Inflation refers to the general increase in prices of goods and services over time. It is measured by the Consumer Price Index (CPI) which tracks changes in the prices of common consumer goods and services like food, housing, transportation, medical care, recreation, etc.
High inflation reduces the purchasing power of money. So, with the same amount of money, people can buy fewer goods and services. This impacts businesses and consumers in multiple ways.
For marketers, inflation directly impacts marketing budgets and strategies. Here’s a look at some of the key effects.
Rising Media Costs
During periods of high inflation, the costs of advertising and marketing channels tend to rise. Print, radio, television, digital – all media formats become more expensive to buy. The reduced purchasing power of money leads to an increase in media rates and platform fees.
Marketers have to shell out more money from their budgets to get the same number of ad placements or reach/impressions. This shrinks the media budget in real terms.
Rising media costs present a major challenge to marketing teams during inflationary periods. Marketers need to get creative to maximize their media budgets in the face of higher rates and fees, which is why it’s important to work with an experienced team like Renaissance Digital Marketing.
Some key strategies are:
Renegotiate Rates and Lock-in Long Term Contracts
Existing media vendors may be willing to renegotiate rates to retain business. Marketers can negotiate discounts or more favorable rates in return for signing long-term contracts. This provides the media owners with guaranteed revenues while giving marketers cost savings and certainty. Things like free value-adds, bonus placements, and exclusive partnerships can be negotiated.
Shift Budgets to Relatively Stable Media Channels
During inflation, some media types or platforms tend to hold their rates better than others. For example, platforms with strong targeting capabilities and measurable results are better positioned. Marketers should consider shifting more budget to digital platforms like social media, online video, and mobile which provide transparency and attribution. Outdoor media also holds up well during inflationary periods.
Experiment with Newer, Cheaper Platforms
New media platforms often use low introductory pricing to gain market share. Marketers should consistently evaluate newer platforms and consider testing them out. For example, trying out cheaper contextual advertising options, leveraging influencer marketing, and experimenting with in-game ads. Allocating a part of the media budget to test out new platforms can unlock cost-effective alternatives.
Co-promote with Relevant Brands to Share Costs
Co-promotion and co-marketing partnerships with other non-competing brands in the industry allow marketers to share the costs of expensive media buys. This helps split the inflationary impact across brands and make big media splashes economically. Co-promoting also offers audience aggregation benefits. The key is finding win-win partnerships that deliver value to both brand partners as well as customers.
While rising media costs are an unfortunate reality in inflation, marketers can mitigate the impact through smart negotiation, constant optimization, testing new platforms, and creative partner collaborations. Staying nimble and keeping a finger on the pulse of media trends is key.
Pressure on Marketing Teams
Inflation leaves marketing teams with constrained real budgets. However, businesses still expect them to deliver growth in sales, leads, and brand awareness.
This puts pressure on marketers to extract maximum ROI from every dollar spent. It causes teams to re-evaluate spending and optimize budget allocations to the most effective campaigns and channels.
Marketers respond by focusing on retention marketing over acquisition, doubling down on owned and earned media and investing more in measurement/analytics.
Shift in Consumer Behavior
During inflationary times, consumer behavior changes as households trim discretionary spending. Consumers become more price-sensitive, promotional sensitivity rises, and brand loyalty reduces.
Marketers need to re-evaluate consumer segments and purchase journeys. Brand positioning and messaging may need tweaking to suit the current consumer sentiment.
More emphasis is given to conveying value and cost-saving benefits in communications. Marketers also need to promote smaller pack sizes, entry-level products, and financing options to appeal to cash-strapped consumers.
Innovation in Product Offerings
High inflation often comes with stagnant wage growth. This reduces consumers’ purchasing power and puts pressure on company revenues.
Marketing has to work closely with product teams and sales to drive revenues. They may need to design innovative new products or variants targeted at different price points.
Effective pricing strategies become critical – marketers may need to position premium offerings for high-margin customers and introductory offerings for the mass market.
When facing inflation, consumers tend to segregate into two broad segments – those reducing spending and those willing to spend more for premium products.
Marketers need to re-evaluate their customer segments and re-prioritize them based on revenue potential.
For example, marketing efforts could shift focus from acquiring new mid-market customers to upselling existing high-value customers.
Similarly, brands may choose to target segments less impacted by inflation like high-income households, dual-income families etc.
Localization and Personalization
Inflation impacts different demographics differently. Its effect varies across geographies, income levels, generations, etc.
In this environment, a localized, targeted, and personalized approach becomes more relevant. Marketing messages and products need hyper-customization to appeal to consumers seeking value.
This is done through geo-targeted campaigns, personalized pricing/promotions, customized product recommendations, etc.
Building Thought Leadership
During times of uncertainty, customers look to brands that can educate and advise them. By publishing relevant thought leadership content, brands can gain customer mindshare and trust.
For example, content around managing finances, saving money, investing, etc. can be useful for consumers impacted by inflation. Such content builds brand affinity and loyalty.
Consumers tend to become more value-conscious and seek ‘value for money’ propositions during inflationary periods. Brands need to recalibrate messaging to convey value.
Discounts, sales, price comparisons, bundle offers, freebies, and promotions should be an integral part of communications.
Multi-pack promotions, bonus packs, and discounted large packs present an opportunity to retain customers seeking value.
Loyalty programs help retain customers longer and incentivize higher spending. During inflationary times, marketers need to leverage loyalty programs to reward loyal customers.
Enhanced reward points, exclusive promotions, personalized discounts, and VIP services help drive sales from existing customers.
The bottom line is that inflation directly impacts consumer mindset and behavior. Marketing needs to adapt across segments, messaging, products, and channels to sustain revenues and market share even in turbulent times.