"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 headlines about the current inflation experienced by most of us.

And while the trend is more acute in the United States, where Americans see inflation as the #1 issue facing the country, today's inflation spike is being felt in most parts of the world. Which is why it is critical for brands and marketers to be aware of the potential impacts, acknowledge inflation's existence, have an informed plan to respond to it, and leverage the opportunities the situation presents.

In this article, Amanda Ortiz, Associate at Ogilvy Chicago and Olivia Rindone, Senior Strategist at Ogilvy Chicago look at the changing consumer behavior in times of inflation and strategies brands should adopt to stay afloat and generate value.

Understanding inflation

Embrace the change

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.

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.

Swapping key ingredients with less quality ones, or removing certain perks in a hotel stay experience are examples of changes that, more often than not, go unnoticed. On the other hand, sticker shock is apparent when it comes to the products and services used on a daily basis.

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. 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.

Ultimately, you can shrink your product but never shrink the value or perception of it.

Smart ways to bring value

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 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.

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.

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.

Sources:

1. PEW Research - https://www.pewresearch.org/fact-tank/2022/05/12/by-a-wide-margin-americans-view-inflation-as-the-top-problem-facing-the-country-today/
2. AXIOS - https://www.axios.com/the-summer-of-revenge-travel-a70d9560-64ef-47c5-ac17-1e72d1c99b6d.html
3. Salsify - https://www.prnewswire.com/news-releases/consumers-will-pay-a-premium-for-brands-they-trust-salsify-finds-in-new-consumer-research-301238179.html
4. Kantar - https://www.kantar.com/north-america/inspiration/inflation/2022-inflation-and-risk-reduction-what-brands-can-do