One might be forgiven for thinking that, after the Covid-19 pandemic plagued the market for two years, things might start to return to normal. It appears, however, that we won’t be seeing any such return for quite some time. Inflation rates in New Zealand have been steadily increasing, leading to speculation that a recession might be in the cards.
The pandemic, supply chain concerns, and the rising cost of living have already dramatically impacted shopping preferences, with brand switching and trading down on the rise over the past few years. As the global economy continues to feel the effects of inflation, brands must brace themselves for a continued period of frugality for the foreseeable future.
In such an unpredictable economic climate, what can brands do to avoid loss of capital and ensure that their customers remain loyal? It all starts with having the right tools in place to keep pace with trends in pricing, packaging, positioning, and more.
A more cautious consumer
Over the past two years, the pandemic and rising cost of living have resulted in cautious consumers who think more before spending their money. With inflation continuing to rise, Kiwis are understandably concerned about their personal finances. As a result, shoppers are being more strategic about the way they spend and save money. A behavioural change that results in decisions such as putting off technology/device upgrades, delaying renovations and home repairs, limiting travel/vacation plans and expenses, decreasing spending on take aways, and reducing credit card payments. Skyrocketing petrol prices have also impacted the way consumers drive, including delaying new car purchases and reducing long commutes.
Indeed, consumer consciousness is greatly affecting leisure spending in 2022. With food costs and service fees on the rise, there has been a decrease in spending on dining out (49%). Other leisure activities, such as attending concerts and sports events, have experienced a decline, as well.
How brands can adjust to shifting behaviour
As consumer behaviours shift in response to external market factors, it’s imperative that brands adjust in a way that meets consumers’ needs. As inflation rises, consumers are naturally shifting their focus to more cost-efficient brands, creating increased competition around pricing. And we’re in this for the long haul – our research shows again and again that shoppers are happy to trade down to less expensive brands in various product categories such as food, personal care, and alcohol. So how can brands combat the consequences of inflation?
Initially, brands should begin by considering factors such as price tiering, packaging, and any special offerings. Taking into consideration the economic factors that influence spending, one strategy brands can implement is to adjust their price tiers to appeal to different consumer groups.
When it comes to packaging, it is important for brands to alter sizing of goods to adapt to preferences. When times are tough, many consumers prefer to buy in bulk or choose larger sizes for cost effectiveness; however, not all people are able to afford shopping in bulk. To account for this, brands might consider providing smaller, more budget-conscious offerings so that those who are unable to buy in bulk can still maximise value for money.
Brands can also mitigate spending stress and attract consumer attention by offering incentives. As inflation continues to rise, more and more shoppers will trade down, opting for lower brand and house, causing a decrease in demand for premium items. To protect sale margins, brands should consider offering cost-reducing incentives rather than lowering the prices of premium products altogether. For example, offering a coupon or discount on a purchase will give customers an incentive to purchase the item and dissuade them from looking for cheaper alternatives.
Monitoring consumer sentiment
Whether it’s the COVID-19 pandemic, environmental issues, or skyrocketing inflation, consumer sentiment will continue to shift and change in response to major events. Therefore, it’s crucial for brands to develop an insights-driven approach to fully understand their customers’ wants and needs. They need to get inside their minds, anticipate changes in behaviour, and be agile enough to change course in line with shifting sentiments.
In an unpredictable climate, consumer sentiment can seem like a swinging pendulum that’s impossible to stay on top of. However, through regular monitoring, brands can more easily spot major changes, giving them more time to adapt their products, services, and market strategies to reflect the changing landscape.”
By Sej Patel, Country Director, ANZ, Toluna
