Archive for category: Marketing

How America is coping with inflation:

Buy what’s needed, nothing more
By Parija Kavilanz, CNN Business, June 2, 2022

New York (CNN Business)

Prices are rising for just about everything, forcing millions of Americans to make increasingly difficult choices.

More than 8 in 10 consumers are planning to rethink or even reduce their product spending in the next three to six months, according to a new report from market research firm The NPD Group. “There is a tug-of-war between the consumer’s desire to buy what they want, and the need to make concessions based on the higher prices hitting their wallets,” said Marshal Cohen, chief retail industry advisor for NPD.

Trading down, buying less
When store prices keep creeping up, consumer behavior experts say many shoppers make three changes: They buy or switch to cheaper alternatives. They mostly stop spending on nonessentials, like eating at restaurants. But they do indulge in tiny pleasures like flowers and candles. What’s more, when going to the grocery store for those must-haves, Cohen said shoppers aren’t just buying less overall — they’re also doing less “impulse shopping (Links to an external site.).”
Grocery stores are designed to entice shoppers to toss in a pack of gum or a toy car during their weekly run for food and household goods. But that doesn’t happen as much in inflationary times.
General merchandise stores like Walmart are feeling the crunch as households both shop less and buy less during each trip, Cohen said.
NPD data show consumers were already making fewer general merchandise purchases in the first quarter of 2022 versus the same period a year ago. Consumers bought 6% fewer items at general merchandise stores in the first quarter of this year versus a year ago, and the frequency with which they shopped also fell 5% in the quarter from a year ago.
Walmart revealed in its latest earnings call last month that inflation has changed its shoppers’ buying patterns, with (Links to an external site.) customers trading down to cheaper private-label meat and dairy products, buying fewer items per shopping trip and shying away from discretionary items. Rival Target painted a similar picture (Links to an external site.) during its most recent earnings call, saying shoppers were holding back on nonessential purchases home goods, furniture, TVs and kitchen appliances.
Even discount stores like so-called $1 retailers (many of whom are now actually $1.25 stores) are noting their very wallet-conscious shoppers are feeling squeezed by inflationary “headwinds.”
Dollar General (DG (Links to an external site.)) said on its recent earnings call that customers are shopping “more intentionally” at its stores, trading down to lower-priced products.
“We’ve seen an acceleration in our private-brand business as well in recent weeks. That’s a true sign that [the customer] is starting to feel the pressure,” Dollar General CEO Todd Vasos, said during the call. Cohen noted another change for lower-income customers that’s fueling the shift: They had more discretionary spending through the pandemic because of government stimulus. Now that’s changed dramatically and they’re having to adjust their buying behavior.”

Giving up big-ticket buys, but sticking with feel-good little extras

Consumers will continue to reduce their spending though this year, Cohen said, cutting back on dining out, gym memberships and services like frequent manicures.
“With fine dining, we may not get back to pre-pandemic levels until 2025,” said Cohen. “We won’t go out as much and when we do, we’ll be paying more.”
What else will consumers stop buying? Pretty much anything acquired during the pandemic that doesn’t need to be upgraded or replenished.
For example, “many of us bought an air fryer because we were cooking frequently at home. You don’t need another one. Same thing with TVs,” said Cohen.
Yet amid all of this austerity, there’s bit of a paradox in which consumers are willing to spend on one category that’s decidedly non-essential: little pick-me-ups.
Such discretionary purchases are subjective on both a personal and financial level, said Chuck Howard, assistant professor of marketing at Texas A&M’s Mays Business School.
For some people, it might be possible to splurge a bit on a favorite fragrance, and for others, it might be grabbing a chocolate bar at checkout. The common theme is that it’s a temporary reprieve during a period of uncertainty. “It could be nice to take a 20-minute bath with your favorite products at the end of a long day, when you’ve been constantly worried about how you will manage all of your bills in three months,” Howard said. This could be why sales of products like home fragrances and candles are holding up reasonably well.
Executives at Bath & Body Works, a seller of fragrant soaps, body sprays and washes as well as candles, described those products as “affordable luxury” on a recent call, adding that customers were continuing to stock up: Sales of soaps and plug-in air fresheners were higher last quarter versus a year ago.
It’s called the lipstick effect, when consumers spend on small luxuries like perfume or high-end beauty purchases even in a downturn, said Priya Raghubir, professor of marketing at NYU Stern School of Business. She expects spending on some bigger indulgences will continue, too, in the near term.
“The difference with this inflationary cycle is that we are coming out of a pandemic. People have a lot of repressed needs. They’ve been dreaming of a vacation for over two years, celebrating life events with family and friends,” said Raghubir. “There won’t be such a downturn in travel and leisure.”
But those indulgences could also mean shoppers are giving up something else, said Neil Saunders, retail analyst and managing director at GlobalData Retail.
“Basically, this is an environment in which people are having to make choices,” he added. “If they buy one thing, they may not be able to afford another.
That forced choosiness when at the store could continue, and even deepen, he added. “We’re still in the early stages of inflation,” Saunders said. “If higher prices linger for longer, the shifts will become more pronounced — spending will be trimmed further and faster.”

QUESTIONS
1. Based on the article above, what are 2 ways consumers are currently responding to inflation in the U.S.?
2. How is inflation affecting consumer demand?
3. Diedra is a college student who is living on her own and struggling to make ends meet during the current inflationary period.

Suggest 2 things she might do to survive high inflation.