How Consumers Are Responding To Inflation And How Your Business Should Adjust
This is a repost of the original Forbes Guest Post
For many years, the inflation rate in the United States has been relatively low, hovering around 2%. However, in recent months, that rate has increased dramatically, nearing 7%. However, if we measure according to the Bureau of Labor Statistics’ methodology from 1980 that figure exceeds 13%. Inflation in specific categories like ground beef has been even higher, nearing 20%.
As prices rise more quickly than wages, many consumers are finding it difficult to afford basic needs. In order to cope with this new reality, consumers are taking a variety of steps.
- Shopping Discount Stores: As Bloomberg reports, many consumers are turning to the likes of Dollar Tree and other discount stores in response to rising prices. Further, around 50% of consumers are responding to inflation by pursuing promotions more aggressively. This can involve signing up for store loyalty programs, using coupons or shopping at outlet stores.
- Using Credit Cards: The number of credit cards in the U.S. has hit an all-time high, with over half a billion cards active. If prices continue to rise at the current rate, more and more people will find themselves in debt.
- Buying In Bulk: Some consumers are trying to combat the high cost of food by buying in bulk. This can involve going to a warehouse club like Costco, which has recently seen an increase in shoppers, or buying food from a grocery store that offers bulk discounts.
What Should Brands Consider Going Into 2022?
While some brands have responded to these shifts in consumer behavior with promotions and discounts, there are limits to how much they can cut prices before it affects the brand's image and long-term viability. Let's explore what brands should consider when it comes to inflation in the next few years.
Brands should experiment with price tiers that appeal to different consumer groups. They may also want to consider changing package sizes, which can help offset rising costs. For example, a brand may want to offer smaller packages for budget-conscious consumers and bigger packages for those who are willing to pay more.
Find A New Approach:
Brands should consider innovating on key attributes that create new buzz and create justification for bigger consumer spending. For example, a brand could launch premium or limited edition offerings that deliver greater value to customers, and thereby reduce the negative impact of higher prices on existing products. During these times, it is important to double down on quality, performance and sustainability.
It's important for brands to stay vigilant and track changes in consumer behavior. In particular, they should watch for signs that consumers are shifting their spending to other categories. While national indicators can provide some sense of overall consumer spending, brands will want to conduct market research or tap into public channels such as social media and product review sites to stay on top of discussions regarding category-level changes. If the signs show a progressive shift, brands may need to consider changes in their product mix or packaging.
Finally, brands should be prepared for a variety of scenarios and take steps to control their brand and products. In particular, they should focus on being agile enough to respond to changing consumer needs. This includes being open about changes in pricing or products, communicating with empathy and focusing on the value your products offer compared to alternatives. It also means tapping customers for ideas or selling to new customers in new ways. All of this translates into building a strong and positive brand image that can reduce the negative effects of shifts in consumer spending.
As consumers and brands continue to navigate financial pressures associated with inflation, it has become important, now more than ever, to work on building value-driven relationships. While it is challenging to address such quick and ever-changing shifts in consumer behavior, it is not new. Brands have an open opportunity to turn a lens inward and to rebuild, establish or maintain values that resonate with customers now and in the long term.