Should brands care about shadow inflation?

Inflation isn’t just about the price consumers pay for a product or service going up – brands also face trouble when consumers have to pay the same for less – in the wake of Covid and amid supply chain disruption and labour shortages across the world, brands need to consider shadow inflation.

The idea: getting less for the same price

Instead of raising prices, many businesses have preferred to pare back services. Fleshed out in a New York Times Upshot piece, the concept of shadow inflation becomes more evident in light of labour shortages and supply chain problems.

• It’s an expansive idea that ranges from customers waiting longer for their online orders, less frequent cleaning of hotels or restaurants, or fewer product options.
• The problem at the macro level, effectively, is that miscalculations of what a certain amount of money can buy can then lead to mistakes across all of the inflation-adjusted effects on people’s lives from salary increases to public transport fares. Hitting people in real terms is a political and commercial minefield.

The digital complexity

An interesting point raised in the Times piece looks to how variable the idea of a drop in service quality can be: “Is online check-in at a hotel a desirable timesaving feature, or a loss of personal touch that has real value?”

Why it matters and what to do about it

One of the primary arguments for long-term brand building work is to reduce price sensitivity, casting your brand as such a safe pair of hands that when the time comes to raise prices your buyers will accept the change and grow your margins.

The cost of an experience mismatch, however, is different, newer territory. Ideas like “experience debt,” as deployed by the insurance firm Aviva, or systematic approaches based on what matters most to your customers will be essential to making the right decisions.

Effectively, cutting corners is not a quick and easy decision for the short term and marketers need to be thinking about how they can help defend perceptions for the medium and long term, and to be the voice of the consumer protecting what really matters.

Sourced from the New York Times, WARC