How Consumers and Brands Are Responding to the Rise of Inflation
• • • • • •
After remaining relatively dormant for more than a decade, the pandemic has helped bring back inflation, forcing changes in behavior for consumers as well as brands. Suzy has data and insights breaking down both.
After existing as what the Associated Press called “an economic afterthought for decades,” inflation has returned. We’ve seen the biggest year-over-year jump in consumer prices — seven percent — of the past 40 years. “Core inflation,” which excludes energy and food prices that tend to change frequently, is up 5.5 percent this past year, the highest such rate since 1991.
Suzy’s Founder and CEO Matt Britton said during a recent Suzy “State of the Consumer” conversation, “Is the Price Right? The Impact of Rising Costs,” that inflation is “emerging as one of the top economic challenges in 2022.”
With increasing prices, spurred in large part by pandemic-related supply chain issues and government assistance programs directed at citizens, both consumers and brands are already changing their behaviors. Britton presented data from a Suzy study of 1,000 consumers, breaking down how they are responding to this inflation surge. He also covered the ways brands can handle the rising prices with Mark Rechtin, Director of Insights and Sales Planning at Kiolbassa Smoked Meats, and Brad Thompson, President of Synthesis Revue Management, a pricing consultancy firm.
Here are some key takeaways:
Consumers are confused and concerned
According to the Suzy study, 45 percent of consumers do not understand why prices have risen. Britton observed that such data is understandable, given the complexities behind this particular wave of inflation, which is happening as other parts of the economy — unemployment dips, wage increases — show very positive signs of pandemic recovery.
Confused or not, 60 percent of consumers report inflation will have a major impact on their daily lives. One in six say they’re concerned about affording basic necessities like groceries, gasoline, and personal care products, all of which are among the areas consumers tell Suzy they’re noticing price hikes the most.
This can lead to less consumer spending in certain categories
Consumers are “forced to bear the brunt of this inflation,” Britton said. Ultimately, a tightening of their belts, he added, “will probably come at the expense of other more discretionary purchases that consumers need to make,” likely in the luxury goods and travel categories.
“Consumers are not going to stop buying milk for their family,” Britton said. They might look for cheaper brands of everyday products they need, he said, but it’s the less-critical expenditures that consumers will slash.
If prices continue to rise, high percentages of consumers tell Suzy they’ll first give up dining out (49 percent), vacations (45 percent), and new clothing purchases (42 percent).
There are brands with greater “elasticity” than others
Brands that provide true consumer needs are those that have the most loyalty and will likely suffer little from this inflation surge, even if they’re forced to raise prices. 41 percent of consumers said they will always buy from their personal care preferred brand, while 39 percent shared the same feelings about their pet food.
Still, lifestyle brands such as Nike, Adidas, Apple, and Samsung won’t see consumers jump ship, according to the Suzy survey.
“They’re kind of locked into those ecosystems,” Britton said of these companies’ customers. He indicated that those brands can most take advantage of “price elasticity.”
Consumers are on the hunt for deals
Consumers tell Suzy they won’t mind changing where they shop if they’ll get a better deal on the products they want. Among the places consumers say they’ll shop because they expect cheaper prices: Dollar Stores, Walmart, and Aldi grocery stores.
Furthermore, one in every two consumers Suzy surveyed said they’ve used a coupon or discount service the past three months.
“With rising prices, and consumers seeking out discounts and discount codes, offers are more important than ever before,” Britton said.
Brands can’t be afraid to make tough decisions
Brands might reasonably balk at the idea of raising prices, but the reality is they probably have to — and probably should.
“We’re being subjected to these price increases; we’ve seen meat alone go up 50 percent on our input, so there’s just a massive wall of costs coming at us,” said Rechtin of Kiolbassa. “And we’re forced to pass those along. We can’t dally along and wait and see or we’re going to be out of business.”
He added that some companies might consider reducing the quality of their product. As far as Kiolbassa’s concerned, though, retaining product quality is a “north star,” and the company does not want to risk losing devoted customers if they allow the product quality of their product to go south.
“Raising prices is always difficult for companies,” said Synthesis President Brad Thompson. “The concerns about losing share, losing volume, plant capacity, it’s always a concern, but I think the question is in this kind of inflationary environment, if not now, when? [Brands] really have to take a step forward. You can’t let your input costs accelerate faster than your prices.”
For more information on how consumers and brands are responding to this recent surge of inflation, watch the entire State of the Consumer webinar at Suzy.com.
