What Is Consumer Sentiment?

In this article, we’ll explore the topic of consumer sentiment, the role it plays in today’s economy, the difference between consumer and customer sentiment, and how you can use it to your advantage.

Consumer sentiment is a measure of the overall consumer opinion on their financial health. Consumer sentiment is important because it’s a means of measuring how well the economy is doing on a short-term basis, as it indicates how willing consumers are to spend money and how optimistic they are that the economy will get better in the near future. Using this, you can make predictions about how well your sales are going to perform and make any necessary adjustments to your current plans.

Consumer sentiment is particularly important in the US economy, where consumer spending makes up over 70% of GDP. How to measure consumer sentiment isn’t straightforward; however, there are two main indexes which can be used:

The Consumer Confidence Index (CCI)
The Michigan Consumer Sentiment Index (MCSI)

Both of these indexes are measured on a monthly basis, as the sheer amount of data required to get an accurate picture of the consumer mindset is staggering. Both are based on household surveys and function through “yes, no, or no opinion” questions, so while they’re not the most nuanced, they still do give a good picture of the consumer mindset.

Both indexes are also based around the whole of the US, and don’t take into account regional factors or other issues that may arise only in certain locations such as wildfires or flooding. Consumer sentiment by state can vary wildly, so if you operate in a narrow range of locations you should look to more local surveys rather than national ones.

The Difference Between Consumer Sentiment and Customer Sentiment

Consumer sentiment is a broad measure, it’s something that tells you about how consumers feel in general about their situation but nothing about how they feel towards specific brands, products or services.

Customer sentiment, on the other hand, tells us the specifics. It’s a measure of how customers feel about individual products, services or brands, with both positive and negative sides. Customer sentiment is extremely important in today’s market, with studies showing that customers are willing to spend up to 140% more after a positive experience with your brand.

You can think of customer sentiment analysis as similar to consumer sentiment analysis , only with a different focus. Generally the data is collected by the brand in question, but there are of course those who want to make comparisons between brands and showcase the differences they found — just look at all the comparison websites that popped up in the 2000’s.

Customer sentiment is about feelings, which in the current market are more important than ever. Perceived negatives and misunderstandings will cause just as much bad press as real faults, so be on the lookout for anything that might be misunderstood by your customers.

What Is the Consumer Confidence Index (CCI)?

The CCI is a survey administered by the Conference Board, based on five questions given to those surveyed. It assumes that if consumers are more pessimistic about the economy’s future they will cut their spending, while being more optimistic will lead to them spending more and stimulating the economy.

The questions the CCI asks can be split into two broad categories, each of which are weighted into what’s called a “relative value,” which takes into account the importance of each question at the time of asking. The questions are as follows:

The Present Situation Index:

Respondents’ appraisal of current business conditions
Respondents’ appraisal of current employment conditions

The Expectations Index:

Respondents’ expectations regarding business conditions six months hence
Respondents’ expectations regarding employment conditions six months hence
Respondents’ expectations regarding their total family income six months hence

Each question can be answered with a positive, negative or neutral answer. The overall value that the CCI gives each month is an average of the two categories, with separate values being available for both.

The CCI is a relative measurement, meaning the values that you read are a measure of how confident consumers are compared to another point in time, in the case of the CCI, 1985. The CCI value of 1985 is set at 100, with each other value being comparable. For instance, if a month had a CCI rating of 105, consumers would be 5% more confident overall about the state of the economy than they were in 1985.

Of course, the CCI isn’t without its downsides. Overall the number of respondents per survey is around 3000, not even 0.01% of the total number of US households. Furthermore, some have criticized it as a lagging indicator, meaning that it would only show information after the changes in the market have occurred. Regardless, it remains one of the top measurements of consumer sentiment in the US.

What Is the Michigan Consumer Sentiment Index (MCSI)?

The MCSI is conducted by the University of Michigan, based on interviews conducted via telephone. While more in-depth than the CCI, the number of respondents is correspondingly smaller. The study asks around 50 questions each month, aimed at assessing three areas of consumer confidence:

Their own financial situation
Their confidence in short-term economic health
Their confidence in long-term economic health

Like the CCI, respondents to the questions have a positive, negative and neutral option for their answers. The MCSI is normalized similarly to the CCI, with the value of 100 being set as the relative consumer sentiment seen in the first quarter of 1966.

The MCSI is calculated by subtracting the percentage of negative answers from positive ones, then adjusting the given data relative to the number recorded in the first quarter of 1966. Barring some adjustments to the number to account for survey design changes, this creates an incredibly easy to understand index.

Many experts consider the MCSI to be the more reliable of the two most used consumer sentiment indexes, with the University of Michigan claiming that the surveys “have proven to be an accurate indicator of the future course of the national economy.”

The MCSI can be split into the Index of Consumer Expectations (ICE) which better represents future expectations, and the Index of Current Economic Conditions (ICC) which reflects the current state of affairs.

