Changing Economic Paradigm: Inflation, Consumer Behaviour and Brand Purpose

The pandemic is not even officially over but one of its dreaded after-effects threatens to derail the world economy. Financial analysts are not whispering about the recession anymore, they are busy navigating it. And so should your brand.

Inflation is currently the highest it has ever been in 40 years. Which means consumer behaviour is not about wants versus needs anymore but prioritizing their essential vs non-essential needs. As much as 63-percent of consumers in the lower-income as well as higher-income households say their household budget can’t keep up with continual price increases.

In times like these brands have no choice but to go back to basics in order to appeal to their consumers and shift to a more value-oriented marketing strategy.?

The Inflation

Several key factors have created the “perfect storm ” for the rising of inflation, including two years of pandemic devastation, high energy costs, and supply chain breakdowns to name a few. The cost of everything is going up all over the world – from food to gas to rent, and everything in between has become 12 to 75-percent more expensive than before.

Brands and businesses need to understand that inflation has an immediate and inescapable economic impact. Some sectors will be harder hit than others, and some even benefit from an inflationary environment. For example, commodity producers like oil and gas and metals are obvious beneficiaries of rising inflation, and what obviously gets hurt is a sector like auto where the margins are low, and manufacturers can’t pass on the price increase to buyers.

Yes, an inflation means consumers will spend less, but understanding that their underlying needs won’t be any different. People will still buy goods and services; they will just be looking for more affordable products to balance their reduced spending power. This will present an opportunity at retail for private label brands, as consumers are forced to make tradeoffs given higher prices of white label goods. Quality alternate products will always provide greater appeal for buyers looking to maximise their value for money quotient.

The Consumer

In order to cope with the record-breaking inflation, consumers have no choice but to make some serious adjustments to their lifestyle and re-prioritize how they spend their hard-earned money.?

Some consumers are abandoning their high-street shopping habits to start budgets and look for better deals at discount stores. Others are changing their dietary habits, skipping restaurant reservations for more affordable meal options. All the time, people are looking for side gigs or moonlighting or taking up odd jobs like walking dogs for earning extra cash.?

Agile brands are quick to grasp there’s no one size fits for all solution to market forces during an inflation.? There’s a lot of variety in terms of consumption patterns during an inflationary environment , not all consumer buying behaviour is the same. For example, when people start eating out less at restaurants, they spend more on food products they will consume at home. Some product purchases are postponed, while some others are bought in smaller quantities. For some products, bulk buying may be more preferred because of their cheaper wholesale prices.?

Inflation causes these remarkable changes in how consumers react to the economic climate. To remain relevant, there is a lot of consumer behaviour complexity to unpack for brands of all sizes and shapes.

The Brand

The implications of the current inflation for companies and brands couldn’t be more clearer: it is about focusing on resiliency and cost but also making intentional bets for longer-term growth. The aim should be to shift from a red ocean to blue ocean strategy .

Brands can only unlock greater growth from surgically reinvesting in areas like marketing and commercial spend optimization to create uncontested market spaces. With consumer sentiment and behaviour shifting from month to month, it is imperative to communicate frequently with the consumers to reiterate the brand proposition. Brands need to enable rapid decision making through test-and-learn sprint cycles , and be willing to quickly adapt operations to an ever-changing market environment in order to thrive in an inflationary environment.

In these difficult times, consumers appreciate honest, upfront communication. Therefore, transparency on price increases may not be as risky as some companies may fear – if done the right way, they may provide an opportunity to appeal to your customer’s loyalty. The flip side of this is to remember that consumers are willing to pay more for products and services that allow them to continue living their life largely unhindered – and they will go to great lengths to accommodate the pre-inflationary status quo as much as possible.

Bottomline you can’t escape is that inflation is difficult for both brands and consumers. Firms need to look at a specific category in which they operate, and they need to respond to inflationary market forces in different ways depending on what they find.?

During these volatile times, brands have ?to stay nimble and adjust to changing consumer needs in an agile and focused manner. Brands need to meet these consumer needs without increasing prices, which is easier said than done. Lessons of past inflationary periods suggest that investing in your long-term brand health, focusing on innovation, and providing increasingly greater value to consumers are time-tested?strategies for brands who emerge? stronger than their peers from an inflationary market.