The effect of inflation and product shortages on brand equity

SUMMARY: Consumers are facing both higher prices and product shortages. The result so far seems to be that most consumers are holding spending levels, but for the most common products we use, product shortages and higher prices could lead to a defect of customers as they try and get familiar with new brands.

A lot of my clients work with brokers, and they have been communicating bad news. Consumers are trying new brands even when some of their favorite brands are back in stock. Some brands believe they have a lot of brand equity, but they’re finding out that consumers are not willing to pay higher prices for products.

Some brands, like Kia, are charging consumers thousands over MSRP because of chip shortages. Others are rising prices so much that consumers are venting via social media. If any marketer feels that consumers will pay more money because they love the brand, they need a reality check.

When customers attach a level of quality or prestige to a brand, they perceive that brand’s products as worth more than products made by competitors, so they are willing to pay more. But the list of brands that have this much equity is small.

According to HBR “many companies, and even entire industries, routinely raise prices without ever telling customers. For instance, in the consumer packaged goods space, it is common practice to reduce quantity (the grammage of a package, item count, etc.) and maintain the price. This increases the per-unit amount paid by shoppers but keeps the more visible package price unchanged. Alternatively, brands may cut down on trade promotions couponing, and other forms of discounting, raising prices indirectly. For instance, when faced with a shortage and soaring prices for chicken, KFC recently removed in-store promotions for its crowd-pleasing $30 fill-up bucket.

Research shows that after the size of the price increase, the perceived fairness of the motive for it is the second-biggest driver of how customers react

Harvard Business Review

Some people believe inflation will diminish, but that could be a huge gamble. The supply-chain problems are real and not about to vanish overnight. Brands that are working on their supply chain issues are investing in the future. Brands that are just raising prices are going to lose customers.

The other issue that’s pissing off consumers is that some brands are reducing their investment in customer service to save costs. It’s not uncommon to be put on hold for ten minutes or more while you’re being told how important your call is to them. Online chatbots are another huge frustration for customer service. It’s almost like brands don’t care.

Wages are going up, and consumers do have money to spend. That’s good news; The bad news is that everything costs more. When you want to buy something, and it’s not in stock, you’ll look at competitors, which leads to negative brand equity.

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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