Inflation in the USA is at a 40-year high and prices seem to be rising for everyone, customers and businesses alike. As business costs go up, most companies will need to raise their prices to remain profitable – assuming they have not already done so.
In response to this trend, many consumers have already changed their purchasing behaviors. Common consumer strategies include shifting to cheaper brands, making fewer shopping trips, and prioritizing spending on essentials like food and energy over more discretionary items. Real consumer spending power is shrinking, and there are many strategies for mitigating the effects of inflation and changing consumer behaviors on business outcomes like revenue, profit, and market share.
As companies make price adjustments to protect their business, and to optimize for changes in consumer behavior, these new tactics are likely to also impact their brand – for good or bad, depending on how they are executed. As a result, in this new environment of rising prices, there are real opportunities for strong, strategic, and conscious brands to differentiate themselves.
It is no surprise that people do not like high inflation, especially if it is outpacing growth in real wages. This current situation, however, differs from previous rounds of high inflation for at least two reasons. First, the majority of working adults in the US have never experience this level of price increases, while most of those who do remember what happened 40 years ago are retired and watching the purchasing power of their savings rapidly decline.
Second, this period of high inflation is taking place after two years of collective sacrifice and hardship in the face of a global pandemic. Since 2020, many people have postponed planned discretionary spending such as vacations, concerts, or outings with their children, while others have chosen to simply save money given the uncertainties of the job market. Some have delayed key events that encourage spending such as weddings, home purchases, or even pregnancy (weddings, residential moves, and births are all at, or near, historic lows).
So, as the world appeared to recover and reopen, consumers had money and were excited to start spending it in the hope of getting their lives back to normal. However, all too often, desired products and services were delayed or unavailable due to shipping, supply, or staffing constraints. Indeed, many of these issues have yet to be resolved.
Moreover, prices for everyday essentials have risen, further eroding consumer confidence in things getting back to normal anytime soon. A high proportion of people now worry that purchases they delayed may never happen, and that it will be beyond their control to make good on promises made to children and loved ones during the pandemic.
Who do consumers blame?
Inevitably, consumers have become very frustrated, and it is natural for them to look for someone to blame – and a large number of news organizations and polling firms have taken up this issue in recent months. Depending on how the question is worded, consumers place the majority of blame for high inflation on one or more of the following: the global pandemic; specific government policies; specific political parties or politicians (especially if a rival party is in power); world events such as the military conflict in Ukraine; labor shortages; transportation costs; pent-up customer demand; and corporate greed. Though all of these likely play some role, it is the last one that should give brands pause.
While corporate greed is often hard for consumers to define and describe, it is very easy for them to complain about – and even despise at a deep emotional level. Any time a company raises prices, there is always a subset of consumers that will attribute the increase to corporate greed. And, even though many consumers will not consider this to be the primary cause for high inflation, it is usually still near the top of their list. Moreover, most consumers agree that most corporations are greedy, and they are often encouraged to believe this by politicians hoping that voters will direct their anger at corporations rather than incumbent politicians.
As mentioned earlier, all companies will probably need to raise prices to stay profitable, but the looming perception of corporate greed is likely to affect how consumers react to these price increases. Although politicians may try to shift the blame to corporations, brands are unlikely to be able to protect themselves – neither blaming politicians nor simply stating that “everyone else is doing it” will sit well with consumers. In this environment, price optimization becomes a critical aspect of any business strategy, but it must be done in a way that does not negatively affect the brand.
In political science, one of the more robust findings is that most voters agree that all politicians are dishonest, but they then make an exception for the politicians they themselves voted for (“all members of congress are corrupt except for my representative”, etc.). We tend to find a similar pattern with brands, whereby the very same people who say that price increases are driven by corporate greed are willing to carve out exceptions for some of their favorite brands. This creates an opportunity for strong, well-loved, conscious brands to thrive during times of high inflation, depending on how they execute their pricing strategies.
The opportunity for conscious brands
While price increases are likely to impact consumer behaviors towards specific brands, they are also likely to affect brand perceptions. Is the price increase opportunistic or is it conscious? Is the pricing strategy perceived to be necessary or is it excessive?
Last year, Hall & Partners released a report revealing the global top 100 ‘conscious brands’. A key finding from our research was that the majority of consumers want brands to actively help make the world a better place and, in 2021, conscious brands differentiated themselves by supporting public health and safety programs, actively promoting diversity and inclusion efforts, and sponsoring or enacting green environmental initiatives.
We anticipate that all of these issues will continue to be important; however, this year, brands that are perceived as empathetic to consumer pricing fears – and positioned as weathering the inflationary storm with consumers as opposed to using the global crisis to gouge them – will be much more likely to flourish. Through strategic and empathetic pricing, brands can be perceived as being both responsible and responsive to consumer needs. On the flip side, price increases that appear merely reactionary or opportunistic are likely to exacerbate consumers’ burgeoning fears and disappointments about their ability to ‘return to normal’.
Designing a pricing strategy for cost-conscious consumers
Pricing is one of the ‘4 Ps’ of marketing (along with product, place, and promotion) and, in the coming year, is likely to be the most important. Moreover, just as most consumers have never faced this level of inflation before, the same is true of companies – few decision-makers have ever had to make pricing decisions during a time of such rapidly rising prices.
Hall & Partners know and understand brands and pricing. We are experts in brand strategy, market segmentation, pricing studies, and brand tracking, with a reputation for generating ‘uncommon insight’. We are a diverse group of thinkers, problem solvers, storytellers, brand strategists, and statisticians who believe that ‘uncommon insight’ is discovered through the fusion of advanced statistics and the latest social science discoveries. As such, we are leaders in the science of human decision-making and experts in modelling consumer choice and motivation, especially related to brands and pricing.
We have been studying pricing for decades and, since the start of the pandemic, have helped major technology, food distribution retail/apparel, and financial services brands strategize on how to adjust their prices, and messages, in ways that help rather than hurt their brand. We would love to help your brand flourish in this time of consumer unrest.
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About the author
Sam Sturgeon, PhD, is the Global Head of Marketing Sciences at Hall & Partners. He completed a dual-title PhD in Human Development and Demography and has over 15 years of experience as an applied statistician, demographic forecaster, and mixed-methods market researcher. He loves answering complex questions with innovative research methods and then bringing compelling stories to life through captivating data visualization. His work on marriage and dating has been featured in Politico, the Wall Street Journal, USA Today, the Washington Post, and other publications.