Inflation and Consumer Spending: What Your Business Needs to Know
The movement towards a recession is being felt around the world, and while you’ve likely had many conversations with friends about rising prices in the supermarket, you may not be as aware of how inflation impacts your customers and business.
As of June 2022, the price of food and gas in the United States saw the largest 12-month increase since 1981. This period of inflation is the result of a combination of factors, including the global Covid pandemic, supply chain disruption, and the war in Ukraine. Experts predict that the economic instability will continue for at least a few more years. During that time, it’s important that businesses understand the landscape they’re operating in, what the repercussions will be on customer behaviors, and how they can weather the storm.
While things may seem all doom and gloom, times of inflation can actually be a moment for businesses to take stock, reevaluate how to be cost-efficient, and double down on delivering genuine value to customers. Think of it like going back to the basics and ensuring that your business is aligned with what audiences want and prepared to grow sustainably.
Here’s what you need to know about inflation and consumer spending, and how to tailor your business marketing accordingly.
Rising inflation means decreased consumer spending
As prices go up, more people are reconsidering how they spend, and how often they spend. Generally speaking, people are cutting back on non-essential purchases and opting for the cheaper version of items. In fact, research shows that more than 55% of US consumers anticipate shopping less overall in the near future.
Still, basic staples haven’t been affected in the same way, but people are selecting own-label goods over branded products when it comes to groceries. This is a key insight for businesses, as it signals that there are goods that people aren’t willing to sacrifice; however, audiences won’t necessarily be brand loyal during more turbulent economic times.
Consumer spending is different among different demographics
Inflation hits people differently depending on their location and context. Businesses have to be wary about where their audiences are based and how accustomed they are to dealing with fluctuating prices.
For instance, Europe is expected to see increased energy costs over the winter, and people there can be less familiar with dramatic price surges, so consumers will likely make quick changes in their spending behaviors. Alternatively, Americans have fared better throughout the pandemic, being able to maintain prices and customer relations, so are perhaps less likely to deviate from previous shopping habits. In particular, emerging markets like those found in Latin America are more resilient in the face of inflation, as populations there are more adept at responding to price changes and economic uncertainty.
Elsewhere, in Southeast Asia, there’s less of a consistent consumer sentiment, as some countries have seen an improvement in customer confidence, but others have not.
While there are nuances in consumer spending across regions, it’s important to remember that inflation will undoubtedly shape everyone’s monetary behaviors and lifestyle in some capacity. These are a few of the common core changes:
Restaurant spending is decreasing among adults
Responses to inflation don’t only differ depending on geography, they also change between generational groups. For adults, a noticeable reduction in spending has taken place for dining out.
Generations Z and X have reportedly lowered their spending on food consumed outside of the home by 31%, while Millennials dropped by 24%, and Baby Boomers by 41.6%. Compared to members of older generations, young individuals are more likely to spend money on restaurants and takeout.
Consumers are increasingly looking for digital coupons
One survey reveals that 90% of respondents are now seeking discounts and cashback rewards while shopping online. Because of rising prices, people have become more conscious of cash-back rewards in the past two years, with even high-income households hoping to leverage programs to save money. And, not only are people searching for discounts and cashback schemes, they’re actively using them to decide where to shop and how to spend.
For example, more than 80% of respondents said they were more likely to buy from an online store that offered a type of discount or cashback reward. Meanwhile, 87% of Gen Z and Millennials and 81% of Gen X and Baby Boomers purposely sought out retailers that offer rewards.
Everyone is saving on entertainment costs
“Nice to have” purchases are unsurprisingly one of the first to go for people amid inflation. Streaming services and beauty subscriptions have taken a big hit, as customers rethink what services are a necessity, and which are a luxury. In April, Netflix lost subscribers for the first time in over a decade – close to one million people in total. Other negatively impacted platforms include Spotify, Disney+, and Hulu.
In offline spaces, customer spending on amusement parks, movie theaters, concerts, and sporting events has also dropped. Not to mention, 30% of people say that they plan to reduce going out at night to help alleviate the higher cost of living.
What does inflation mean for marketers?
Now that you have a general feel for consumer attitudes, how do you apply that information to your marketing efforts? Like any successful marketing, your techniques have to be tailored toward what matters to people at a given time. During periods of inflation, follow these three tips to ensure that your marketing is relevant and produces a positive ROI.
Keep a finger on the spending pulse
You absolutely have to do your homework around customer spending and preferences during times of inflation – and you have to do it regularly. In more stable moments, marketers can check in with customers less frequently. However, at the current moment, you should be contacting customers to see how they feel toward your product, pricing, and general messaging. Likewise, you should be reading surveys and interviews from other sources, keeping atop consumer news, and getting insights from the people around you in your daily life. In short, you should be constantly sense-checking what trends are taking place and what new ones are about to surface.
The more plugged in you are to people and real-life scenarios, the better you’ll be at empathizing with audiences and transmitting that into your marketing. Inflation understandably makes people nervous, and whatever vertical you’re working in, you should be sensitive to that anxiety, and take care to speak to customers as a fellow human, not a faceless business.
Define your place among competitors
It can certainly be tempting to raise your prices in times of inflation, but before committing to that decision, consider if it will hinder your ability to be competitive. Instead, delve into your customers’ willingness to pay for your product or service: perhaps they are willing to accept a price increase, but only in exchange for certain features or a longer plan. Or, on the other hand, maybe any increase would immediately cause them to churn.
Take a look at what your competitors are doing too. Have they raised their prices? If so, what were the consequences? How did they communicate the price increase to customers? If you come to the conclusion that a price increase is justifiable, ensure that you carefully communicate with customers in a clear manner. Get to the point quickly, and don’t make any false promises – however, you can reaffirm any points that distinguish you from competitors, for example, if you are still offering free delivery or a unique rewards program.
Target the right audiences
There is never a more pressing time to be in sync with your customers than during inflation. People will jump ship faster than in calm markets, so marketers have to be speaking the audiences’ language consistently or risk swiftly losing customers.
Any content or communication you have with customers should be designed with your consumer personas in mind. Similarly, you should be working alongside data teams to guarantee that all your marketing channels are optimized in the styles that resonate with customers. And, if you haven’t already segmented your audiences, you need to do so ASAP. The more you can categorize the types of users that you have, and carve out what gets the best traction with them, the better you can personalize your marketing attempts.
For example, you might discover that your younger audiences enjoy marketing tactics that allow them to share more details about their situations in the face of inflation. In this case, quizzes would be an effective, interactive way to meet their preferences and allow you to gather the information that can fine-tune your value offering for those user groups.
Inflation is a daunting time to be a marketer (and a human being!) but it is also an opportunity to flex your creative muscles and build deeper relationships with customers. You don’t need to reinvent the wheel, nor make drastic budget cuts – rather, seize the moment to really listen to people, and make decisions that can serve both the business and your community for now, and when things inevitably recalibrate for the better.