James Clifton

CEO
MISSION Group

Opinion

A big welcome back to our old friend inflation. Last spotted in the 90s, it was rumoured he’d retired - but, no, he’s back and evidently still got the juice.

Except, it’s no laughing matter. We’re in the grip of an inflationary spiral, with our elders and betters initially calling it “transitory.”

Turns out their definition of "transitory" is different from mine. The Bank of England predicts inflation could now top 10%.

Brands need to leverage their strengths to manage this effectively with consumers, without sacrificing their values.

High-end brands need to maintain their cachet, while low-cost retailers need to be sensitive to the needs of families in search of lower prices.

Leaning into inflation

But there is also opportunity in the current market environment. Consumers downgrading their price points may opt for cheaper brands which could then expand their product range to meet the new demand.

In the super-luxury sector, brands like Dior and Chanel have been raising prices of their iconic handbags by hefty amounts with no discernible impact on sales.

These, along with other super-luxe goods such as Rolls-Royce, Rolex and Graff, are examples of "Veblen" goods - the higher the price, the more they sell, their utility being derived from their ability to signal status and wealth rather than any functional utility.

Shrinkflation and brand headroom

For low-end retailers, tactics like shrinkflation come into play.

Notice how the number of Jaffa cakes in your box is fewer than it used to be? That’s shrinkflation, where product sizes or servings are subtly reduced rather than raise the price.

It’s a sleight of hand that usually goes unnoticed and it’s prevalent in sectors other than just food. Cheaper trims, buttons, zips, even less fabric in hems and cuffs are all similar tricks in the fashion category.

Shrinkflation works up to a point, but eventually you run out of road. Worse, you risk undermining a brand’s core values if you trim too much.

It’s especially tough at the lower end of the retail market. British pound stores are masters of shrinkflation, shaving cannily away at pack sizes to maintain the magic price point. That is a sad day for those who enjoy a sneaky bargain, but a seriously bad day for those who use these low-cost retailers for their weekly shop.

There are more of those people than we may realise. The FAO Food Price Index has surged 30% in the last year, its highest level in a decade, meaning many more families in search of lower prices.

Maintain value

But one brand’s problem is another brand’s opportunity.
Brands defending against inflationary pressures need to try hard to maintain their value proposition, be that high-end or low-end.

If possible, adding perceived value will blur the price comparison, or at least sweeten the pill.

Beware cheapening the product and tarnishing the brand: too much shrinkflation and customers will notice and defect, possibly for good.

For brands which are the happy recipients of customers fleeing more expensive brands, it’s a golden opportunity to win potential long-term conquests. And these new customers may have greater appetite for more upmarket lines and variants, allowing these brands to stretch their product line aspirationally.

Aldi and Lidl have both enjoyed great success in the UK, Europe and the US with this strategy, as shoppers tried them out, liked what they found and stuck around.

Budgeting influence

Remember, we all like feeling we are savvy shoppers. We’re even seeing a shift amongst social media influencers, from posting their latest bling buys to taking pride in an especially savvy, smart buy - less Balenciaga and more YeezyXGAP, in fash speak.

Expect more such collaborations as brands seek more opportunities to engage new consumers at more accessible price points.

Whatever tactics a brand chooses, it looks likely there will be plenty time to hone those skills. Our old friend inflation looks to be making itself comfortable and settling in for a bit of a stay.