- Manufacturers of packaged goods are planning more price increases on products as inflation climbs.
- Marketers plan a range of tactics to make price increases acceptable to consumers.
- But some are starting to express concerns that the increases will reach their limits with buyers.
As inflation climbs and businesses raise the prices of packaged goods to
subscriptions, marketing chiefs are now tasked with finding ways to pass on rising costs to consumers.
Packaged goods companies have steadily raised product prices over the past year, and many said on first-quarter earnings calls that more increases were ahead of them, citing rising inflation.
CPG giant Procter & Gamble raised prices in all of its categories over the past fiscal year and has planned further increases in June and July. Unilever, owner of brands like Dove and Ben and Jerry’s, raised prices more than 8% in the first quarter and warned more hikes were on the way. Oreo maker Mondelez raised prices 5% in the first quarter and forecast single-digit increases in early May.
CEOs have widely expressed optimism about the ability to keep raising prices since all of their competitors were doing so. But some recognized consumers will not accept price increases indefinitely. “Obviously we’re all concerned about elasticities and consumer reaction,” said Ramon Luis Laguarta, chairman and CEO of PepsiCo.
Marketers predict arguments to support price hikes
P&G said on its earnings call that it would focus on frequently used products and highlight the superiority and environmental benefits of products such as its laundry detergent in its advertising, while offering products at varying levels of priced and distributed in dollar stores. Coca-Cola Chairman and CEO James Quincey said the company would emphasize affordability and use a combination of pricing, packaging and promotion strategies to ensure its brands earned “the right to pricing”.
Different categories of businesses face unique supply chain issues, such as those sourcing ingredients from Ukraine or being impacted by the global chip shortage. Smart marketers should now work with economists and figure out how long high inflation is expected to last in their category and clinically manage their portfolio, said Chris Burggraeve, former CMO of Coca-Cola and AB InBev.
Large CPG companies, he said, tend to have three price segments: a high-end consumer, the largest buyer base, and value-conscious, price-sensitive customers. The portfolio should reflect the fact that when inflation is high, some buyers will turn to the lower segments.
“The best answer for any CPG player is to ensure that you play in each price segment and that the profitability of the brands you offer in each of them are neutral in terms of margin if you connect upwards or downwards. down,” said Burggraeve, who now leads marketing. Vicomte consulting firm.
But some tactics could alienate consumers
Mark DiMassimo, founder of creative agency DiMassimo Goldstein, predicted the ad would reflect the inflationary environment.
“Minimalism really spreads when people really need to back off on purchases,” DiMassimo said. “Entire climates of ideas flow from this – people tend to buy into the ideas that help them rationalize what they need to do anyway: either buy less, eat less, consume less.”
An era of minimalist design followed the financial crisis of 2007 and 2008, for example, particularly among direct-to-consumer lifestyle brands like Warby Parker, Glossier and Everlane, as reported by Vox. And the launch of “Real Simple” magazine came a month after the dotcom collapse.
The need to support price increases should keep ad spending healthy, according to Andrew Lipsman, senior analyst at Insider Intelligence (which shares a relative with Insider). Some of it can turn into brand advertising, for the benefit of television companies; and performance-based digital channels, like Amazon and other retail media platforms. The budgets will likely come from Facebook, which has already lost ad spend since Apple’s privacy changes made its advertising less effective, he said.
Beyond advertising, some companies engage in more cynical short-term tactics that risk alienating consumers. “Shrinkflation” – where manufacturers and retailers reduce the size of their packaging but sell the product for the same price – is on the rise. U.S. lawmakers have also raised concerns about price gouging, where companies have raised prices by far more than their own input cost increases. Advocacy group Accountable.US alleged in a recent report that the 10 largest US retailers increased profits to $99 billion and distributed $79 billion to shareholders in 2021, while raising prices for consumers.
When shoppers respond to price increases by negotiating lower, retailers with strong private label brands could benefit, as could Target and Walmart, which said they would continue to keep prices low; and dollar stores.
Former P&G chief marketing officer Jim Stengel has a five-step “marketing 101 playbook” for price increases: don’t overdo it; be honest with partners and consumers about why; continue to advertise and seek to compose the “value” message; if possible, associate this message with a new or reframed benefit; and plan well: “Stay close to consumers and the competitive environment,” he said.
Ultimately, the winners in an inflationary environment are the companies that had already put years of groundwork into their price elasticity.
“You have companies that have had the due diligence to build pricing power: they were made for this moment,” Burggraeve said.