Inflation has hit a 40-year high at 8.5%. This has caused shoppers to change how they evaluate food and lifestyle choices as they can’t afford the same things with the same frequency as they did a year ago. When I was on the brand side (over 20 years ago now!) we used to run 2 plays in the playbook – price up or size down to manage inflation. While I was managing through inflation on the manufacturer side while back this was still what was happening 10 years ago when we went through the same inflationary period.
But things are different now, the difference is the availability of information/ease to make comparative choices/delivery options to fulfill needs. “Choice substitution” has become a shopper’s new super power. If a manufacturer raises his prices arbitrarily a shopper can now easily compare product preferences (reviews), price points (online comparatives) and product features and efficaciousness (product pages) in minutes without leaving their couch increasing the possibility of their product being substituted.
Inadvertently we have added fuel to this shopper super power by segmenting categories and creating an abundance of choice. Take coffee as an example. I love coffee and there are many brands I will choose from. For instance, at Kroger for roasted coffee in store:
- 306 SKUs
- 33 brands
- 8 formats
- 12 sizes
- 18 price points
That’s a lot of choices. So, the ability for a shopper to switch is higher today than ever before. Our latest report on inflation showed that 76% of shoppers know the price of their brands. Also, 70% of shoppers have purchased an alternate brand because of rising prices.
When a shopper’s preferred brand offers a coupon, but another brand offers a marginally lower price, 61% will still purchase their preferred brand. So, while it’s a relief that loyalty isn’t completely out of the question, it’s also clear brands have to work even harder to win and maintain that loyalty.
So, using shopper insights within pricing during this inflationary period is important to understand propensity of your product’s substitution. Also to manage price gap thresholds – trigger levels where shoppers decide a move away from your product is necessary.
So, our key advice for managing inflation is to:
- Enter any pricing or downsizing decisions carefully. Really understand and test any pricing or sizing decision as each category is different based on purchase frequency and loyalty. Whenever we do this type of testing for clients, we simulate both a bricks-and-mortar shelf as well as an online environment and test multiple price points to measure the change in behavior. We also combine it with advanced analytics and simulators.
- The importance to showcase value beyond price to your customers. Really understanding your value drivers is critical to making that happen.
- Offer support to your customers in tangible ways with ideas to make their budget stretch further.
- Understand value drivers and what are the must-haves for a brand. What are the attributes and claims that matter? Some of these may also be a cost-saving and that might be a dual win using more sustainable materials. So, what we do is understand what are the important attributes in driving value? Maybe some expensive component of your pack or product proposition isn’t that important to consumers and you can replace it with something more sustainable.
- Discover your current consumer sentiment – track consumer sentiment at a much higher frequency than traditional quarterly and yearly indicators. Having an up-to-date understanding of consumer sentiment.
- You need to consider new tactics if you want to win new customers, keep existing ones, and meet your business objectives. Let’s look at incentives, for example. If market factors are making shoppers more price-sensitive, then you must develop strategic, almost surgical, promotions to engage your loyal shoppers and prevent them from grabbing the cheapest brand on the shelf.
- Leverage data to understand which customers are loyal to your brand — and which have lapsed, or brand-switched, recently. Then you can create personalized offers based on shopper behavior. You could then offer a smaller price discount to loyal customers — to maintain that loyalty — and a higher value incentive to a lapsed or new customer, to encourage brand trial or reengagement.
- Understand the propensity of your product’s substitution. Price gap thresholds-trigger levels where shoppers decide a move away from your product is necessary.
Contact us for more help with shopper insights during these inflationary times.