How brands can survive in inflationary environment
By Joseph Ekeng
Rising inflation has been a major challenge for the Nigerian economy in the last couple of years. The inflation rate rose to a 17-year high when it hit 19.64 in July 2022. It has continued to rise month after month and in January 2023, settled at 21.82%.
This was one of the key issues for voters as they queued up to choose a new President for the country on February 25. Consumers are worried as they are constantly bombarded with high prices of commodities, thus putting pressure on their income and livelihood
This is why it is critical for brand owners and marketers to acknowledge the impact of inflation, have a grounded strategy to respond to it and then leverage the opportunities that the economic crisis presents to drive growth. Knee-jerk approaches like cutting marketing spends, investing blindly, and trying hard to mitigate the effect on the bottom line can cause brands to miss out on unique opportunities to expand. However, brand owners will get a better result when they focus on the big picture, have a long-term plan for brand survival and commit to a constant flow of value to their consumers.
It is important to note that inflation is not going to have the same effect on all segments. Some categories, like the FMCG brands, traditionally cope better during an economic crisis than, say, brands in the luxury segment. Therefore, in other, for brands to be able to develop a strategy that will work for them, they need to first understand the complex dynamics at play. This will require a deep study of changing consumer behaviours and the factors responsible for those changes. This will help them develop a tailored response to the crisis. “Without a more nuanced understanding of the complex dynamics at play, brands won’t be able to come up with an adequate response. Savvy marketers will look to focus on how small changes in consumer behaviour can help guide their brand’s behaviour,” Amanda Ortiz an Associate at Ogilvy Chicago explained.
JideBabatope, a Lagos-based brand analyst agrees. He also stressed that the inflationary environment is an opportunity for brand owners to be more creative in their product design strategy. “FMCGs product portfolios are elastic, meaning the kind of products they manufactured to have many substitutes; hence these companies can redesign their product portfolio into cheaper and more affordable brands while being intentional about quality.”
So here are key considerations marketers must focus on as they come up with survival strategies.
Every category has its own set of opportunities
As stated earlier every sector is unique and reacts differently to an inflationary environment. The brands that thrive during economic crises do so mainly for two reasons. Either because affordability is in their core promise (and they capitalise on this) or that shifting consumer behaviour favours them.
So, for brands whose communication is already focused on spending less to get more value, this is the right time to capitalise on the message. However, for other brands, understanding how inflation impacts their target market will enable them to structure a more personalised recommendation that resonates with consumers.
“This will benefit data-driven retailers that can customize their offers down to the individual level,” Ortiz said.
It’s the perfect time to test what your brand means to consumers
During inflation, there is pressure on consumers’ limited resources because of weak purchasing power. As a result, they are forced to reduce their shopping list. Non-essential commodities are sacrificed for essential commodities. Every smart brand owner wants to be on the second list, and the way to know if they belong there is through consumer-centric research that offers clarity on changing consumption patterns.
Through research, brands can know where they stand in the minds of consumers. They can also know what they mean to consumers and what value the brand brings to consumers during the period. And also important, data acquisition can allow them to plan a more precise response when consumer behaviour patterns do not favour them.
Taking consumers for granted can prove fatal
During periods of inflation, higher prices are inevitable. And in a bid to survive the rising cost of sales and guarantee profitability, companies resort to various techniques that could have both positive and negative impacts on consumers. One such technique is “shrinkflation”. This happens when companies reduce the size, quantity, quality or even reformulate their product while prices remain the same or increase. While it is acceptable for brands to find a way to balance their books during periods of economic crisis, they must do it responsibly, ensuring that the interests of the consumers are not jeopardised. Taking consumers for granted can result in long-term damage to brands.
With the benefit of the internet, today’s consumers are very knowledgeable and savvy. They are alert in periods of disruption and are prone to be more sceptical of brand promotions and tactics when choosing what to opt-in for. And because they have more options at their disposal, it’s easy to switch loyalty when they sense tactics that don’t feel right.
“For example, continual price increases can contribute to current scepticism. If a company reports a profitable year while also saying that the higher prices are due to circumstances, consumers are quick to brand that as corporate greed,” Ortiz explained.
So, in difficult times, brand owners must strive to understand consumers’ perspectives and not take their interests for granted.
Ultimately, it might be okay to shrink the product, but it must not affect the value or perception of the brand.
Focus on emotional value
Experts believe that consumers may not likely resist price increases as long as they are made to feel worthy and valued. There are moments that marketers are forced to increase prices, but they must do it in a responsible way, without neglecting the emotions of consumers. They must never sacrifice their brand’s emotional value as they implement reduction in functionality or a price increase.
When brands magnify emotional value, what they get in return from consumers are trust and a deeper sense of loyalty. Consumers feel a stronger connection because of what the brand represents. For instance, CPG brands like Dove, are a true luxury in many countries and consumers continue to purchase because it makes them feel good. Their communication is a reinforcement of who you are in this world and that’s what matters, not how you look.
Providing value with transparency
According to research, close to 95% of consumers said they have a higher likelihood to develop brand loyalty based on transparent advertising and communication. This is even more so during moments of crisis and uncertainties.
So as the inflation rates continue to soar, and most consumers face economically challenging times, this presents an opportunity for brands to come up with a strategy around product transparency and place themselves in a place where they can earn more trust and loyalty from consumers.
Marketers must not be afraid to come clean and be more realistic with their consumers by talking about what they are doing and why. When consumers know what is going on within their favourite brands, it gives them more confidence in the brand and a sense of being in control.
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