How to resist inflation through innovative means From Ipsos

The following is the How to resist inflation through innovative means From Ipsos recommended by recordtrend.com. And this article belongs to the classification: global economy , Ipsos.

Since the second half of 2021, the world economy has entered a new inflation cycle. Three quarters of consumers around the world are worried that price increases will exceed their income growth in 2022. Leaders in the consumer goods industry are facing great challenges: how to launch innovative anti inflation measures and product portfolio? If the price increase is inevitable, should we choose to directly increase the price, reduce the product size or use other indirect methods? Based on the latest research and analysis and the experience accumulated in the past period of high inflation, this article will help you find ideas to tide over difficult times.

I Understand pricing patterns

Understand the price elasticity of different product categories

When different categories of products are faced with the same inflation, the degree of impact is not the same. From 2001 to 2002, Turkey experienced a sharp rise in consumer prices caused by currency exchange rate fluctuations. In 2001, Turkish consumers’ expenditure on food and beverage decreased by 17% compared with that in 2000 (calculated at a fixed exchange rate), but not all categories were impacted to the same extent. The consumption expenditure on packaged meat fell by as much as 31%, while the consumption expenditure on packaged dairy products fell by only 8%. Similarly, the overall consumer spending on personal care products fell by 11%, of which the consumption of paper products fell by 6%, while the consumption of hair care products fell by 16%.

Understanding the impact of inflation on your product category can help you evaluate the potential benefit scale of the innovative scheme. Three drivers affect the price elasticity described above:

Demand elasticity: whether the product category demand is a rigid demand

Substitutability: whether there are many substitutes that can also meet the needs of product categories

Relative inflation: whether the price increase of the alternative category is the same as that of your product category

If demand itself is not just demand, there are a large number of alternative categories, or the cost structure of alternative categories makes them perform better during inflation, your product categories will be more impacted, that is, the price elasticity is higher.

Price elasticity of market segments may be more important

The elasticity of different market segments under the same category is affected by the same driving factors, but there are often subtle differences in performance. Analysis based on historical data and desk research is usually not enough, and primary data research can be a good supplement. In a first-hand data research case of dairy products, a high-end infant formula brand entrusted Ipsos to understand the performance of different market segments in a Southeast Asian country in the face of rising prices.

Through investigation, Ipsos found that although the performance of dairy products is usually relatively stable, the purchase behavior of mothers of infants aged 0 to 7 is not the same affected by the price rise: the price elasticity of the first stage formula milk powder for newborns is the lowest; When the baby is 6 months old, mothers have begun to accept the substitute of formula milk powder. The price elasticity of this age group is 20% higher than that of the newborn group; For older children, the price elasticity difference widened to 30%. This shows that with the growth of infants and young children, formula milk products are more vulnerable to the impact of price increases. The customer finally decided to focus on the innovation strategy of the product line in the neonatal market segment.

In case of inflation, not all categories and market segments will suffer huge demand losses. It is very important to understand the price elasticity of your area of concern before taking action.

Understand competitive pricing

After identifying innovative categories and market segments, you need to understand the cross price elasticity between brands and competitive products: how much will other brands be affected when different competitive products adjust pricing? Pricing proximity graph and strike injury graph are two typical applications of cross price elasticity data in innovation positioning strategies. The pricing competition proximity graph reveals the brand clusters with high cross price elasticity. Brand managers can try to avoid the current pricing competitive product cluster in order to better resist the impact of price fluctuations and complete the extension of product lines at the same time.

Blow – the injury graph reveals which competitive products can cause greater harm to you when you increase the price but not the price of competitive products, or which competitive products will be hit when your products have a price advantage. These insights can help you choose the right renovation project or set the pricing strategy for a specific competitor. In the figure below, bringing the brand away from the Yellow injury cluster area through innovation will bring greater benefits.

II Innovative measures to combat inflation

Highlight differentiation

Through innovative measures to create differentiated advantages, the substitutability of products can be reduced, and the price increase will be less affected. One of Ipsos’ customers is in the Brazilian instant coffee market, which is a highly homogeneous market. Customers hope to find innovations that can stand out in the fierce price competition. Ipsos helps customers put forward a unique concept of “instant espresso”, trying to provide consumers with the same experience as in a coffee shop. Consumers think this concept is highly differentiated. In the next pricing stress test, the demand price elasticity of this innovative scheme is much smaller than that of the head instant coffee brand of this category.

Explore additional selling points

In the period of inflation, consumers pursue value for money. It is not enough to only publicize the basic functions of products. Products with additional selling points are less vulnerable to price increases. Ipsos recently introduced some hypothetical concepts of shampoo to some American consumers. Some products only provide generic efficacy publicity, while others promote additional selling points beyond basic efficacy, such as “environmentally friendly packaging”, “sulfate free” and “silicone oil free”. We find that for every $1 increase in price, the winning rate of the former and its competitors will decrease by 11%, while that of the latter will only decrease by 6%.

