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Thriving in inflation: Three ways to create promotions that build trust and influence shifting consumer behaviors

Challenging times typically force consumers to make difficult choices

As inflation continues to burn strong late into 2022 (and with no more government aid coming to soften the blow), more and more consumers are being forced to adjust their shopping behaviors. During previous inflationary cycles, many consumers made one or more of the following changes to their shopping behaviors:

  1. They made fewer shopping trips.
  2. They would often “trade down” from premium brands to cheaper alternatives, often private label brands. 
  3. They spent less on nonessentials, but they did continue to indulge in small pleasures, like flowers, fragrances or sweets.
  4. They made fewer impulse purchases.

Thus far in 2022, inflation-weary consumers around the globe are indeed making many of these same choices. Recent research from NPD Group indicates that in the first three months of the year, US consumers made 5% fewer shopping trips than the same period last year, and they purchased 6% fewer items during those trips. And their confidence in their purchasing power has not grown much, if at all, in the past few months. According to CNN, 8 in 10 consumers surveyed in June said they were planning to rethink or even reduce their product spending in the next three to six months. 

In addition to shopping and purchasing less, US consumers are definitely trading down, and they are doing so in increasingly large numbers. More than four in 10 shoppers surveyed by FMI indicate they are buying more store brands than before the pandemic, and 77% said they intend to continue in the future. 

In the UK, consumer behaviors are also shifting. Recent research by McKinsey reported that fully 70% of British consumers have changed their shopping behaviors because of inflationary pressures.  Trading down is now common practice, according to the report, as more than a third of those changing behaviors are now testing private label brands. UK spending on non-essential items has also been trending down, holding at about 80% of pre-pandemic levels, with much of that spend shifting toward work-related expenses (e.g. fuel for the commute), according to Reuters.

McKinsey further reports that rising prices are now the number one concern for consumers across much of Europe, with inflation outweighing all other concerns (COVID-19, Ukraine, extreme weather/climate change, immigration, etc.) combined in some countries. In the UK, 67% named rising prices as their primary source of concern; in Spain 55% are most worried about rising prices; in France, 54%.

Promotions: a powerful tool for influencing these shifting behaviors

While these changes in consumer behaviors present challenges to retailers in virtually every category, promotions represent our greatest opportunity to influence those behaviors to our advantage. Influencing these behavior changes, however, begins with consumer trust. When budgets are squeezed, shoppers most often turn to brands they trust for both fair prices and for value. Earning their trust in challenging times requires careful promotion planning and analysis. In our experience at XCCommerce, clients have the most success leveraging promotions to influence consumer behaviors when they include these three objectives in their promotion strategies:

  1. Managing price perception
    The old adage “perception is reality,” may never have been more true in retail than it is now. Constant and often sensationalized media coverage of inflation has consumers highly sensitized to rising prices, even when inflation has shown some signs of cooling in many places. A recent McKinsey study reported that 93% of European consumers perceived that prices on goods they typically purchase were rising. In many categories, they perceived prices to have “increased significantly” from even just the previous 4-6 weeks.  

    That perception affects the reality of their spending behaviors, and hence why understanding the impact of any price change on price perception must become a foundational element of any promotional strategy. Understanding which items affect price perception helps successful retailers separate their brand perception from constant inflation noise. Promotions that positively influence price perception build trust with consumers and can encourage a shift in the share of spend –even in non-essential categories –to their brand.
  2. Getting creative with cross-promotions
    No matter how well we manage price perception, however, nothing will change the hard reality that many consumers are struggling to make ends meet. We have seen several clients have success by helping ease the pain consumers are feeling with cross-promotions for the most essential (or expensive) items, even if some of those items are not items in their assortments. For example, offering gas or grocery cards (even for use at other retailers if gas and groceries are not in your assortment) is an obvious way to encourage spending in non-essential categories by offering some relief on essentials.

    Other clients have looked beyond cross-promoting essentials and instead built trust with creative cross-promotions on experiences that appeal to their target consumers. The shift toward an experienced-based economy is still gaining momentum as more people change the way they prioritize and spend their money. Microsoft’s Advertising Network reports that searches for tour operators are up 45% compared to 2019, searches for tourist attractions are up 14% compared to 2019 and click-through rates for events, shows & cultural attraction click-through rates were up 86% year-over-year through the first quarter of 2022. Clearly, experiences are earning their fair share of consumer spend, and they are a priority on many household budgets, even when budgets are tight.

    Creative promotions that include offers for experiences – or in fact are experiences themselves (think in-store concerts) – can help shoppers balance their lifestyle desires with their basic needs, and can thus be very effective influences on consumer behavior.
  3. Encouraging small indulgences
    History tells us that consumers will continue to indulge those small indulgences, even when budgets are tight. This trend is sometimes referred to as the “Lipstick Effect.” When prices rise, some consumers will forgo big-ticket luxury products they can no longer afford and instead spend on smaller luxury items (like premium cosmetics). And therein lies the opportunity for smart promotions.

    We have seen many clients successfully influence shifting behaviors in their favor by making it easier for consumers to indulge in those impulses that bring them small joys through strategic discounts and – once again – creative cross-promotions.

There are of course countless permutations and variations to these tactics that make it challenging to design promotions that effectively influence shifting behaviors. But if we focus on promotions that add meaningful value to our target shoppers lives and make it easier for them to navigate the difficult times, we will engender greater trust. 

And more trust leads directly to more loyalty and greater lifetime value – the most important metric of all.