Gerald Breatnach is a lead in the Strategic Insights team at Google. Marleen Smit is an industry director for retail at Google Netherlands.
Prices are rising fast around the world — so fast that many marketers working today were children the last time inflation reached such high levels.
Inflation in the Netherlands peaked earlier this year at 9.7%, and remains at elevated levels as energy and food prices soar. And in Sweden, the latest data shows inflation reached 8.5% in June, the highest level since 1991.
At the same time, we’re seeing lower consumer confidence and value-seeking behaviours. People are doing their research before they spend, leading to a 30% jump in search interest for the phrase “buy 1 get 1” based on year-over-year comparisons. We’ve also seen a 45% surge in search interest for the phrase “loyalty program” over that same period.
In this high-inflation world, marketers are faced with the challenge of ensuring their brands can confidently navigate through the turmoil and find smart solutions to satisfy fast-changing customer needs.
There is ample evidence that maintaining marketing spending in a downturn pays back when the economy recovers. But in the short-term, the pressure is on for businesses to adapt, drive efficiency, and maintain sales.
We spoke to a range of industry experts — including professors and the chef of a Michelin-starred restaurant — to understand how businesses and brands are navigating the current inflationary period.
Here’s what they had to say:
Rethink your product mix
Goutam Challagalla is a professor of marketing and strategy at the International Institute for Management Development in Switzerland:
“Consumers don’t feel good when they see companies raise their prices. They think: ‘You’re just passing your cost increases across to me’. They may understand it, but it doesn’t make them happy. And they view ‘shrinkflation’ as a sneaky trick.
“Marketers need to be thinking deeply right now about how to keep their customers happy and maintain brand loyalty in this situation.
“Based on my experience, I’ve seen that at most companies only 20% of products generate 80% of revenue.
“So instead of making, say, 15 varieties of toothpaste, focus on producing and marketing the most popular toothpaste and sell it at an affordable price to the mass market. Try to keep standard prices steady. Stop wasting time, effort, and money on products that aren’t performing.
“At the same time, we need to acknowledge that inflation affects wealthy people less than it does the general market. So look at your inventory and see if you could potentially go upmarket with a super-innovative product, then charge more for that premium item. Wealthy customers are expecting prices to go up. They’re ready for it.”
The alternative to ‘shrinkflation’
Ravi Pillay is on the faculty at the University of Pretoria’s Gordon Institute of Business Science and was an advisor to the managing director for Nestlé in East and Southern Africa:
“Now is the time to set aside big, splashy brand-building exercises in favour of more creative exercises that benefit consumers.
“Marketers need to really look with a magnifying glass at each product they sell, using value-based methods to see exactly which components are causing inflationary pressures. Then companies need to examine their value chains to see where those pressures can be managed. Sometimes you can make changes to manage costs, but sometimes you can’t.
“For example, a significant proportion of African wheat imports come from Russia and Ukraine. This has created huge supply problems in the region, leading wheat prices to hit record highs this year. There’s not much that food producers can do about this.
“But in this situation, if a brand needs to raise prices, they can be smart about their approach. They can do it in a way that makes customers feel better about it.
"In South Africa, the chain Albany Bakeries knew they had no choice but to raise prices. But their customers are very price conscious and feeling a lot of economic pressure. So when Albany Bakeries raised bread prices, the company also added four extra slices to their loaves. They charged more, but they gave more. By adding those extra slices, customers felt they were getting more for their money.
"This is the alternative to ‘shrinkflation’, and it creates a win-win situation.”
More cauliflower, less caviar
Sylvain Sendra is chef and owner of the Michelin-starred restaurant Fleur de Pavé in Paris:
“For the moment, restaurants in France haven’t raised prices. So customers don’t realise that we’re all working hard behind the scenes to manage our costs. We want that work to be invisible to our guests. Everyone is feeling price pressures, even people who are treating themselves to dinner at a Michelin-starred restaurant.
“At my restaurant, Fleur de Pavé, we’re making small changes that don’t affect the customer experience. For example, I’m not restocking branded restaurant merchandise, to keep our costs lower. We’re being really careful with our purchases. And as soon as we see that an ingredient is too expensive, we stop using it and try to find another product.
“The euro is weak right now, which makes imported food expensive. So this summer, we’re serving a lot of vegetables because they’re in season. We’re working a lot with local producers, which keeps prices lower. And we’re offering fewer high-end products on the menu. For example, we are no longer serving foie gras or truffles. But potatoes are more affordable. We can work with those, and we can work smart.
“Our most distinctive dish, the one that really symbolises our restaurant, is a thinly sliced cauliflower that looks like snowflakes. We’re going to work more with cauliflowers, and less with caviar.
“But there’s a limit to how much we can do. At some point, we’ll be forced to raise prices. So we have looked at options, which includes removing the fixed-price menu. That way we can manage our costs better. And if inflation stays high, we’ll have to really re-think how the restaurant operates.
“This has been my experience in the restaurant industry, but it’s relevant to anyone right now who needs to do more with less. It’s time to get creative.”
Get a lift through lifetime loyalty
Dave Hare is a strategic lead for retail advertisers at Google:
“I’ve been an ASOS customer since 2016. My first purchase was worth just £60. Since then I’ve made more than 160 ASOS purchases. This is the ultimate example of customer loyalty. I plan to stick with them, even if prices rise.
“This personal example shows that customers are worth more than the small sum they spend on their first purchase. If you can identify a customer’s lifetime value from the start, you can become more competitive, even in an unpredictable economy. It’s crucial to consider lifetime loyalty in your marketing and customer acquisition strategy.
“The latest generation of Google campaign tools are now transforming automated bidding to allow brands to bid towards business outcomes, such as lifetime customer value. Marketers no longer need to necessarily focus on intermediary metrics such as cost per click (CPC) or cost per action (CPA).
“We call this new approach: bidding for value. In some of the most advanced cases, marketers can input lifetime value adjusted data into their Google Ads account to help find and bid for the most valuable customers.
“Marketers who use this approach with the right blend of first-party data are seeing results. This isn’t a short-term fix, but if you’re looking to find long-term customers who will stick with you through difficult economic times, this is a compelling option to consider.”