Consumers begin to trade down from brands as inflation bites

It had been coming for some time – even if consumer packaged goods (CPG) executives continued to tell investors that their customers were likely to stick with brands even as prices continued to rise – but consumers are beginning to show price sensitivity and a greater willingness to trade down.

Why it matters

How strong are brands when push comes to shove? It’s not just that people are trading down; as inflation begins to bite people are buying less volume. As this crisis starts to take hold and people become more aware of the potential profiteering from their struggles, it could hold a significant medium-term problem for certain brands if they don’t tread carefully.

The view from the US

As reported by the Wall Street Journal, many middle-to-lower income Americans are hunting for bargains more than during the pandemic as price increases hit every area of their spending.

Some complexity

It’s not just that consumers are trading down, it’s also the case of a pandemic-comparison error, because private-label options were less available during the pandemic when manufacturers focused on higher margin brands, say some analysts.

All around the world

From South Korea to Southwark, prices are rising around the globe. Official figures from the UK’s Office for National Statistics have also found that Britons are buying less when food shopping, in part a response to price increases spurred by the energy crisis.

How to respond

“People know that prices must go up, and sometimes costs have to be passed on. But at certain thresholds a price rise moves from being understood, to the difference between heating or eating,” writes Will Humphrey, strategy director at Wunderman Thompson, in a recent exclusive for WARC.

“By asking and researching those who buy the brand, marketers can begin to understand what fairness looks like, and what people are willing to pay for the brand’s products or services.”

Sourced from the WSJ, Al Jazeera, FT, WARC