High inflation is changing consumer buying habits and presenting brands with some of the greatest challenges for a generation. However, there may be hidden benefits for marketers
Inflation is profoundly impacting consumers’ relationships with brands, presenting marketers with serious challenges. But could it also hold long-term opportunities for CMOs?
According to Mindshare UK, just 16% of people agree with the sentiment: “I feel confident that I can take this hit with minimal changes.” More than eight in 10 (85%) of us will be on the look-out for cheaper alternatives when shopping.
As inflation rises and more consumers look to save money in any way they can, marketers are having to review their strategies. PepsiCo’s chairman and CEO Ramon Laguarta recently said the company would make retaining consumers the top priority as the cost of living rises.
“We think the consumer is very early in this process of adjusting to the new inflationary environment,” he said on an earnings call in April, adding that he expected new consumer behaviours as they adapt to the new realities.
The food sector faces the most serious impact from inflation. Some manufacturers are retrenching. Danone, for instance, will put greater emphasis on its essential product lines. “We will go back to fundamentals, rather than what was fashionable at one time or another,” its chief executive, Antoine de Saint-Affrique, told the Financial Times in May.
Chris Burggraeve is founder of marketing strategy consultancy Vicomte and former global CMO at AB InBev. He thinks one key issue for marketers is sustainable pricing power. “This comes from long-term strategies that focus on stakeholder value rather than short-term shareholder value,” he says. “The companies that are suffering from margin compression at the moment are those that don’t have sustainable pricing power – they haven’t invested in developing their brand so that customers are willing to pay more for it.”
Burggraeve cites the example of Amazon Prime: subscription prices for the service in the US have recently risen by 17%, a move the company felt confident about because of its brand loyalty. Proctor & Gamble is also in a good position here, argues Burggraeve. “CMOs need to lead the fight in the boardroom to persuade the CEO and the CFO to invest in the brand so that in this new world of higher inflation their companies have effective, sustainable pricing power.”
Brands that feel unable to increase their prices have another option. Recent research by Havas Media Group identified a 77% net increase in the number of people who say it is more important that brands help them to save money than before the crisis. There was a 75% increase in the number of people saying it is more important for brands to offer products and services that are priced fairly in terms of quality than before the current economic downturn and the rapid rise in inflation.
However, CMOs must look beyond pricing. Jordan James is head of key holders at Unlockd Marketing; he has worked with Anytime Fitness and Crowne Plaza Hotels & Resorts, among others. He encourages CMOs to focus on perceived value or added value over competitors. For example, benefits like longer-lasting or harder-wearing products will be increasingly appealing, he argues. There will also be potential to tap emotional appeal, such as offering a treat for the family. “There’s also a place for a focus on tradition,” he says. “As a society, tradition calms and stabilises us.”
When times are hard and brand loyalty comes under pressure, manufacturers must be ready to listen to their customers more carefully so that they can respond to demands and preferences at a quicker pace.
A focus on user-generated content (UGC) can help here, according to Ed Hill, senior vice president EMEA at Bazaarvoice, a retail technology provider. “UGC is all about connecting with consumers, building community, and creating a conversation between customers and a brand,” he says. “It isn’t about the questions they should be asking, but about listening and responding to customer feedback to understand wider sentiments towards a product offering or the brand itself.”
Hill points to kitchen paper brand Plenty, which used what it learned from customer reviews to help create ‘Handy Towels,’ a single-sheet paper product for multiple rooms in the home that can be use with one hand.
Similarly, Unilver’s UGC identified a demand among its consumers for a Keratin Smooth dry shampoo. In the absence of such a product, the company promoted other dry shampoos in its lines alongside the Keratin Smooth shampoo.
Loyalty programmes offer marketers another opportunity to retain increasingly promiscuous, price-focused consumers. During the pandemic, 62% of businesses reported that their loyalty programmes kept customers engaged in the crisis, according to Antavo, a loyalty management platform. Tiered programme owners – where those customers who spend more are placed in higher tiers offering more generous rewards – have reported a 1.8 times higher return on investment compared to those that do not offer tiers. Meanwhile, nearly three-quarters (72%) of companies surveyed planned to revamp their loyalty programmes over the next three years.
“Businesses need to be increasing their investment in experimentation,” says Dan Peden, product director at marketing agency Journey Further. “Whether it’s on a website or in a store, having an experimentation team or agency will help fuel customer insights and improve your customers’ brand experience. When done properly, experimentation allows you to challenge what you thought you knew about your customers and remove your opinions from the conversation.”
Necessity, it’s often said, is the mother of invention. CMOs who are prepared to think more broadly and cast themselves as thought leaders in the boardroom have an opportunity to reimagine not just their market strategies, but their brand’s entire ethos.