Consumers don’t trust AI advice. They turn to it anyway.

0:02There are many sources that are being used to form LLM responses, which is creating both, I think, the lack of trust in these sources, as well as real challenges for our clients as they're trying to make sure that their claims and that their perspectives on their brands are getting out to their consumers. That's McKinsey Senior Partner Danielle Bozart. What's it going to take to influence the consumer decision-making journey, given the surprisingly low level of trust many people have in social media and Gen AI? Danielle joins me and McKinsey Senior Partner Clarice Magnin to get into McKinsey's latest research about the state of the consumer.

0:40This episode comes from our McKinsey Live webinar series. This is the McKinsey Podcast, where we help you make sense out of the world's toughest business challenges. I'm your host for today, Lucia Raheli.

1:00Danielle and Clarice, welcome to McKinsey Live. Thank you so much for having us. Danielle, let's start with some context. Yes, many people are watching their wallets, But many of us are also engaging in new kinds of behavior, asking bots what to buy, exploring new brands on Instagram, TikTok, comparing our sleep scores. Talk to us at a high level about the research and what it revealed about how consumers are making decisions today. We publish this research, as you mentioned, every year and really build it on a tremendous amount of our work across industries. Some of our industry reports, for example, the state of food and beverage, our quarterly consumer sentiment work across 20 different countries around the world.

1:43And together, these all give us a sense of how consumers are feeling, how they're spending their dollars, and how they're changing their behavior in the marketplace. As you can imagine, over the course of the past year, several underlying realities of the world have intensified more geopolitical uncertainty, more cost pressure on many of the consumers across the world, as well as some of the ongoing trends around aging population and some of the changes that are continuing to happen in the technology landscape. We are seeing a consumer who is much more informed, much more willing to move across channels, and much more selective in what they're doing.

2:18And so this year, we're really focused on four trends that we're talking constantly about with our clients. The first of these is really around the new technology-driven path to purchase. And there's been ongoing trends from the old models of mass market and store-based marketing, where we continue to have more and more influences on the consumer decision journey. And this is allowing our consumers to discover and evaluate products in far more places over time. And then over the past 18 months, we really started to see the rise of AI as being an influence, particularly in the evaluation on the path to purchase.

2:51The second is around the health revolution. And this goes well beyond diet and exercise that we've been talking about for decades. But really, there continues to be an intensification of how consumers are thinking about their wellness, their sleep, their stress, their energy, and a whole broad range of dimensions that are really overtaking a much larger share of their thinking and share, frankly, of their wallets as well. And they're continuing to look to our clients to deliver more products that actually meet their needs. The third area is all around the experience economy. For many years, we've been seeing experiences grow a bit faster than products, but the growth rates are really intensifying.

3:28And we're finding that consumers are continuing to spend more money and more of their time to make room for experiences in their life. These are travel, entertainment, and then things often linked to wellness, which is around connection and restoration as well. And then the fourth is around the rise of the resourceful consumer. And as I mentioned before, we continue to see the cost pressures that are intensifying in many countries around the world. And what we're seeing consumers do is really start to think very differently about how they make their dollars go farther, how they're shopping, how they repurpose items, etc.

4:00Tech is obviously very much top of mind for most of us. Danielle, you mentioned the consumer journey. Say more about how AI and social are reshaping the dynamics of discovery and consideration in that journey. On the AI front, we're still in relatively early days in terms of how we're seeing gen AI impact it. We are seeing both our Gen Z and our boomers starting to use Gen AI tools in both brand discovery as well as in purchase evaluation. We expect that to intensify meaningfully over time as those tools become even more ubiquitous. Additionally, we are continuing to see social media become a very important element on the path to purchase.

4:40We spend a lot of our time talking to our clients about how they think about marketing, how they think about working with influencers in a fundamentally different way to be able to try to ensure that each of their consumers are able to find a voice that resonates with them on their path to purchase. And we do see that that is even more resonant, frankly, for Gen Z consumers, but we expect over time, we will have even more of an influence of a very multitude of channels and a multitude of touch points on the path to purchase. Okay. So there's an interesting question in there on trust? We're all basically awash in product device.

5:16We can turn to AI tools, social platforms, reviews, stores, our sisters-in-law. Who do consumers believe amid all these sources and across all these different channels? I think that was one of the things in the research that we found that was most interesting to us, which was the relatively low amount of trust that we are seeing in particular of Gen Z consumers on the path to purchase. One of the areas that was most surprising to us when we looked at what we call the net consumer trust index, which is basically trusters minus non-trusters as we look at it, was the level of skepticism we were seeing around algorithm-driven channels like social and in particular Gen AI, where the trust quotient is less than 40%.

5:58We also see that though across the board, even on offline channels, the trust quotient for Gen Z for friends and family's recommendations was also quite low. And so we were, again, surprised to see that even though these consumers are bringing more and more sources of information into their consideration set, that they actually trust them quite a bit less, which poses a real challenge for brands and influencers as they are trying to think through how do they shape the consumer's decision journey. In other words, in the past, brands could invest in kind of discrete areas, right? You had your website, maybe paid search, SEO, your retail presence, and you'd have a pretty clear sense of where your message was showing up.

