Inflation is top-of-mind for all consumers this year, causing marketers to question how best to adapt. Here are some of the top questions brands are asking right now.
Q: What’s the best way to see the impact of inflation on my specific business, rather than just look at generalities?
A: Often, business leaders want to ignore macro impacts to business, but inflation impacts all consumers and industries.
When trying to diagnosis the impact of inflation, first evaluate the overall trend across the business: week-over-week sales and week-over-week response. Then, review that data over the same 15-month period where there is an increased impact of inflation and pull in external data sources, such as the Australian Bureau of Statistic’s Consumer Price Index (CPI). Evaluating your business trends in conjunction with the overall trends of inflation seen in the CPI will point to how inflation is directly impacting your business.
As the market continues to shrink, the logical response is thinking all consumers and businesses are being equally impacted by inflation. However, some businesses will see positive gains and momentum during inflationary headwinds.
For example, businesses focused on lower-cost goods or that have price-sensitive value props are more widely accessible to a broader set of the consumer base and will likely see an uptick in business with inflationary pressures.
When determining inflation’s impact, it’s important to understand not only what the brand is or what type of product or service is being sold to the consumer base, but also how it intersects with inflation in the diagnostic impact assessment.
Whether the business is staying on trend or outperforming the market, measuring performance and forecasting the impacts of economic trends requires more than internal data. Understanding the intersection of the macro impact with the business trend is key to adapting in an inflationary or potentially recessionary environment. A brand is only a slice of the share of wallet for consumers, so understanding how the rest of the wallet is being influenced – specifically in necessities like groceries and fuel – will also influence the forward-looking pressure on a brand’s results.
Q: How would you recommend adjusting to consumer inflation pressures when marketers are working with substantially fewer funds to drive equal or greater business to last year?
A: Not to sound repetitive, but start with the data.
Identify customer segments who are continuing to spend with the brand. Understand the unique mix of demographics, behaviours, and trends with the brand of those consistent buyers and target look-a-like audiences. On a more macro level, identify the geographies that will be able to withstand the inflation pressures and focus marketing efforts strategically – targeting areas that need an offer with a discount and those resilient areas with a more nuanced tactic.
Q: What is the most efficient marketing source in this uncertain time?
A: Efficiency will be different for each industry and brand – but regardless of the economic pressures, efficiency requires a testing mindset to ensure the nimbleness to adapt to a changing marketplace and consumer mindset. To maximise efficiency, evaluate what has had the greatest positive response in the most recent results. However, it is important to ensure testing is always on to see when a pivot point happens, indicating when to pull back on the media and lean into more direct channels.
Q: Is inflation causing insignificant reads to testing, and if so, is there a way to test differently?
A: More than likely, inflation is not the direct cause of insignificant test reads. When reviewing test results that appear insignificant, proactively drive to a subsegment of results. Potentially a customer segment, a particular product, or geography is likely showing either positive or negative results. Second, in the midst of inflation, realise that there will be choppy waters, and we cannot necessarily look at last year to get a good sense of trends because of the historic out-of-bounds nature of the current heat of the economy coupled with the recent challenges of a once-in-a-lifetime pandemic.
To try and avoid insignificant reads, ensure test and control groups are aligned to both recent history and also other variables such as geography, spend propensity, etc. to eliminate as much bias as possible prior to the test launch. And finally, when reading your tests, leveraging data sets – like the Inflation Resilience Measure or Inflation Sensitivity Index, which project the impact of inflation at local and household level – will help to isolate those specific cohorts or areas impacting your results due to inflation.
Q: What is the number-one thing our brand should do to navigate inflation?
A: We tend to make gut reactions to soft business, which is where mallet marketing comes into play. Mallet marketing is overreacting to a current business trend by implementing unilateral marketing decisions without reviewing data at a more granular level and without any precision.
However, the best thing we can do is pause and evaluate the data; to look below the surface of this week’s results to the drivers of the results at a customer, local, and product level. Allowing the data to drive decisions rather than an emotional response will ensure that inflation is a blip on the long journey of a brand’s growing health.
The current level of inflation has created new challenges for brands, but with the right data and a measured approach, companies can craft advertising strategies and messaging that meet the shifting needs of customers.