How Will Price Increases Impact Consumer Purchase Behavior?
Over the last year, unprecedented inflation has caused dramatic shifts in consumer purchase behavior. According to Gartner research, 45 percent of consumers were extremely concerned about price increases heading into 2023.
Simultaneously, more than half of consumers have traded down in the past month in everyday lower-priced industries like consumer goods. While inflation appears to have peaked, high prices remain a concern for consumers. Therefore, it’s important for brands to understand how ongoing inflation will impact consumer behavior.
Squeezed Shoppers Trade Down on Branded Products
With persistently high prices eroding their purchasing power, consumers are trading down more. Four out of the top five industries consumers traded down the most in the past year were in consumer goods categories such as groceries and household products (Figure 1).
By trading down to lower-priced store brands, consumers can retain the same quantity of product they’re buying while staying under their total shopping budget.
Conversely, consumers traded down much less in higher-priced and specialized industries such as automobiles and home electronics, citing the perceived value of branded products against lower-priced alternatives.
In addition, Gartner research shows when consumers impacted by price increases consider trading down, they're consistently more likely to choose private-label brands as their preferred alternative to branded products. More than 50 percent of consumers have already traded down to private-label brands in the past year.
Private-label brands are executing two strategies to capture market share: one, a general category approach with products branded by category or, two, a single-brand approach where a single brand spans across multiple categories that position products to consumers in different ways.
Protecting Your Brand From ‘Trade Downs’
The consumers who stated they would continue buying a traditional brand over a private-label store brand said they would do so because the brand consistently delivers quality products and services, indicating consumers will still prioritize quality where they can. When it comes to certain brands, consumers consistently point to quality, functionality and unique features as being differentiating factors (Figure 2). These are the attributes that retail chief marketing officers should focus on in their messaging.
Actions for Retail CMOs to Protect Branded Products in 2023
Retail CMOs must proactively develop promotional strategies to counter trading down, depending on their product:
- For lower-priced, fast-moving industries like consumer goods: Increase single-size product promotions in the near term if large pack size and pantry loading promotional effectiveness doesn't limit trading down.
- For higher-priced, slower-moving industries like personal electronics: Evaluate consumer purchase cycle changes and offer trade-in, rebates or free add-on incentives like warranties to prevent loyal customers from trading down.
Focus on showcasing the value and benefits of your product to consumers. This can be achieved through video, iconography and imagery that will reassure consumers and improve their trust with the brand. For example, visually showcasing the differences between branded products compared to cheaper alternatives will reinforce the benefits a consumer is receiving back in exchange for spending more on the more premium brand vs. trading down to a lower priced brand.
Greg Carlucci is a senior director analyst in the Gartner Marketing Practice specializing in insights and guidance for marketing leaders in the consumer goods industry.
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Greg Carlucci is a senior director analyst in the Gartner Marketing Practice specializing in insights and guidance for marketing leaders in the consumer goods industry. Learn more about marketing and consumer trends at the Gartner Marketing Symposium/Xpo, May 22-24, 2023 in Denver.