Brands are not people, but in many ways, they should act like people. Right now, consumers are in a foul mood as the proportion of Americans who view the current condition of the national economy as fairly bad or very bad has risen from 63 percent in April to 75 percent. Marketers need to understand the mood of consumers who feel increasing prices and shrinkflation are shortchanging them. Companies, on average, charged about 72% more than their input costs.
Americans are changing spending habits as their opposing views on the U.S. economy keep growing amid high inflation. Economists forecast that recession is near and stagnation is problematic in the long term. The National Review reported on Tuesday that Americans are likely to “feel even more squeezed in the months ahead, as they burn through those accumulated savings” since inflation looks terrible.
Private label sales are increasing in double-digits for many categories as consumers drop brands like a bad habit. In the meantime, marketers are growing profitability by shrinking product sizes and rising prices, hoping consumers won’t notice. The news here is that they are noticing.
So what are consumers angry at?
1ne: The continuing costs of inflation eating into paychecks and raises.
2wo: Shortage of new cars they want.
3hree: A SCOTUS slowly eroding the majority wishes of the people.
4our: The media continues to warn that we are entering a recession.
5ive: Record profits at CPG companies. Corporate markups and profits hit record highs in 2021, researchers at the Roosevelt Institute found.
Both markups and profits among 3,698 US-operating firms soared last year to the highest levels since the 1950s, the Roosevelt Institute’s Mike Konczal and Niko Lusiani said in a June brief. The average markup reached 1.72 in 2021, meaning the typical price companies offered to customers was 72% higher than companies’ costs. That’s up from an average of 1.56 through the 2010s or 56% above marginal cost.
The already-excessive power of corporations has been channeled into raising prices rather than the more traditional form it has taken in recent decades: suppressing wages. Consolidation of companies is also a massive reason for increased pricing power. Don’t think, for a second, that your customers aren’t noticing.
In the meantime, it’s expected that over 24 million people will hit the road this weekend despite gas costs. As one economist said, “the higher prices they’re paying for gas means they have to make sacrifices in other areas.”
What should brands be doing?
- Understand the mood of their customers and how it may affect their brand’s positioning and sales.
- Develop a better insight into rising prices and their effect on brand equity.
- Speak to their audience as people who are under stress rather than canned brand talk.
Top executives should evaluate the tradeoff between short-term profit increases and long-term loss of customers. They can’t raise prices, shrinking product sizes, and then leave it up to marketers to regain customers who have defected to private labels.