnerships

Partnering with nonprofit organizations can be mutually beneficial for brands and nonprofits alike. Brands can leverage the nonprofit's expertise and network to amplify their impact, while nonprofits gain access to additional resources and exposure to the brand’s network of consumers. Strategic partnerships also demonstrate an authentic commitment to a cause and gives brands the opportunity to create more loyal customer relationships through shared values. 

Cause Marketing Campaigns

In partnering with a nonprofit organization, brands can create cause marketing campaigns that tie their products to a charitable cause. Donating a percentage of sales or a flat dollar amount per purchase not only creates a positive impact for their partnered nonprofit, but it also invites the brand’s customers to get involved in their social responsibility initiatives. 

83% of Millennials say it’s important for the companies they buy from to align with their beliefs and values, which means that giving consumers the opportunity to make a charitable impact on their purchase can motivate purchase behavior. Having the opportunity to make a positive impact for a charitable cause can motivate consumers to make purchase decisions, and can increase customer loyalty and retention long-term.

Consumer Behavior Outlook and Retail Predictions

After economic unrest throughout 2022, U.S. Federal Reserve Chair Jerome Powell stated in July 2023 that the central bank's staff no longer forecasts a U.S. recession

The National Retail Federation also unveiled its forecast for the remainder of 2023, predicting that spending would rebound, with retail sales expected to grow by 4-6%, hitting between $5.13 trillion and $5.23 trillion. While this growth may be slightly lower than what was recorded in 2022, it remains above the pre-pandemic average annual retail sales growth rate of 3.6%.

In August 2023, the National Retail Federation announced that while growth in consumer spending is slowing down, consumers are still buying more now compared to last year. 

“The economy was clearly more resilient in the first half of this year than many expected, and the consumer environment has been positive as inflation has slowed. Nonetheless, there are ongoing economic challenges and questions, and the pace of consumer spending growth is becoming incrementally slower.” - Jack Kleinhenz, Chief Economist at National Retail Federation

Looking ahead to the remainder of the year moving into the holiday season, Deloitte has predicted that holiday retail sales are likely to increase between 3.5% and 4.6%, and eCommerce sales will grow between 10.3% to 12.8% year-over-year during the 2023 holiday season. 

ShoppingGives also conducted a survey of 500 merchants at the end of 2022 and found that 75% of respondents indicated they were hoping to increase their contributions toward nonprofit organizations in the coming year.

So what does all of this mean?

With consumers still being mindful of their spending habits, it’s more important than ever that businesses align their values with their customers before the holiday season commences. The global pandemic and following economic downturn has brought about a heightened sense of community and empathy among individuals, and this sentiment will be amplified across the season of giving. 

Consumers are going to continue to align themselves with brands who exemplify a genuine commitment to social responsibility, and businesses can meet these expectations by forming strategic nonprofit partnerships. 

Following the shutdown of AmazonSmile paired with economic uncertainty, many nonprofit organizations are feeling the trick-down effect of slowed fundraising, especially smaller organizations who do not have the same name recognition as other larger organizations. 

For businesses, focusing on hyper-local, regional, and smaller nonprofit organizations can not only help fill the fundraising void left post AmazonSmile, but it can also create a strong narrative that enhances the brand's identity, making it more relatable and appealing to customers who share similar values.

The economic conditions of the past year have revealed the complex interplay between consumer behavior, charitable giving, and retail trends. While economic downturns may lead to fears of reduced charitable spending, the data suggests that businesses that prioritize social impact can not only weather the storm, but can also thrive. 

Brands that prioritize social and environmental impact are going to be well-positioned to attract and retain customers who are eager to support causes aligned with their values. This means that brands who do not adjust their strategy to acknowledge the growing consumer demand for social impact risk falling behind those who do.

As we move forward, it's clear that consumers are increasingly drawn to companies that align with their values, making social impact a powerful force in shaping the future of retail and charitable giving.

Get a full in-depth look into trends in consumer spending and donation behavior, as well as data-driven insights on why businesses need to prioritize social impact for their organization by downloading the full report below.

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