How To Interpret The Main Consumer Sentiment Indexes

Both of the main indexes used to measure consumer sentiment are based on relative measurements compared to points in the past, yet they’re still useful. By comparing the values for any given month to those around it, you can see both long-term and short-term trends that indicate how likely consumers are to spend money at that particular point in time.

A trend of increasing consumer confidence month after month indicates that they feel more secure in their positions, and are more likely to purchase goods and retain their income. Thus, manufacturers can step up production as they can expect a higher turnover, with retailers ordering more stock and so on.

Conversely, a decreasing trend indicates that consumers are going to hold onto their money, so manufacturers and retailers can expect a lower turnover. While these one-dimensional analyses alone are good indicators of what you can expect in terms of consumer behavior, you can get more information if you delve deeper.

As seen in the above example chart, 2020 caused a huge dip in consumer confidence. While the overall optimism rose in late 2020 to early 2021, it again fell in the following months. From this data, we can see that consumer spending is continuing to decline and may do so throughout 2022.

Another important thing to note is that the three month moving average cuts out many of the small rises and falls in consumer sentiment that the monthly data shows. Which of the two is more useful depends on your outlook. For long-term predictions, use the moving average. For short-term considerations, the raw data may be more useful.

When comparing the ICC and ICE to the base MCSI, you can expect to see subtle differences. In the above chart, the ICC shows a larger drop at the beginning of 2020 than the MCSI, with the ICE showing a smaller one. From this, we can take away the following messages about that time period:

The ICC values had a sharp drop, meaning consumers lacked confidence in their current financial situation.
Therefore, in the short-term, thinking is that they may have to curb spending.
The ICE values had a drop too, but not as great as that which the ICC showed.
Therefore, while consumer confidence that their situation would improve in the long-term had dropped, it was not as drastic as their confidence in their short-term situation.
When put together, it shows an overall consumer expectation of drastically decreased spending in the short term, with the potential of a slow rise again in the long-term.

It’s important to keep in mind that the data only shows consumer expectations, not what actually is going to happen. While the two are certainly tied together, there can be events that come out of left field to alter the economy.

Governments and businesses often monitor the CCI and MCSI for changes, however they don’t react to every single change in the numbers. It’s important to keep an eye out for large changes, with those of plus or minus 5% being considered significant enough to mark a change in the economy’s direction.

If you want to look at longer-term considerations, it’s important to examine the indexes on a longer timescale. The MCSI offers ten year and fifty year charts to be easily viewed, while the CCI boasts an interactive

Other Measures of Consumer Sentiment

While the CCI and MCSI are both strong national indicators, they’re not the only ones out there. They’re both highly focused on the US market, meaning you’ll want to look elsewhere for information on other countries and their economies.

The Organisation for Economic Co-operation and Development (OECD) offers consumer confidence indexes across both North and South America, Europe, Australia and Asia, with interactive analysis across 40 countries being available on their website. This data is particularly useful for those operating in or looking to expand into markets other than the US.

The OECD also offers a Business Confidence Index (BCI) across those same areas, which is useful if you’re primarily aiming for B2B transactions. The BCI is calculated in a similar way to a consumer confidence index, except that the questions are aimed at businesses and their confidence in future developments.

McKinsey & Company has run detailed surveys quarterly in over 30 countries during 2020 and 2021, aimed specifically at examining the effect of the COVID-19 pandemic on consumer sentiment and spending.

These surveys are broken down by both age group and net income, giving insights into differences that different age groups express and how attitudes change depending on income. This particular survey contains more than just a basic CCI, with useful information on planned spending and customer loyalty, so if you’re looking for a more in depth analysis be sure to check it out.

The Nielsen Global Consumer Confidence Index

The Nielsen Global CCI was created in 2009 in an attempt to measure consumer confidence worldwide. The surveys themselves take place online, thus this index better shows a picture of e-commerce confidence and also allows for comparison between different countries and regions.

Currently the results are released by the Conference Board, the same organization which produces the CCI, and takes place quarterly across 65 different countries and surveys over 30,000 people. If you’re looking to diversify into different markets or simply keep up to date with world commerce affairs, the NGCI will be a great help. Notably Africa is mostly missing from their surveys, which can be attributed to the comparatively low internet connectivity in the continent.

Ready to dive into the realm of consumer sentiment?

Sentimate has customer sentiment ratings for hundreds of thousands of products on the individual and product category levels, with comparisons available on dozens of different topics.

You can find insight on consumer and customer sentiment by creating a free account with Sentimate today.

Consumer insights are your customers’ truth – how they experience your product or service, how they felt about it, what they want, need, and desire.

Understanding your consumers’ needs and wants is essential to ensuring your brand’s future. Scanning, collecting, and analyzing customer feedback empowers businesses to learn from their customers – so they can innovate and improve customer experiences and generate positive sentiment.

This blog post is your definitive guide to consumer insights.

We will explain what are customer insights, their importance, how you can use them in your favor, and what impact the spread of COVID-19 has had on customer feedback analysis.

