Companies are naturally trying to cut as much of the ever-shrinking market as possible - with the vast majority focusing mainly on bargain pricing or volume offers. But this will not be enough to retain customers and brand preference in the long term.
In times of uncertainty and rising costs, brands typically choose one of three approaches: increase price, reduce margin or cut costs. While price increases lead to good spirit among shareholders and other stakeholders, consumers tend to react in the opposite way. By reducing margins, brands take the burden on themselves, but paradoxically it is harder to convince consumers that this is actually happening when the price remains the same. By cutting costs, companies fight against price increases without impacting the customer, but this often goes hand in hand with product shrinkage, compromises on quality or a reduction in customer service. While all these approaches are effective in fighting inflation, they often lead to negative consumer sentiment or brand devaluation. It is therefore better to handle them with the utmost care.
The answer to the question of how brands should behave to successfully survive periods of high inflation is offered by a study by Ogilvy Consulting Value-based Innovation: How brands can thrive in times of inflation. It recommends moving away from traditional promotional offers and investing in activities that have a real benefit for consumers as well as a positive impact on the brand. Using insights from behavioural science, the study also describes what is going on in consumers' heads and what emotions they are experiencing right now.
"Inflation is not just an economic phenomenon, it's also a psychological phenomenon - it's a psychological shorthand for things getting out of control."
William Galston, The Brookings Institution
HOW DO PEOPLE PERCEIVE AND REACT TO INFLATION?
In a period of dramatically rising inflation, consumers are much more price sensitive. This sensitivity is generally more pronounced among lower-income people and for essential purchases. Many consumers are willing to shop around for the best price, while others will cut back on unnecessary products and services or switch to cheaper alternatives, which presents both opportunity and risk for brands. As is common in crises, people tend to look for culprits - or at least causes. This translates into increased distrust of the large corporations that they believe are profiting from inflation.
To deal with this concern, people are actively seeking information, while at the same time wanting control where possible. In other words, consumers often subconsciously see their purchases as a way to have at least some control over the situation. This is the biggest challenge for marketers today: to focus on a deeper understanding of the psychological motivations behind people's (not just shopping) behaviour. Here I would remind you of the now winged quote by David Ogilvy: Customers don't think about how they feel, they don't say what they think, and they don't do what they say. Therefore, understanding how people react to negative external stimuli is key to properly assessing the situation.
This is where behavioural science helps us. Humans have always had a deep-seated fear of the unknown. In the behavioral sciences, this phenomenon is called ambiguity aversion, and it causes us to naturally prefer familiar things to the unfamiliar. The current uncertain economic situation and high inflation reinforce this negative feeling. People are worried about the future and dealing with existential concerns. Brands that are really interested in helping need to do activities that increase people's sense of control and thus help to alleviate uncertainty.
To do this, brands can use a principle called operational transparency, which Sam Tatam, global head of the behavioural sciences team at Ogilvy Consulting in London, writes about in his new book Evolutionary Ideas. This principle gives people a sense of control even where they don't really have it. For example, it is used in lifts: the buttons to close the doors rarely work, but they give people a reassuring sense of control. Similarly, it is possible to use the principle of costly signalling, or being transparent and visibly showing how a brand actually helps people.
WHAT EMOTIONS DO CONSUMERS EXPERIENCE?
Ogilvy Consulting in London conducted a text analysis for the study, looking at how people express themselves in the context of inflation and rising prices. They came up with four key themes:
Frustration
- Rising prices hit hardest on those who were already in a bad financial situation. This inequality is the source of much frustration with the current situation.
Fear and worry
- Consumers are caught off guard by rising energy bills and the rate at which food prices are rising. They are worried about the future and fear that they will not be able to afford what they need.
Increased distrust in marketing
- In addition, they are more sensitive than ever to “unfair pricing practices”, such as promotional offers that are not really bargains or downsizing products while keeping the price the same.
"Us versus them” thinking
- Collective pronouns in advertising and marketing communications are a thorn in the side. Why? Consumers believe that they are not on the same boat with the brands and that companies are simply not going through the same rough patch as they are.
BRANDS, THE BALL IS IN YOUR COURT
For many individuals and families, 2022 is the worst economic period they have ever experienced. The outlook is dim - even in August, we still can't see the light at the end of the tunnel. As a result, consumers themselves are looking for clear information, reassurances from government and brands, and they want the state and companies to actively support them. As with government messages, brand messages that are not backed up by real and meaningful action are met with increasing cynicism - and are often indiscriminately criticized on social media.
Brands are making their positions known and slowly backing away from gestures that are obvious and don't cost much effort. Because if they want to establish a long-term relationship with their customers, they need to care about their needs and offer them real added value. In the aforementioned study by international experts from Ogilvy Consulting, you will find a useful framework to help you take the first steps to finding such innovation for your business, including a range of examples from different industries. Quick action is needed. Brands that have already switched to this modus operandi are deservedly reaping the brand fruit. And a message to those that haven't - your window of opportunity is slowly closing.
Source: mam.cz
