The following was previously published in an earlier edition of Marketing Insider.
After more than a decade of price stability from 2009-2020, inflation has run rampant for over a year, with no end in sight. It’s a brave new world for brands, as consumers’ budgets reach their breaking point.
Consumers are fighting back by switching to store brands or purchasing smaller quantities. According to The Wall Street Journal, private labels are starting to regain market share from brands, after two years of losses. And sales volumes have been declining even as prices increase, suggesting that consumers are buying smaller sizes. In February, sales volumes for cereal declined 7.2% on a two-year compound basis, while cleaning-product volumes fell 5.1%, in response to price increases of 9.5% and 7.2%, respectively.
Sometimes the brands themselves are lowering sales volumes. “Shrinkflation” is back in vogue, with some brands opting to reduce sizes rather than raise prices. According to Quartz, Bounty Triples have shrunk from 165 sheets to 147; a 9.75-ounce bag of Doritos is now 9.25 (a loss of five chips); and a “family size” box of Wheat Thins has lost two of its 16 ounces, or 28 crackers. Meanwhile, a 32-ounce bottle of Gatorade now has 28, an implied price increase of 14%, though a company representative claims the bottle is now “more aerodynamic” and “easier to grab.”
And consumers continue to “trade down” to stay within their budgets. The WSJ mentions shoppers trading down from grocery stores like Kroger to discounters like Aldi, and substituting $7 bottles of Tide detergent for $2.50 bottles of Purex at Dollar General. And as sit-down restaurants raise prices due to labor shortages, supply-chain issues and dramatic increases in protein and grain costs, diners respond by eating more meals at home or trading down to QSR chains like McDonald’s, where they also save 15%-20% on a tip.
How can brands fight back against runaway inflation?
*Find creative ways to decontent. Besides shrinking the size of an item, brands can also find other ways to cut costs by reducing packaging, substituting less-expensive raw ingredients, or skipping expensive “nice-to-haves.” Denny’s recently introduced a $6.99, all-you-can eat breakfast of pancakes, eggs and hash browns, with bacon for an extra 99 cents. In this pricing environment, brands need to cut all the “fat” out of their offerings, while charging a little extra for the bacon.
*Target the next pricing tier. As consumers look to trade down, brands might lose business to lower-cost options, but gain market share from higher-cost competitors. The original Carl’s Jr. “Six Dollar Burger” targeted fans of restaurant burgers (then priced around $6) wanting to enjoy the same quality at a lower price point, without a tip. Communicate to consumers in the next pricing tier how your offering can satisfy their needs while saving them money.
*Consider a barbell strategy. At one extreme, brands can provide superior value by offering a small package for a low absolute cost but higher price per unit. These sample/trial/single sizes are what many consumers are now forced to buy as they live paycheck to paycheck. At the other extreme is the “Value Pack,” featuring a jumbo package at a low price per unit, like the bulk sizes found at Costco. Create offerings at these two extremes to target value-oriented shoppers who are abandoning the middle of the market.To borrow a saying from the seventies, brands that help consumers “Whip Inflation Now” will WIN in the marketplace.