Are consumers going to abandon brands that raise prices?

SUMMARY: Prices are rising on almost all consumer products, but consumers often look at alternatives when prices rise. Too many brands feel they have more brand equity than they actually have, and they will lose market share as they raise prices.

According to the WSJ, “companies across many sectors are contending with rising costs from coffee to aluminum and shipping as the recovery from Covid-19 gains steam. That is leading to higher prices for many goods, pushing U.S. inflation to rise at the fastest pace for more than a decade”.

Are consumers going to pay higher prices for their favorite brands?

One retailer said he would become more aggressive with his private label merchandising because he makes more, and the prices are 30-45% lower than national brands. The real question, however, is will consumers notice that prices have gone up?

I talked to someone who sells products through the grocery channel, and he said that orders have declined as prices have increased and that his client (he’s a broker) is apprehensive. In other words, some brands are learning that they don’t have as much as brand equity as they hoped.

Most of the price hikes in April and May were for big-ticket consumer goods, such as cars, furniture, and appliances. Just three main categories — used vehicles, new cars and trucks, and furniture — account for more than half of the rise in the price of goods since January 2020, according to Capital Economics.  But it’s now shifting to grocery items and other brands.

As a product’s price increases, consumers tend to search for the closest substitute that is a cheaper alternative. This process can evolve into an endless spiral of supply and demand.

Today Apple even announced that the iPhone 13 is going to be delayed because of supply shortages. OMG! Do you mean I can’t buy a new iPhone?

Wages are going up, but the real reason behind rising prices is simple: suppliers have not yet recovered from previous COVID and regulatory constraints. Eventually, prices will stabilize, but the media loves to sound the alarm over rising prices and scare people.

Yes, this is a form of inflation, but as a leading economist just said, “it’s transitionary,” not permanent. However, that being said, some prices will never go decline even as supply channels loosen.

In my house, we have already started substituting brands whose prices have gone way up. Harvard Business Review says “some products have a much more immediate and dramatic response to price changes, usually because they’re considered nice-to-have or non-essential, or because there are many substitutes available,” explains Avery. Take, for example, beef. When the price dramatically increases, demand may go way down because people can easily substitute chicken or pork.”

Many brands and senior marketers are going to find that consumers are willing to switch to lower-cost alternatives and that their marketing efforts, to date, have not led to a high level of brand loyalty. As I had said before, companies need to focus more on reducing supply chain costs and improving supply chain efficiencies.

The worst thing that can happen now is that some corporations report record profits while increasing profits. Consumers feel they should share the pain, and man people feel the effects of these brands increase and are forced to choose between brands they like versus brands that deliver.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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