Will retailers find it harder to pass along price increases in the months ahead?
The Labor Department last week said U.S. inflation reached another four-decade high in January, accelerating to a 7.5 percent annual rate. Consumers haven’t fully felt the sticker shock so far, but they may very soon.
A healthy economy supported by stimulus spending has helped consumers ease the pain of steady hikes in prices across categories, but government subsidies connected to the stimulus have mostly ended.
Consumers, having indulged less on travel, restaurants, entertainment and sporting events, also had more money available to spend on consumer goods, but such discretionary spending has rebounded as the economy has opened up.
On Coca Cola’s fourth-quarter call last week, James Quincey, chairman and CEO, said crisis environments that involve “a lot injection of money into the economy” similar to the pandemic’s stimulus checks are often followed by continued inflationary pressures amid compressed incomes. In those environments, pricing power — whether through product innovation, marketing and execution — becomes more critical in pushing through price increases.
“It’s easier to do pricing in a stimulus environment where everyone else is going up,” said Mr. Quincey. “It’s much harder when there’s a real squeeze on incomes.”
Consumers may also become more price conscious as inflation pressures earn more headlines. A new study from Yelp’s Economic Average shows consumers’ concern with inflation is the highest on record.
Inflation is further expected to be a major theme around mid-term elections with accusations being made of corporate profiteering amid record profits across corporate America.
Many economists predict price growth will peak in the next few months before inflation slowly moderates, assuming no new COVID-19 variants arrive to sidetrack the economy’s recovery.
Speaking to Advertising Age, Gary Stibel, founder of New England Consulting Group and former P&G brand manager, believes marketers will have to work harder to hide price increases — shrinking packaging, launching loyalty programs or offering larger-sized value packs — or make noticeable product improvements to justify a higher price.
He further says marketers shouldn’t be afraid to talk about inflation and offer money-saving solutions.
“Too many brands are like deer in the headlights,” said Mr. Stibel. “They take naked pricing. They render themselves vulnerable.”
- Coca-Cola (KO) Q4 2021 Earnings Call Transcript – The Motley Fool
- Inflation Related Reviews Reach Record High in Q4, According to the Yelp Economic Average – Yelp/Business Wire
- What Does Inflation Mean for American Businesses? For Some, Bigger Profits – The Wall Street Journal
- Democrats Blast Corporate Profits as Inflation Surges – The New York Times
- Companies See Fattest Profits in 70 Years, Complain of Inflation – Business Insider
- How Marketers Should Adapt To Rising Inflation – Advertising Age
DISCUSSION QUESTIONS: Will it become more difficult for brands and retailers to pass through price increases to offset inflationary pressures in the months ahead? What advice would you have for brands and retailers struggling to make pricing changes and adjusting their messaging?