- Prices have risen at their highest clip since 2012 over the past year.
- Wage gains have failed to keep pace with the rising prices.
- The cost of food, shelter and gas have all risen significantly in the past year. Gas skyrocketed more than 24 percent, rent for a primary residence jumped 3.6 percent and meals at restaurants and cafeterias rose 2.8 percent.
- Prices have risen roughly at the same rate as wages, erasing any gains workers may have hoped to realize via bigger paychecks.
- Brand need to prepare NOW for pinching consumers.
According to the Chicago Tribune ” more pain may be coming, as economists are concerned that prices could rise further due to President Trumps tariffs on many foreign imports. Trump put a 20 tariff on foreign washing machines earlier this year, and the inflation report Thursday showed more than a 13 percent spike in laundry equipment over the same period last year.”
How can brands respond?
1ne: Redefine Value. [inlinetweet prefix=”” tweeter=”” suffix=””]Customers short on cash will focus much more on the absolute price[/inlinetweet]. They’ll go for the 99 cent soft drink rather than the $1.29 container with 50% more volume. To motivate cash-poor consumers, marketers must reverse engineer products and packaging to hit key retail price points.
2wo: Understand Your Customers. There are at least four ways in which customers can respond to higher gas prices:
- Downgrade from premium to regular
- Take fewer trips by car
- Consolidate errands,
- Switch to public transportation; take the same number of trips, but reduce the miles driven per trip by, for example, vacationing closer to home; drive more economically and less aggressively to improve miles per gallon; and buy a specific dollar amount of gas rather than filling up every time, even though this may mean more visits to the pump. Some consumers may even trade in (at a loss) the SUV for a hybrid, an example of how price inflation on one product can cause demand shifts in a second, related, category.
3hree: Increase Relevance. [inlinetweet prefix=”” tweeter=”” suffix=””]You need to persuade customers to cut back their expenditures on other products, not on yours.[/inlinetweet] In tough times, consumers more than ever need and deserve the occasional treat. So, if you are Haagen Dazs, tell the consumer to substitute private label peas for the name brand, but to not forego the comfort of curling up on the sofa with a tub of her favorite ice cream. Strong brands can hold consumer loyalty while increasing retail price points. Weaker brands risk private label and generic substitution.
One thing is for certain: brands that do nothing are going to feel it in their bottom line. Private label sales are already increasing and I predict they will continue to take a bigger share of brand sales.