How Brands Can Adjust Marketing to Reassure Customers amid Inflation
Inflation has been the big consumer story of 2022. But how is it affecting customer attitudes, and how can marketers respond to safeguard customer loyalty and buttress engagement?
J. Walker Smith, Chief Knowledge Officer, North America, at the data analytics and brand consulting company Kantar, checked in with Street Fight to share original research on customer attitudes toward inflation and discuss how marketers can shift practices to best address this challenge.
What risks does inflation pose to brands? Are some industries more affected than others?
During inflationary cycles, people prioritize more aggressively. Prioritization is normal. But during periods of rising prices, people think harder about what they really value. Things that don’t make it to the top of the list are areas of lower priority where people will look to save as much money as possible.
So inflation puts a lot of brands under price pressure. This is especially true of products that are more habitual or products that are bigger ticket. Much of this prioritization manifests as substitution. Some of it is simply not buying or buying less frequently.
How are marketers addressing those risks? Where are the current gaps in strategy?
Typically, brands respond to price pressure by subtracting value. Promotions to make consumer purchases cheaper. Smaller sizes (at the same price) to make internal costs cheaper. Etc. Brands will also try to control other costs that impact what consumers see or don’t see, including trimming ad budgets or increasing promotion budgets. The general effort is to make price the overriding objective and thus to de-emphasize everything else.
Are there differences in how audiences think about inflation? I.e., older versus younger, men versus women? How does this shape marketing?
In our research, the biggest differentiator of how consumers respond is income stream. Not how much money people have but how people earn money.
We call consumers who live paycheck to paycheck “Cash Flow consumers” and they generally react to economic downturns by ‘trading out’ – they have no financial reserves, so they just quit buying many of the things low on their priority list, or they start buying at much longer intervals.
We call consumers with a steady paycheck “Income Statement consumers” because they have some income they can rely on and budget against — the stability of income flow gives them confidence to buy in bulk or to ‘trade out’ to other, cheaper brands or to find smarter ways to budget.
We call consumers with large wealth reserves “Balance Sheet consumers” because they are relatively insulated from downturns (unless equity markets are hit hard) — they simply postpone things and start budgeting a little more than normal. Thus, there is no one-size-fits-all marketing response. Marketers much customize according to the kind of consumer they are reaching. Every brand franchise has some mix of these three types of consumers.
What are some of the core principles of an inflation-adjusted marketing strategy?
The critical thing for brands is to add value, not simply subtract value. Research has shown that brands that advertise during downturns do better over the long term and often over the short term. Research has also shown that brands that introduce major innovations during downturns fare better during downturns and much better afterwards. The idea is to give consumers something that will add enough value to keep a brand (or a category) at the top of the priority list so that people will look elsewhere to save money.
During this particular moment in time, risk exposure is as big of a concern for consumers as price-value. Inflation is wholly unfamiliar to the current general of consumers. It is piling in on top of widespread, pandemic-induced anxiety. Inflation is hitting people at their most vulnerable (things like the Great Resignation or people moving, etc., all of which create some exposure for people as they undertake new things). And inflation is just another part of the general climate of uncertainty.
These four things add up to a heightened sense of risk exposure. So, the opportunity for brands is to address price-value in the broader context of reducing risk for consumers.