Find the right selling points to support higher prices

Not all selling points beyond the basic information are valid. “Price increase admissibility” means the ability of different selling points to support price increase without losing sales volume. Ipsos helps customers conduct a large number of price increase admissibility tests every year. In the case of a global beverage company looking for the transformation of its product selling points, we tested more than 20 promotional selling points and combined them in different combinations. Among them, 2/3 of the selling points were completely ineffective in supporting the price increase. The best performing effective selling points were the information related to “functionality and health”, which could support the price increase of 29%.

After finding effective selling points, marketers need to determine the fit between these correct selling points and their brands. In another test of Ipsos, an Italian food producer in the United States used the selling point of “importing directly from Italy” with the highest price increase. However, when we analyzed a single brand in depth, we found that only one of its brands could match the selling point. If other brands in the product portfolio used the same selling point, consumers would question its credibility.

High end product line innovation

In the period of inflation, marketers usually tend to provide products with low profit margin and low price to maintain sales, and the overall profitability will be affected. In fact, the price elasticity of high-end products and ultra-high-end products is lower than that of mainstream products of the same category. Some luxury beauty products or top infant products will even see the demand increase with the price rise (also known as Veblen products).

If most products of a certain category are turning to the low end, the substitutability of the high-end product line will be weakened. In the period of inflation, the high profits of high-end and ultra-high-end products can balance the declining profits in the product portfolio, which we should not ignore.

Adapt to changes in consumer attitudes and behaviors

Consumer behavior and attitudes will change dramatically during the inflation cycle, for example:

Changes in consumer behavior: according to the latest US consumer tracking data, shopping behavior began to change around budget, purchase cycle, purchase volume, etc.

Changes in consumers’ attitudes: from 2001 to 2002, Ipsos found in the Argentine market that consumers’ attitudes towards risk tolerance, financial optimism and pursuit of new things have decreased significantly after the inflation cycle.

Changes in channel preference: Taking the Turkish market in 2002 as an example, the passenger flow of chain supermarkets decreased by nearly 30%, while the passenger flow of discount stores increased by more than 50%.

Innovation leaders need to anticipate changes in consumer attitudes and behaviors and prepare corresponding product portfolios. The following are some successful examples:

Launch economical oversized packaging, which is applicable to the sales of discount stores to cope with the change of channel preference.

Offer lower base price and trial installation when launching new products to deal with risk sensitive consumers.

Launch independent small package products to reduce the impact caused by the price seems too high.

III Price increase, size reduction or other ways to reduce costs

Reduce size vs. increase price

Reshaping existing products by reducing product size is often used by marketers as a prudent alternative to direct price increases. The change of reduced size often does not promote consumers, so consumers’ perception is not strong, which can effectively prevent the loss of users in the short term. The example in the figure below is from a salty snack manufacturer in the United States. The price elasticity of directly increasing the price is significantly higher than that of reducing the product size.

Marketers can also take the opportunity of adjusting the product size to iterate the product to deliver new information, so as to further cover up the price rise. This flexibility is not available for direct price rise. If handled properly, the freshness created by the remodeling can even completely offset any negative effects of the downsizing.

In a successful case of an American mouthwash brand, the brand reduced the bottle size by 6% and adopted new packaging design and packaging function publicity at the same time. Consumers are impressed by the new design after the transformation, but they hardly notice the size reduction. In this case, brand remodeling has avoided the loss of sales, and even achieved a small increase.

Reducing product size is a short-term effective alternative to price increase. However, with the increase of re purchase, there are some long-term problems that need to be paid attention to:

Consumers pay more and more attention to the honesty, transparency and authenticity of the brand. When downsizing is finally noticed, it may undermine long-term trust.

For categories with high repurchase frequency, the reduction of product size will further shorten the repurchase cycle of consumers, which will increase the risk of consumers switching to new brands.

The design and production of new packaging may generate additional costs, and this indirect cost sometimes offsets the cost of goods saved.

Other cost cutting measures

Ipsos helps customers understand whether the potential benefits of the cost reduction program outweigh the losses through a large number of cost rationalization studies. We encourage marketers to:

Evaluate the impact of product changes on consumer acceptance, and confirm that acceptance has increased significantly or not decreased

Ensure that there is no obvious negative impact on dealers

Conduct risk assessment based on consumer data and fine tune the product / communication scheme

Evaluate whether the cost of redeveloping the product and adjusting the supply chain will offset the saved product cost

Set higher goals and try to improve products rather than maintain existing market data

Pay attention to the actions of competitive products and targeted publicity strategies

In conclusion, these methods should be carefully evaluated through consumer research to balance short-term and long-term benefits.

Ipsos believes that knowledge is the best weapon against uncertainty. Two years ago, when the COVID-19 epidemic first struck, we helped our customers move forward in difficulties by comparing the history of past crisis cycles. Today, with the emergence of new challenges, we still hope to provide you with solutions to tide over the difficulties together.

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