6:41Say more about how that's shifting, Danielle, in today's more complex landscape. One of the things that we've talked quite a bit about coming out of the work here is actually how little brand-owned sites are being cited by the LLMs, which is becoming more important as consumers in particular are doing research throughout the path to purchase. This work and research we did on this looked at 25 brands where there was 2.6 million individual citations that were used by the LLMs. And the reality is right now, brands are struggling to shape the input and information that consumers are getting about their brands.

7:17We are still quite early in the generative engine optimization work in the world. People are still learning how to do that. We call that GEO. But many of our clients are spending lots of time thinking about how are they changing the websites, the digital interfaces that they're bringing to the world so that the LLMs can actually read more of what they're able to put out there by using website FAQs, using more lists, thinking about putting out more technical specs, etc. But right now, what's happening as a result is that there are many sources that are being used to form LLM responses, which is creating both, I think, the lack of trust in these sources that we talked about before, as well as real challenges for our clients as they're trying to make sure that their claims and that their perspectives on their brands are getting out to their consumers.

8:03Okay, let's move to health and wellness because that's an area where the conversation seems to have changed a lot. There's just so much discussion now about sleep and stress and healthy aging or healthspan. Clarice, let's bring you in. Talk to us about how consumers are defining wellness today. I think the consumers are much more health conscious and more health conscious than ever. They define health across a much broader set of attributes that are spanning across mental and physical health. Historically, we felt wellness was all about weight management, diet and exercise. And today, consumers value sleep, mindfulness, managing stress, gut health, etc.

8:56So it goes really beyond physical appearance. And it's really about how the products that they consume contribute to how they feel and how they function in their daily life. And I would say that there is growth to come in the categories of products that are able to articulate wellness in a way that is much more precise and outcome driven. Like many of us, I have my wearable ring. I check how I'm doing on various stress metrics. And as you said, sleep metrics, I get these nudges to stretch my legs. we've all got so much data on ourselves, but is it actually working? Are most of us actually meeting our wellness goals?

9:49You belong to the many consumers who are having indeed devices in their lives. But right now, what the numbers are telling us is that most people do not achieve their wellness goals. And we've looked at the data by country, and we also looked at the data by generation. And roughly half of the people, even maybe sometimes more than half, do not achieve their wellness goal. But what is very interesting is this achievement gap is a need state. And you talked about the devices that are being used. This is something that we see increasingly important, in particular among the younger generations. And when people are falling short of their goals, as you described, what are they doing?

10:35Do we see them actually acting on that and making changes, cutting things out, buying different products? What are they doing as a result of falling short, if anything? They may not be fully matching their wellness goals, but they do take actions. And we see that across generations. There is pattern recognition across generations. So they are cutting on artificial flavors and sweeteners. They're cutting on highly processed foods and sugar and alcohol. By the way, alcohol is really interesting because half of the consumers, whether they are Gen Z or boomers, are very clearly declaring that they are reducing their consumption.

11:17So the picture is not completely uniform by generation, but there are some very broad, consistent trends that we see in our survey. Let's move on to the third theme, which is experiences. Danielle, talk to us about what leaders should understand about this experience trend. Well, even prior to COVID, we were seeing the experiences growing slightly faster than we were seeing goods. In recent years, however, experiences have returned to almost slightly above a pre-COVID level. But non-essential goods are just not growing. They're growing at less than 1%. And that means that experiences are now growing almost three times or a bit over three times the rate of non-essential goods.

12:02So what we're finding is consumers are continuing to really shift from products to experiences. And that when we ask consumers, what would you do if you got an incremental amount of 200 euros or$200? What would you do with it? What we find is that the majority of them say that they would put it towards experiences. And so that continues to be a real theme in what we're talking about, which is how do our brands, how do our clients actually deliver more and better experiences and turn things that were actually maybe more products in the past into something that feels much more experiential for their consumers to meet this trend, to try to be able to find moments of emotional connection, peace and recovery and other things much in line with some of the comments you made before on your health journey.

12:44At the same time, folks are willing to spend a little more on experiences. They are experiencing financial pressure, right? That financial pressure is real. And at least in the U.S. and presumably in a range of countries, many households are having to make some pretty tough choices in the grocery aisle now. Clarice, what are consumers telling us about affordability in essential categories like food? We've been in this situation for the past four years since COVID spurred inflation, right? So consumers remain extremely cost-cautious. That is linked to the financial constraints, but there is also an element of how much they're ready to put into the food and bev expenses in their households.

13:35This notion of value and affordability is really here to stay. Interesting in the research is that consumers aren't just looking for what's cheapest when they're value conscious. In other words, they're not just defaulting reflexively to the least expensive option. What should business leaders understand about this kind of more resourceful consumer? So I think it's the right word, resourceful, because consumers are becoming quite creative when it comes to getting a greater value for money. So some of them are extending the lifespan. So they basically keep their items longer. They are repairing.

