By Camille Nicita, Managing Director, Gongos – part of InSites Consulting
From gas pumps to grocery lists, inflation is taking its toll on consumers. In response, more than 80% of Americans are planning to rethink or reduce their spending in the next three to six months and over a third are looking to buy cheaper brands. Even goliaths like Walmart, Target, and Netflix have lost customers or experienced slowing growth amid consumer spending shifts.
As Americans search for areas to cut back, brands can learn from other times of turbulence as they look to develop novel ways to nurture more reciprocal relationships with new and existing customers. Enduring brands will truly understand and deliver on the differentiated value they can, or have the potential to, deliver to customers to prevent them leaving for less expensive alternatives, or completely from the market. Beyond cost-cutting measures, this kind of economic uncertainty often comes with innovation opportunities once unforeseen.
How Inflation Impacts Customers
Rising prices impact how customers shop and spend. With the latest data illustrating the highest levels of inflation in the U.S. since 1981, despite the 5.5% wage growth over the past year, consumers are starting to see their purchasing power erode. Unfortunately, this isn’t expected to end anytime soon.
At the same time, amid supply chain issues and inflation for raw materials, businesses seek ways to cut costs. This poses a dilemma for brands: how, when, and what should be adapted with respect to the final product and service customers receive. There are three common scenarios:
- Maintain current pricing, but risk consumers switching to a lower-cost alternative
- Lower prices in the short term, reduce profit margin, and risk future resistance to price increases
- Maintain current pricing, but shrink the amount a consumer is receiving—also known as shrinkflation
For most brands, any of these scenarios is less than ideal, and if poorly navigated, can be catastrophic. By shifting focus to value creation for the customer and prioritizing customer loyalty through other means, brands can position themselves for long-term growth.
Inflation as an Opportunity
Amidst inflation, while many consumers cut back, they don’t cut back uniformly. Rather, they often sacrifice a want for a need. For example, families across the country are sacrificing summer travel and dinner date nights in order to pay for rising fuel and grocery bills, fix the leaky roof, and save for anticipated “rainy days.” But if brands are able to create and sustain value for customers, price becomes less of a determining factor. The key is to set the customer as the true north, and map out a pathway that leverages human understanding as the guide.
Times like the present provide an opportunity to hone in on customers’ individual goals, values, and motivations. Once those factors are internalized by brands, products and customer experiences can be refined and serve as foundational for future strategy. We can’t always predict external factors, but understanding consumers as humans enables brands to identify new innovation opportunities in the wake of volatility because that empathy drives a deeper connection and the ability to sync with consumers’ enduring needs.
Taking a more human-centric approach, one that practices empathy, communicates in a meaningful way, and positions the brand as relevant even through difficult times is easier said than done. Investments in consumer understanding are often the first on the chopping block when companies engage in cost-cutting. However, gaining and retaining customer loyalty is not a short-term game; and companies that de-prioritize the customer do so at the risk of longer-term shareholder value.
The Interrelationship Between Customers and Employees
When we think about taking care of customers, taking care of employees should go hand-in-hand. After all, employees, especially those on the frontline, are the most direct reflection of a brand’s promise and the window into a customer’s experience. Too often, we see organizations resorting to cutting employee expenses as a way to provide short-term relief to the balance sheet. But in doing so, brands expose themselves to long-term risks, including:
- Customer Experience Impact – From executive-level leadership to the frontline, cost-cutting measures with employees could mean compromises in product and service quality and experience. Think about the last time you went into a restaurant that was experiencing limited staff—how was your overall experience?
- Societal View of Brand Values – Whether they are directly or indirectly affected, consumers take note of companies who prioritize money over employees. In fact, according to a recent study by InSites Consulting of 1,000 U.S. consumers, 69% of Gen Z is willing to pay more for brands who they believe treat employees and suppliers fairly.
Building strong employee relationships isn’t easy and it isn’t quick. It requires resources and cultivating a true understanding of one another. But the hard work of establishing employee loyalty built through difficult times results in stronger commitment during good times.
Focusing on the Customer Has Always Paid Off
This is not the first time brands have been forced to change their approach to a turbulent market. During the Great Recession (2007 – 2009), the most resilient retailers were able to drive 11 percent annual growth. In fact, some of the biggest named companies found opportunities to pivot and succeed during recessions. Microsoft created their consumer segment instead of its sole B2B focus in 1975, Apple created more customer-centric devices and advertising after the dot-com crash of the early 2000s, and Warby Parker was founded right after the Great Recession, when customers who still needed glasses couldn’t find them online. These brands found their consumer connection and used it to generate unparalleled success. For companies looking to manage the impact of inflation while still keeping brand loyalty, these examples go to show that the best, and most pioneering, companies always put customer needs at the center of their innovation strategy.
Taking a customer-centric focus over drastically cutting costs or engaging in shrinkflation is the best way to gain and maintain customer loyalty. Customers will look to shift their spending, but it won’t be equal for every good or service. By listening to customers, understanding their values and motivations as humans, and sharing in the challenges they experience, a brand can successfully stave off the negative impact of inflation and position itself for long-term growth.
As published in Forbes.