WINNERS AND LOSERS OF INFLATION: FRESH INSIGHTS TO ADJUST TO PRICING SENSITIVITY

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As the world is going through a recession, the challenge every business now has is: what will be the impact on consumer behaviour? The pandemic taught us that there’s no such thing as the ‘new normal’ – any turbulent period is constantly evolving and the only way to stay on top is to adapt your business to it in every sense, starting from how you approach research.

You cannot rely on old data when pricing sensitivity fluctuates and consumer confidence is unstable – actually, that’s exactly when you need to look at the context and the anchors that drive decisions on the shelf over time. Use research to respond, not react, to pricing sensitivity as every crisis has its losers – but also those who, by employing the right strategies, come out on top.

Pricing strategy

To help brands feel the consumer pulse under ongoing inflationary pressures, the EyeSee team undertook a comprehensive study on shifting sentiment in new circumstances conducted on 6,500+ respondents using a tech-driven approach leveraging virtual shopping and conjoint analysis. Here’s what the study setup looked like: 

Is ‘shrinkflation’ a smart move? Think long about volume adjustment

One of the strategies brands embrace during uncertain times is increasing the prices of their products. The findings showed a noticeable trend for categories that are essential and are bought less frequently, such as body wash and washing-up liquid: there is an obvious switch to smaller packaging within the same brand when the prices go up.

This, however, does not mean brands should opt to decrease the volumes of their packs – it can be risky in the long run since consumers might feel tricked if not properly communicated with. Although considered essential, consumers can postpone purchases in these categories and search for better deals elsewhere in case their favourite brands increase prices. So, while it seems counterintuitive, now is the time to think about testing and widening your portfolio – from different pack sizes to entirely new products with added benefits – not only to intercept this delay in purchases, but to truly understand what your consumers need and how you can further support them. 

Pricing strategy

Crisis is the mother of innovation (for those interested in winning)

When it comes to categories that are bought more frequently, like chips and cereal bars, the study findings showed that once prices increase, shoppers are more inclined to search for cheaper alternatives. So, when talking about chips, most shoppers are quick to jump to a different brand altogether – and since there is a great variety of these products, they’re easily replaced. Therefore, price increase leads to a significant drop in brands’ penetration when 1/3 of the brands increase prices? 

Since the options in this category are vast, having a variety of products makes a winning strategy – and this is where innovation comes in. It is not enough just to observe the changes in consumer needs but to react to them, which is why it is crucial to keep on innovating and developing new products that fit the transforming needs.

Pricing strategy

Never underestimate the need for self-care under stress 

Even with high inflationary pressures impacting almost all aspects of everyday life, some categories are untouchable no matter how high the cost gets. Bacon and beer are two such categories – the insights showed no sensitivity to price increases, no switching between brands, and that the bestsellers remain the best (and some even better) when the prices increase! Seemingly, there is no room for compromise when it comes to ‘feel-good’ purchases, even or especially during high-stress situations such as inflation. What this means for brands is that every category has the potential to support consumers, but only through research will you be able to map out these products! However, what consumers still don’t look for is private labels – even when prices increased by as much as 25%, private label brands were still not getting added to the cart! 

These findings were only from the first wave of the study, and even though the respondents only had one shopping trip as a task, it is evident that many new trends are already taking place even after just one trip. What all of this indicates for brands is that navigating inflation is not as simple as just having the right price or volume pack for consumers – being transparent and honest about the changes you are making and maintaining your brand reputation in the process are just as crucial. 

So, how can brands tackle shaken consumer confidence? 

  • Do not rely on past data – every crisis has a unique impact, so make sure you are researching with a mix of methods to tap into the current needs of your shoppers
  • Do not trust your gut – although it might seem counter intuitive, innovating is the only way to actually prepare for the stable times with an upper hand
  • Do not stick to one strategy – to truly tune into the changes the evolving crisis will bring, it is vital to look at the full context to feel the pulse of consumers

By: EyeSee

This article was first published in the Q2 2022 edition of Asia Research Media

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