Which Spending Categories Consumers Are More Likely to Trade Down or Walk Away From

Consumers are opting out of or trading down on purchases more than a year ago, even as inflation has cooled

As inflation has cooled from its recent highs in 2022, consumers are reporting less “surprise” about the prices they encounter, as measured by Morning Consult’s Price Surprise index. At the same time, when prospective buyers are running into higher-than-expected prices, they are more likely to walk away from the purchase rather than following through with it in spite of sticker shock, as measured by the Price Sensitivity index. Morning Consult’s other demand index, Substitutability, which measures consumers’ trading down behavior, is down from its highs in late 2022 and early 2023, but has been generally trending up for over a year, suggesting a growing share of consumers are trading down to cheaper alternatives.

The topline indexes for price sensitivity and substitutability are a weighted aggregate of the individual index scores for 20 categories of goods and services, derived from Morning Consult’s monthly poll tracking consumers’ shopping behavior. Cost saving actions like walking away or trading down varies for different goods and services, as price elasticity of demand depends on the product. Elasticity is lower for essentials like gas and groceries than for nonessentials. However, some of this depends on what consumers are demanding, and as a result how willing they are to deal with higher prices – for example, when the economy began reopening after COVID related lockdowns, many consumers were willing to spend on experiences like eating out, going to concerts, or going on vacation despite higher price tags. 

Individual household finances and preferences can also affect consumer behaviors – compared with their lower earning peers, higher income households are more willing  to accept high prices, and as a result have lower price sensitivity scores, especially for nonessential spending. Below, we break down the category-level differences in price sensitivity and substitutability – how have cost savings-behaviors developed over the past year? Which categories elicit more or less walking away and/or trading down behavior relative to one another? How does behavior vary by annual household income?

Trading down is more common for goods than services while walking away varies by category

Generally, consumers are more likely to trade down (indicated by a higher index score) for goods than they are services. Exercise equipment currently registers the highest substitutability score. Intuitively, trading down on this type of good could lead to significant savings, as options could range from over a thousand dollars for a name brand exercise bike or a couple hundred for a more generic brand. On the other hand, trading down on services may be more difficult depending on the service – for example, if you’re already at a restaurant, it is not as simple or cost effective to opt for a cheaper substitute within the range of options on a menu as opposed to when online shopping for goods or choosing between multiple alcohol options at a liquor store. Healthcare services and appointments similarly don’t often have many options for cheaper alternatives depending on the necessary care (factors like in-network vs out of network insurance, geographical limitations, scheduling difficulties, etc. can make options more limited). 

Price sensitivity score patterns are less obvious to identify – as mentioned earlier, gas can be difficult to walk away from, particularly for people who rely on a car for work or essential errands. As a result, gas has one of the lowest price sensitivity scores. More surprising is the relatively low scores for airfare and hotels. Price sensitivity is not seasonally adjusted, so perhaps some of it is due to seasonal effects – people are more willing to deal with the high price of travel to go somewhere for the holidays. But airline fares, and to a lesser extent hotels, had lower price sensitivity scores than the topline index for all of 2024, suggesting that consumers may just be willing to pay for the cost of travel although it comes at a higher price than they want or expect. 

On the other end of the spectrum, clothing had the highest price sensitivity score, suggesting that consumers are much less willing to deal with higher-than-expected prices for clothes than most everything else. Another notable category with higher price sensitivity is housing – housing costs remain persistently high, and many housing options may just cost too much for consumers to accept. 

Nearly all categories are registering higher rates of substitution 

Across nearly all goods and services (excluding airfare), a larger share of consumers engaged  in trading down behavior this November compared to the same month a year ago. This difference appears to be largest for goods generally, rather than services. Inflation for many goods has been subdued or even negative over the past year, which could be making it easier to find cheaper options to trade down to. 

Many of the categories that had the largest increase in substitution scores were home improvement related expenses like furniture, home appliances and supplies for home repairs. Perhaps due to the exorbitant cost of housing with higher prices than a year ago as well as still high mortgage rates, more U.S. adults are opting to work on improving their current living space rather than moving – and as a result, using cost saving methods like trading down to revamp their current living arrangements.

Most categories are registering an increase in sticker shock

On the note of exorbitant housing costs, housing had the largest increase in price sensitivity from the same time last year, suggesting a higher share of consumers are unwilling to follow through with housing purchases with higher than expected prices. Increases in price sensitivity were broad based across most goods and services. Some of the categories that had larger increases in substitutability also had larger increases in price sensitivity, including furniture, paper goods, and restaurants. 

High-income earners are much more likely to follow through with pricey purchases, especially for housing and airfare

Higher income adults generally have lower price sensitivity scores than their lower earning peers. This makes sense intuitively, as they have more room in their budget to accept higher-than-expected prices rather than walking away completely. Price sensitivity scores diverge the most between the highest and lowest earning households for the housing category – higher earners who want to be homeowners may be able to afford pricier houses and mortgages even if they’re surprised by the price tags, whereas lower income consumers may be unable to make it work. Airfare has the second largest divergence, followed by alcohol, restaurants, groceries, and clothing – mostly discretionary categories. Category-level differences suggest that higher earners are more likely to indulge when it comes to pricey purchases in these categories, opting to take the vacation or buy the relatively more expensive clothing and food even if the price is high.