Another note we would like to add, Revuze Explorer is one of the most advanced consumer insights tools out there. Our true strength is turning consumer insights into actionable action items for companies, all done in minutes instead of days & weeks.

Last update: November 2021.

What are Consumer Insights?

Consumer Insights are analyzed data businesses use to better understand customer wants, needs, attitude, and sentiment. Useful Consumer Insights are new, relevant and inspiring, and provide extensive knowledge of consumer desires, needs, and motivations. These insights help improve a brand’s interaction with customers, which creates better customer experience and improves revenue.

So, how do you find consumer insights? Well, data.

Consumer insights are a result of data interpretation and analysis. They are aggregated from data collected with different tools, like trend analysis, customer satisfaction surveys, focus groups, Social Listening, and more.

Why are consumer insights important?

First and foremost, consumer insights give the tools to make better business decisions. Improving customer experience, focusing marketing campaigns, and optimizing brand innovation will help drive brand growth and revenue.

In addition, customer insight analysis helps identify consumer and market trends, pain points and attitudes. This information highlights consumer sentiment and experience on different parts of the consumer journey, data that helps brands build and maintain customer loyalty.

How can consumer insights improve advertising?

I’m glad you asked.

Advertising and marketing your product can be hard. It is hard to know how successful your campaigns are or how your latest ad resonated with your target audience.

The job can be even harder when we talk about e-commerce. Online consumers come from all walks of life, from different generations, with varied interests, and unique needs. For example, Baby boomers, Gen X, Millennials, and Gen Z are all very different and come with their own particular wants and needs. So, what may work for one audience won’t necessarily work for all.

This is where consumer insights come into use.

Consumer insights allow businesses to get a better and deeper look into their customers’ purchase decisions and behaviors. Insights enable brands to identify the best marketing campaigns and strategies that will resonate most powerfully with the targeted audience.

Using consumer insights allows you to make a smooth and data driven shift from product-focused marketing to consumer-centric marketing. For instance, what if you could focus your ad campaign on a customer-desired feature? Quality consumer insights enable you to do just that.

Taking an example from our latest Headphones Market Report, after analyzing customer feedback we have identified noise cancellation as the latest trend in the wireless headphones industry. Just look at the noise cancellation topic volume chart below –

Using this data to create a more focused, optimized, customer-centric advertising strategy will allow you to achieve your marketing objectives more effectively and efficiently, saving you valuable time and money.

How to use consumer insights in your favor?

Now that you know what are consumer insights and why they are so important. It’s time to understand how to use them in your favor.

We already covered the positive impact consumer insights can have on your marketing efforts. Here are some other aspects of your business can profit from consumer insight analysis –

Consumer loyalty –

Consumer or Brand loyalty is a strong positive consumer sentiment, meaning people will choose a particular brand over all the others. Businesses with a strong and well-founded brand loyalty will enjoy returning customers that’ll make repeat purchases.

Quality consumer insight analysis provides information about which brand aspect is the customer’s favorite and why. Optimizing customer experience (or even the product itself) based on that data will make people feel heard, cultivating customers’ emotional connection and loyalty.

Customer service –

Identifying customer pain points using insight analysis helps brands stay ahead of the game. Knowing what is bothering your customers will help you improve your customer service – you can plan your response, prevent issues from recurring, and even train and educate your staff to better handle customer complaints and inquiries.

Optimizing your customer service will not only create and cultivate customer loyalty, it will attract new clientele through positive word-of-mouth, and might even improve brand equity.

Consumer Insights In the COVID-19 Era

As the novel coronavirus (COVID-19) spreads across the world, consumers and businesses are forced to dramatically rethink their commercial behaviors. This means customer feedback and its analysis must change as well.

People are afraid and worried not only for their health, but for their jobs and saving too. These financial concerns have resulted in major emotional and economical shifts, ones that have to be taken into account when collecting and analyzing consumer insights.

Maybe the most important thing you can do is listen. The constantly changing global reality calls for flexibility and open mindedness. For example, you might want to abandon the normal barrage of survey questions. Asking fewer, more open-ended questions will help you get more extensive, detailed answers from your clients, so you won’t miss vital insights.

Another much needed aspect these days is adaptability. Quick thinking and short response times are essential for brands to survive such tumultuous times. building up your brand’s capacity to make short-term changes largely depends on quality information. Consumer insights allow you to test changes and prioritize future ones. Knowing what your customers are feeling and thinking will help you adapt to the coronavirus crisis.

Getting started with consumer insights

Establish your goals – Make sure you know what you want to learn from your data.
Identify resources – It’s important to be clear on how you will get the data – who’s going to collect and analyze it, what’s your collection method, what audience are you targeting?
Create a plan – In order to make sure all your efforts won’t go to waste, planning is key. So, think about what departments, processes, and strategies will use and benefit data the most.

We know collecting and analyzing customer feedback can be quite a challenge. Find out how Revuze’s AI powered CX analysis can help you get quality consumer insights that’ll push you to the next level!

Tag: consumer insights