Marketing can’t overcome inflationary price increases

Inflation is hitting the middle class the hardest, and consumers are shifting their buying preferences as everyday items become more expensive. Marketers had better take note because consumers are switching brands during the debate about whether we are in a recession. The idea that marketing can overcome price increases is myopic in an era when knowledgeable consumers have a lot of choices.

What exactly is the middle class?

Half of the U.S. population (50%) is in the middle class, according to the latest (2021) report from the Pew Research Center. This reflects a longer-term trend of a shrinking middle class over the past five decades.

  • The middle class constitutes 50% of the U.S. population as of 2021, which is quite a bit smaller than it has been in nearly half a century.
  • Historically, the middle class has been the engine of American economic growth and prosperity.
  • The share of income captured by the middle class fell from 62% in 1970 to 43% in 2014.
  • The middle class is shrinking due to an increase in population at the extreme bottom and top of the economic spectrum.
  • The median income in the U.S. was $65,000 in 2020 (regardless of household size).

Are we in a recession or not?

U.S. bank executives said that Americans’ financial health held up well in the second quarter even as inflation sent gas and grocery bills higher and ate into savings for the first time since the pandemic. Bank executives across the board said consumers – who were primarily able to boost savings during the coronavirus pandemic – were financially healthy, evidenced by solid spending and few signs of credit deterioration.

Consumers are in good shape. They’re spending money. They have more income

Jamie Dimon, chief executive of JPMorgan

Data suggests consumers are seeking alternative product choices in general retail. The result has been an uneven experience across e-commerce and retail as consumers deal with inflation. Consumers are especially aware of price increases of their favorite brands.

Several U.S. retailers have flagged that customers have begun migrating to cheaper products. Others are bracing for more to do so in the coming months. “Customers are aggressively starting to buy our brands,” Kroger, the $33bn grocery chain, told analysts last week. Like-for-like sales of its store brands were up 6.3 per cent in the latest quarter compared with total growth excluding fuel sales of 4.1 per cent.

About 15 percent of U.S. adults said they had bought lower-priced alternatives when shopping for groceries in May, up more than three percentage points from April, according to survey data from Morning Consult. Roughly one in five people are buying a car, a computer, or a mobile phone traded down — up 6 to 7 percentage points month on month.

While some chains say they have yet to see signs of significant brand substitutions, retailers, including Walmart, have reported shoppers buying a half-gallon of milk instead of a gallon or choosing own-brand cooked meats and bacon over branded versions.

PrAccording to market research company IRI, privateabel goods have gained unit share in eae past three months, Retailers as large as Best Buy, Costco and Dick’s Sporting Goods have all highlighted the acceleration.

Not all consumers have been affected equally, however. Morning Consult’s polling shows that baby boomers, who tend to allocate more of their budgets to essentials, were the most likely age group to trade down in May, while lower and middle-income shoppers were also more likely to substitute goods than higher-earning consumers.

Can Marketing Help?

Historically, consumers are more likely to seek value during difficult economic times. That’s proving true in our current environment as people prioritize relevant offers. 

They want coupons and deals to help them stretch their spending as far as possible. Otherwise, they may have no choice but to stay home and not spend at all

Harsh economic realities also mean people value brands that deliver sincere, empathetic, and relatable messages. Just as you are trying to make the most out of the present circumstances, consumers want guidance on how to survive and thrive in these times.

Promotion can provide the shifting balance to your brand against store brands, but obviously, you can’t promote your brand indefinitely. Brands that increase prices while reporting record profits will pay a fee to consumers who have no problem channeling their anger.

The reality is that marketers can’t develop a magic formula that will give consumers a reason to spend more on YOUR brand when your profits are rising. You’re going to lose customers by raising prices, and as the FED raises rates and the money supply tightens, more people will look to save money by switching brands.

Marketing can’t overcome educated and informed consumers who have more choices than ever.

Marketing can’t overcome inflationary price increases

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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