14:20They are sometimes deferring. They are using also specific apps to manage their budget. They DIY instead of paying. And in particular, the younger generation, they are leading these new behaviors. And it can, of course, reflect financial pressure, but I think it's more than that. And I think that consumers are evaluating durability, usefulness, repairability, the resale potential, etc. So I think that for executives, the value has to be designed into the offer and not added at the end through a promotion. So it is a more fundamental view of the value and not only the price and the promotion and so on.

15:08We have talked a bit about each of these four big trends, tech-driven path to purchase, the health revolution, the experience economy, the rise of the resourceful consumer. Let's turn now to more practical implications, which you just alluded to with your last point, Carice. As you work with CEOs and leadership teams, what do you advise them to do differently in response to this changing model of consumer behavior? Well, I think if we come back to each of the four trends that leaders can't ignore, they are very practical implications. So on the first one that Daniel presented, you need to show up where decisions are shaped.

15:49So GEO, which is Generative Engine Optimization, is the new SEO. And when Daniel was presenting the fact that the LLM are only using 1 % of the data that they're using is the brand website, it means you really need to be much more present in the reviews, in the communities, and this is becoming a new sport that you need to master. So that's clearly one. And the relationship with the brand, with the LLM intermediation is extremely important. The second is, I think wellness is not a loose concept. Like healthy, healthier, this is not sufficiently precise. We need the proposals, the brand propositions to be specific, credible, and measurable.

16:38To your point earlier, people measure. They measure calories. They measure insulin peak. They're becoming more technical on allergies, on longevity, et cetera. So the brands need to do a much better job at being very specific. There's going to be new trends in the coming months and years. On the experience economy, I think people want memorable, meaningful moments that are really worth paying for. And Daniel was giving the example, if you have$100 or$200, where do you put it? And people are more likely to put it in a vacation with loved ones than maybe another product, right? So how can the brand deliver on the experience to make them worth paying for?

17:21And the last point is, yes, affordability matters, right? So you got to have affordable products in particular in food and BEV. But I think this notion of value and loyalty is broader than that. And the new generation, they like also being creative. They are using technology to be much more innovative in how they consume. And they see value in finding this innovating ways of buying products and services. So that's also probably something to step back upon and not be only obsessed with pricing promotion, but really building the value component from the start in the product. We have gotten a slew of questions from the audience, so I'd like to take a couple at least now.

18:06Will AI continue to impact consumer behavior? And can you share any interesting examples of how companies are responding to AI? Daniel, do you want to take that one? For sure. I think we expect it to pretty meaningfully impact the consumer decision journey over the years ahead. And particularly, we're seeing that on high consideration, high engagement purchases at this point in time. So travel is an example where we are seeing more and more usage of it. We are starting to see much more on more considered purchases, for example, in beauty, where folks are using the tools to really understand the Gen AI reviews.

18:43We're seeing that in fashion as well, where they're starting to see folks really direct them or the Gen AI tools direct them to how they build a wardrobe or other more personalized sort of topics that we're seeing quite a lot more of. I think we will continue to see that expand in the years ahead. I think consumers will figure out what role social will play, which I think will be much more on the discovery side, and then they will go and do more research on the Gen AI side. And so I do expect that we will continue to see that for quite a while. And it's one of the things we're spending a lot of time talking to our clients about, which is how do they get prepared for that?

19:17not only for GEO, but frankly, how they're innovating, how they're thinking about their products and how they're thinking about the way that they will represent their products to consumers in a way that will be resonant with the LLM tools that they are now using. And Clarice, any examples of where you see companies struggling most to adapt to these changes? Well, I think AI is disrupting companies and how they operate. It is not only a tech topic, It's a business topic. It's a capability topic. It's an investment topic. And if you think about the function like marketing, this function is going to be disruptive across marketing processes in terms of campaign production and management and so on.

19:58So I think the flip side of what Daniel was saying is we see AI picking up in the adoption by consumers and then the companies need to adapt to it. And today, the ROI is not yet completely established. So they need to lean forward and invest while the ROI is not completely established. But we see progress. It's not like by the month or by the week, we see enhanced marketing processes. We also see an ability to unlock a lot of efficiency in operations and so on. So I think what the companies are struggling with is the pace of adoption in their practices to be able to extract the value and respond to these trends.

20:39This was a fantastic discussion. Danielle and Clarice, thanks again for joining us today. Thank you so much. Thank you so much. Thanks so much for listening to the McKinsey Podcast. I'm Lucia Raheli. And I'm Roberta Fasaro. Find us on McKinsey.com. We'll have a transcript of this episode up shortly. And if you have any questions based on this episode, please email them to us at themackenziepodcast at mckenzie.com. If you enjoyed the show, we'd love for you to leave a rating and a review. We'll see you next time.