February 14, 2022
The Labor Department said last week that inflation in the United States hit a new four-decade high in January, accelerating to an annual rate of 7.5%. Consumers have yet to fully feel the sticker shock, but they might very soon.
A healthy economy supported by stimulus spending helped consumers ease the pain of regular price hikes across all categories, but stimulus-related government grants have mostly ceased.
Consumers, who indulged less in travel, restaurants, entertainment and sporting events, also had more money to spend on consumer goods, but such discretionary spending rebounded as the economy recovered. opened.
At Coca-Cola fourth quarter call Last week, James Quincey, chairman and chief executive, said crisis environments that involve “a lot of injections of money into the economy” similar to pandemic stimulus checks are often followed by inflationary pressures. continuing amid compressed incomes. In these environments, pricing power – whether through product innovation, marketing and execution – becomes more critical to push through price increases.
“It’s easier to price in a stimulus environment where everyone is going up,” Quincey said. “It’s a lot more difficult when there’s real revenue pressure.”
Consumers could also become more price-conscious as inflationary pressures hit the headlines. A new to study of Yelp’s economic average shows that consumer concern about inflation is the highest on record.
Inflation is also expected to be a major theme around the midterm elections, with accusations of corporate profiteering amid record profits at corporate America.
Many economists predict that price growth will peak in the coming months before inflation slowly moderates, assuming no new variants of COVID-19 arrive to hijack the economy’s recovery.
Talk to advertising ageGary Stibel, founder of the New England Consulting Group and former P&G brand manager, believes marketers will have to work harder to hide price increases – cut packaging, launch loyalty programs or offer more value packs. great – or make notable product improvements to justify a higher price.
He further says that marketers shouldn’t be afraid to talk about inflation and offer money-saving solutions.
“Too many brands are like deer in headlights,” Mr. Stibel said. “They take naked prices. They make themselves vulnerable.
DISCUSSION QUESTIONS: Will it be more difficult for brands and retailers to push through price increases to offset inflationary pressures in the coming months? What advice would you give to brands and retailers who are struggling to change their prices and adjust their messaging?
“The other option is to implement more sophisticated pricing strategies that present consumers with a more balanced basket.”
“Context matters. Some industries and categories will have an easier time pushing reasonable price increases and others will not.”
“Passing through price increases will be difficult, particularly in the food, drug and mass sectors and among outlets that position themselves as a value option.”