Navigating Inflation with Your Shoppers: A “Must” for Category Managers

April 9, 2024

By Phil Lempert, SupermarketGuru, Consumer Trend Tracker, Food Trends Editor, NBC’s Today, and Author

Inflation has always been a key concern for both retailers and consumer packaged goods (CPG) companies, but since the pandemic with record high food inflation (almost 22%) the concern has been exacerbated. Fluctuations in prices can significantly impact consumer behavior, demand, and ultimately, your company’s bottom line. With the ever-changing economic landscape, understanding inflation and effectively communicating its impacts to customers has become paramount — witness the juggernaut of comments on social media and in the news about Trader Joe’s recent announcement about raising the price of a banana from 19 cents to 23 cents.

With the advancements in artificial intelligence (AI), category managers have a new tool that offers innovative solutions to tackle this challenge head-on. CMA’s upcoming Elevate Data Summit on April 29 & 30th will explore these and more tools in more depth along with case studies to empower every category manager to use both AI and Business Intelligence (BI) to further your career.

Retailers and CPG companies are adapting their communication strategies to maintain customer trust and loyalty. These strategies range from transparent pricing policies to personalized shopping experiences, reflecting an acute awareness of consumers’ heightened price sensitivity. Transparency has emerged as a “must have.” Retailers are increasingly upfront about the causes behind price increases, often attributing them to factors beyond their control such as supply chain disruptions, rising raw material costs and price increases from brands. Some retailers have publicly pushed back on taking these increases as a way to both keep prices low for their customers and to garner goodwill. The high-profile battle between Carrefour and PepsiCo over price increases came to an end recently after a three-month long battle in which Carrefour actually posted in-store signage calling out the company’s brands by stating that “we are no longer selling this brand due to unacceptable price increases.” The terms of their reconciliation and a new pricing deal have not been disclosed. This form of honesty and a retailer taking a stand can help mitigate customer frustration by fostering an understanding of the broader economic context.

Communicating the Impact of Inflation

While understanding inflation is crucial, effectively communicating its impacts to customers is equally important. The U.S. Department of Labor’s Bureau of Labor Statistics offers free tools to measure different aspects of inflation to help category managers understand and forecast. Transparent and informative communication builds trust, enhances brand loyalty, and empowers consumers to make informed purchasing decisions. Here are some strategies for retailers and CPG companies to communicate the impact of inflation:

Educational Content: Develop educational content, such as blog posts, articles, or infographics, that explains the factors contributing to inflation and how they affect prices. Include tips on how to make your shoppers budgets stretch further like this one from Kroger, offer videos as H-E-B does on meal planning on a budget and when possible, offer in-store or virtual workshops just like Hy-Vee. Use simple language and real-life examples to help consumers understand the economic concepts behind inflation. Retailer and brands should include breakdowns of cost components on price tags, through in-store displays, and on websites detailing how much goes towards materials, labor, and transportation, similar to the USDA’s chart of the Farm Share of U.S. Food Dollar. Don’t be reticent to site the impact that climate change and labor cost increases have on your pricing.

Value Proposition: Emphasize the value proposition of your products or services to justify price adjustments. Highlight any improvements in quality, features, or customer service that justify the perceived increase in value despite higher prices due to inflation. Steer clear of and advise your brands to avoid falling into the trap of “shrinkflation” or “greedflation” as both are magnets for the traditional media, influencers on social media and the government to point out how your product is misleading consumers.

Personalized Communication: Leverage customer data and AI-driven analytics to personalize communication about inflationary impacts. Tailor messages based on each customer’s preferences, purchase history, and demographic characteristics to make the information more relevant and engaging.

Loyalty Programs: Leverage customer data and AI-driven analytics to personalize communication about inflationary impacts. To add value and retain customer loyalty, many retailers, like Albertsons, are enhancing their loyalty programs. These programs are being retooled to offer more relevant rewards, discounts, and personalized deals that reflect individual shopping habits. The aim is to make customers feel that, despite higher prices, they are getting more for their money. This personalization extends to communication channels as well, with retailers using targeted emails, social media posts, and mobile app notifications to deliver tailored messages that resonate with the specific needs and preferences of their shoppers.

Social Media: Social media platforms have become a vital channel for real-time communication about inflation-related changes. Retailers Stop & Shop and Whole Foods are examples of how their teams respond to consumers in real time. ALDI’s private, members-only Insider Facebook group touts over 300,000 members and offers shoppers a unique opportunity to hear about new products, exclusive info and feel special. Brands, such as Kraft Heinz does, should also use these platforms not only to update customers about price adjustments but also to engage with them on a more personal level, responding to concerns and feedback directly. This two-way communication helps in maintaining a positive relationship with customers, making them feel heard and valued.

Customer Support: Provide online channels, chats, and toll-free numbers for customers to voice their concerns and ask questions about inflation and pricing about your products. Offer responsive customer support to address any inquiries or issues promptly.

Promotions and Discounts: If possible, offset the impact of inflation by offering promotions, discounts, or loyalty rewards to customers, especially those that may be loyal through your ecommerce, social media, and website platforms. Communicate that you are offering these special opportunities to provide value and savings despite the external economic challenges that exist.

Consumer Behavior Analysis: AI algorithms can analyze vast amounts of consumer data, including purchasing history, preferences, and socioeconomic factors, to understand how inflation influences buying decisions. This insight enables retailers and CPG companies to tailor their marketing strategies, product offerings, and pricing strategies to meet evolving consumer needs and expectations.

Be sure to frame inflationary impacts within a broader economic context and reassure customers that your retailer or brand is committed to weathering economic uncertainties with them, while maintaining quality and affordability over the long term. Inflation presents significant challenges for category managers at retailers and CPG companies, but with the power of effective communication strategies, these challenges can be navigated successfully. Be sure to use the AI tools for understanding inflation, optimizing operations, and adapting pricing strategies, so you can mitigate the impacts of inflation on your business and customers. Most importantly, clear, informative communication builds trust, enhances brand loyalty, and empowers consumers to make informed purchasing decisions despite economic uncertainties.

As retailers and CPG companies prioritize transparent communication, category managers can navigate the complexities of inflation with confidence and resilience and build consumer trust, loyalty, and sales.