“Unprecedented inflation”, “highest inflation rate in 40 years”, “peak inflation”, and “first waves of a recession shock” are just a handful of ways we’ve been bombarded with clickbait headlines about the current inflation experienced by most of us.
If you are a US adult, you are aware of the inflation happening in the American economy. In fact, Americans see inflations as the #1 issue facing the country, with 70% saying it’s a big problem (source: PEW research). 71% say inflation has impacted their spending (source: Ipsos). And people expect inflation to persist over the next six months (source: Gallup). Which is why it is critical for brands and marketers to be aware of the potential impacts, acknowledge inflations’ existence, have an informed plan to respond to it, and leverage the opportunities the situation presents.
While people tend to blame politicians for the economic hardships, they vote with their spending – or lack thereof – every single day. Mitigating the immediate effects on the bottom line can send brands and marketers down the short-termism rabbit hole. But historically, keeping the big picture in mind, investing in long-term brand health, innovation, and providing value to consumers has proven to be a better strategy.
But is this going to hold true this time around if inflation persists? Do the same strategies apply to the current brand & media landscape? Will consumers behave differently and expect more from brands – given this is yet another crisis following unprecedented challenges?
Embrace the change
Inflation has an immediate and tangible economic impact, and some sectors will be harder hit than others. Some might even benefit from an inflationary environment. Without a more nuanced understanding of the complex dynamics at play, brands won’t be able to come up with an adequate response. Savvy marketers will look to focus on how small changes in consumer behavior can help guide their brand’s behavior. (WARC)
Historically, in times of inflation, people are less likely to buy luxury items, make impulse purchases, plan vacations, and are less willing to pay premium for frivolous claims. But in 2022, things might play out differently. For instance, in the tourism industry, travelers are tired of putting their plans on hold and are seeking retribution against COVID-19 and its grip on their lives. (AXIOS). This could mean less change in travel plans, or consumers opting for a domestic destination or other “budget” solutions as opposed to cancelling plans altogether. Despite airline fares surging, demand is steadily increasing: “About six in 10 Americans are planning at least one summer trip,” (U.S. Travel Association).
Every category has its own set of opportunities
There are some sectors and brands that will do incredibly well in this environment. Either because affordability is a core promise that they just have to amplify (like discount retailers), or because shifting consumer behavior creates an inherent advantage for them to capitalize on implementing a DIY (Do It Yourself) mindset.
This may be attributed to a withstanding behavior that consumers are willing to pay more for products and services that allow them to continue living life, under a consumer-first mindset, from brands they trust and have pleasurable experiences with (Salsify).
If your message already centers getting more with spending less, this is a good time to just turn up the volume, and reach as many people, as frequently as possible.
Other retailers might have an entirely different interpretation of a DIY mindset. When people are tightening their purse strings, personalized recommendations become even more important. This will benefit data-driven retailers that can customize their offers down to the individual level.
In summary, understanding inflation’s impact on your consumer and your category is critical in defining the problem you can authentically solve for. When a brand finds its unique challenge, it is much more likely to come up with distinctive solutions that resonate in the long-term.
It’s the perfect time to pressure-test what your brand means for consumers
Inflation is a tough time for all. And your brand is only one of many purchases consumers will have to think twice about. Don’t make any assumptions about the importance of your category. Invest in doing the research that can illuminate your standing with consumers right now. What does the brand mean for them? How could it add value to their lives during this period? And most importantly: if your brand went out of business, what would consumers miss most about it?
Inflation Requires a New Response
Old habits won’t make the cut, consumers are savvier (and more resourceful) than ever
Higher prices are inevitable and, historically, we have seen companies respond to the high product costs by using techniques that could impact the consumer’s perception for good or for bad. One of them being “shrinkflation”, the process of items shrinking in size or quantity, or even sometimes reformulating or reducing quality, while their prices remain the same or increase.
Not only “having less chips” in the bag, but swapping key ingredients with less quality ones, or removing certain perks in a hotel stay experience. All those changes put consumers in a spot where, more often than not, shifts go unnoticed. On the other hand, sticker shock is apparent when it comes to the products and services used on a daily basis. A venti cup of coffee from Starbucks stood at $2.45 in 2021, but today that same cup of coffee in some locations will set you back $2.95, a 20% increase (CBS News). Gasoline hikes arguably affect consumers’ day to day life the most. The latest data from the Bureau of Labor Statistics (BLS) shows gasoline alone is up nearly 44%.
However, today, consumers are savvier than ever, and they are a click away from dismantling techniques that did not feel right. For example, in 2016, Swiss chocolate brand Toblerone altered the fan-favorite candy bar to keep up with higher ingredient costs. (BBC News). Fans immediately took to social media to express their dissatisfaction. Consumers are especially on alert in periods of disruption and are prone to be more skeptical of brand promotions and tactics when choosing what to opt in for.
For example, continual price increases can contribute to current skepticism. If a company reports a profitable year while also saying that the higher prices are due to circumstances, consumers are quick to brand that as corporate greed. (NY Times). For marketers, it’s crucial to understand the consumer’s perspective and to not underestimate their savviness. Ultimately, you can shrink your product but never shrink the value or perception of it.
Smart ways to bring value
Consumers will “allow” you to raise prices as long as they are made to feel worthy and valued. As a marketer you may not have the choice if prices rise, but don’t sacrifice the emotional value just because the functional may lower in quality or raise in price. And to do so, never underestimate the power of your brand.
When prices increase and wallets shrink, brands must recognize the functional value proposition will be weighed heavier to competitors. Consumers are going to choose the brand they have a connection with.
Let’s put this idea in context. It’s not just a sandwich to feed your hunger, it’s a moment to take for yourself, your piece of mind and enjoy. Perhaps even be reminded of easier days or a person you shared the said sandwich with. So, it becomes more important for brands to link the emotional response their products emit because it can be priceless to consumers.
When brands magnify emotional value, they become something to be counted on and respected for acting in service of the consumer instead of striking against. CPG brands like Dove, are a true luxury in many countries and consumers continue to purchase because it makes them feel good. Their communication is a reinforcement of who you are in this world and that’s what matters, not how you look.
Providing Value with Transparency
As we just mentioned, finding value within your response is key to productively and proactively moving forward. It’s much more than that.
Research (Kantar) suggests that consumers are currently operating under the framework of risk-reduction, not just value seeking. They are looking for a sense of security amid insecure times. You must channel the brand trust and loyalty you already have, framing your brand as the guiding hand and reassurance of buying the best during a time when a dollar is worth so much more.
This includes transparency. Being transparent with your consumer is key to justifying your choices while showing them they still come first. The COVID-19 pandemic provided time for consumers to get serious in interrogating their expectations for brands, becoming vocal on their needs and demands. 94% of consumers have expressed a higher likeliness to develop brand loyalty based on transparent advertising and communication (LabelInsight). This is heightened during times of uncertainty and vulnerability.
As we enter another economically strenuous period for a majority of consumers, this is an optimal opportunity for brands to develop a strategy around product transparency and place themselves in a position where they can be realistic with their consumers, laying out what they are doing AND why. Consumers having a full understanding of what is happening within their favorite brands and products gives them their confidence and purchasing autonomy back, knowing they are aware of what is going on and can make the best choices for them and their families.