The big US brand strength test

With costs increasing for companies across the board, American brands will need to continue to raise prices in order to protect margins. Most firms, however, expect this to be a temporary state of affairs.

Why it matters

Inflation is on the rise in the US as a recovery in demand drives prices up. But for many companies, their costs are increasing faster than they can raise prices (or at least do so at a level that customers will accept). Economists expect inflation to level off in time, but the medium-term effect on companies is likely to be a slight drop in profits.

Takeaways

• A poll cited in the Wall Street Journal finds that consumers are expecting prices to rise by a rate not seen for 12 years.
• Retail and manufacturing sectors are leading the price-raising. Restaurant brands are also raising prices, with many company leaders reading strengths into what is likely a combination of brand strength and heightened consumer appetite after a year of lockdowns.
• Others see higher levels of savings among consumers during the pandemic leading to lower price sensitivity. Raising prices too high, too quickly could soon sour attitudes. Other efficiencies will be key.
• This is no purely economic phenomenon; marketing will play a significant role in effective pricing, with price a crucial gauge in the assessment of good marketing.

Key quote

“[Companies] are enjoying demand, they’re enjoying the high prices they’re getting, but I don’t see them leveraging their businesses to double production … they’re telling you they don’t trust what they see as permanent.” - Steven Blitz, chief U.S. economist at TS Lombard, a research firm, talking to the WSJ.

Sourced from the Wall Street Journal, WARC