When inflation is high the cost of living rises and wages, although rising too, never quite keep up. This has an impact on our pockets. But in addition to the economic consquences of inflation, there are subtler cultural consequences too. That’s something marketers need to understand.
Kate Muhl, a consumer insights expert and VP, analyst at Gartner, shared this insight. “It’s important to think about the idea that there’s more happening with inflation than just economic impact and consumer spending. Those effects start to fade. We’re not where we were a year ago — but lots of consumer attitudes and behaviors are still ripple effects out of that initial inflationary moment.”
What the research shows. The 2023 Gartner Cost-of-Living and Price Sentiment survey revealed the following:
- A third of households reported financial hardship due to price increases with the most impact felt by low and low-to-middle income households.
- 38% of respondents reported cutting their discretionary income (a YoY increase of 15% on 2022).
- More than a third have increased spending on store brands and increased their use of coupons.
- Over 40% report switching to generic brands, store brands and less expensive products in at least one product category.
- 57% reported postponing a milestone event (such as a wedding or vacation) due to cost-of-living pressures.
Against this background, consumers and marketers are divided on what responses are appropriate. CMO priorities include increasing the availability of a product or service, offering special deals and increasing rewards and benefits. Customers agree on the special deals, but their other priorities are keeping prices steady and, interestingly, not seeing high-level executives get pay raises.
In Muhl’s view, this reflects a growing sense, especially among younger consumers, that the system is “rigged” in favor of the wealthy. “A lot of this is about consumer sentiment, culture,” said Muhl. “How does it feel? What are people’s prevailing opinions about how the world is working? Those things matter to brands.”
This doesn’t mean marketers should blindly switch to their customers’ priorities. “Consumers are consumers,” said Muhl. “Our job is to be marketers, but as marketers we have to realize that this disconnect exists and use the tools available to us to try to close that gap.”
The right responses. This would be a good time, Muhl believes, to prioritize narratives that speak to thrift and savings and to focus on those brand values most relevant to your customers’ experience of inflationary pressures.
“This is just not the time to get into luxury positionings (with some exceptions) — luxury for its own sake rather than premium or quality,” Muhl said. “Brands need to really think about what their core values are and act from those where appropriate.”
Why we care. The past three years should have taught us that our sentiments, our culture, does not necessary align precisely with real world events. For many of us, deeply felt emotional reactions to a global pandemic did not necessarily coincide with COVID-19’s real-time impact. As the pandemic receded, pandemic-induced behaviors persisted — as did anxiety and uncertainty.
Similarly with inflation. Positive economic indicators and a slow but steady decline in inflation has not relieved foreboding about a recession. Inflation-triggered behaviors and attitudes will not automatically dissipate as inflation recedes to a tolerable level. Marketers need to be aware, sensitive and, as always, transparent in responding to consumer sentiment.
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