How Inflation is Changing Consumer Behavior
Part 1 of 2 In Our Series On Inflation + Consumer Behavior
How Inflation is Changing Consumer Behavior
Inflation is at a 40-year high. And inflationary pressure is not going away.
Americans are feeling the strain, especially gasoline and food expenditures. According to Ipsos, 63% of consumers say their household budget cannot accommodate continued price increases.
So, consumers are adapting behavior by eating out less, buying cheaper products, and shopping around.
Most retailers are doing their best to mitigate the impact of these price rises on their customer base. For example, in late 2021, Walmart and Target committed to absorbing many of their cost increases to drive loyalty and ongoing consumer commitment/engagement.
But how long can that last? How much cost can companies absorb without passing it on to their clients? There's a limit to what companies and investors will allow.
Retailers and manufacturers need to build sustainable plans to manage this situation.
This free newsletter is Part 1 of our discussion on inflation and consumer behavior. Don't miss Part 2 (Paid) on the strategies and tactics companies can implement to navigate through inflation. Subscribe below.
Inflation is impacting spending and shopping behaviors
If we look at historical data and recent behavior, we can make several assumptions about how consumers react to inflation.
By understanding consumer behavior, companies can implement strategies to build customer loyalty, take market share, and continue to make profits.
1) Consumers will shop where they perceive the company is doing a better job at managing price increases
Companies that consumers believe are successfully managing inflationary prices will gain consumer foot traffic.
Conversely, companies that consumers believe are not doing a good job at managing prices will experience a decrease in foot traffic.
2) Consumers will shop more often at mass merchandise retailers
Mass merchandise retailers are already gaining share as consumers tighten their budgets.
We saw this during the pandemic, and the trend will continue with inflation.
Some retailers are experiencing a trend of increased visits and smaller basket sizes as consumers look to spend less per trip.
However, rising gas prices may offset the frequency gains as consumers drive less.
3) Consumers will seek out lower-cost private label products
Private label products are becoming more popular as consumers seek to save money.
Walmart, Target, and Amazon have all seen an increase in the sales of their private label products.
4) Consumers will be less brand loyal
Consumers becoming more price-conscious will be less likely to remain loyal to a particular brand. Instead, they will switch to lower-priced national and private alternatives.
Loyalty programs may help to offset some of this switching behavior. For example, a grocery store and gas station partnered for a loyalty program in my area. The more you spend at the grocery store the more points you earn. Then, you can redeem those points for a percent off the price per gallon of gas.
I bet you can guess where I'm shopping and filling up my tank.
5) Consumers will scale back on discretionary gift-giving
Gift giving will decrease. Consumers will be more likely to give "practical" gifts such as gift cards, cash, or experiences rather than physical items. In addition, some consumers will do more DIY gift-giving to save money.
6) Consumers will visit brick and mortar stores less often
As discussed, if gas prices continue to increase with inflation, we will see fewer shopping trips overall. However, this is likely to cause an increase in internet and home-delivery shopping as consumers seek to avoid extra trips to the store.
7) Consumers will look for alternative ways to pay
Buy now and pay later options will become more popular as consumers seek to spread their costs. Other alternative ways to pay include layaway and rent-to-own.
As you can see, inflation has a profound effect on consumer behavior. By understanding how consumers react, companies can make changes to their strategies to remain successful.
But it's important to note that these are just a few possible scenarios. Consumer behavior is dynamic and ever-changing, so companies must be prepared to test and adjust their strategies.
Don’t forget to subscribe to receive Part 2 with strategies companies (and marketers) can implement to navigate through inflation.