Helping brands weather the cost-of-living crisis

We all know it’s tough out there. The cost-of-living crisis is biting deeper and longer, with no clear end in sight for consumers as mortgage rates and retail prices push inexorably higher. And in an inflationary climate where earnings are shrinking in real terms, it’s hardly news that shoppers are cutting back.

A particular worry for brands and retailers alike is that luxuries and discretionary items aren’t the only areas taking a hit. Core grocery categories are also vulnerable, with basket sizes shrinking as consumers watch their spend. It's a perfect storm for brands, who face further economic pressures of their own in the shape of rising manufacturing and raw material costs.

In times like these, shoppers’ hard-won loyalty to brands can be affected. With 92% of UK adults reporting the cost of living as an important issue, and linking their increased financial burden on food shopping above all else, value-focused consumers are abandoning long-time dedication to their favourite labels – either going without, or beginning to switch to less costly alternatives.

The data’s all too clear. A general decrease in consumer confidence is mirrored by sharply heightened price sensitivity. Right now, we’re seeing this uncertainty manifested in changing purchasing characteristics. Over the past 12 months, the proportion of baskets represented by national branded goods has declined by 5% as cautious consumers switch to own label, particularly Value alternatives.

That’s when things start to get tricky for brands. Following this initial awareness and adjustment period, realisation dawns on consumers that the current cost-price spiral isn’t going to end any time soon; acquired habits can easily harden quickly to become the new normal for shoppers.

And here’s the conundrum. In this changed reality do brands stand firm and hope for natural volume recovery – which costs money in terms of price and promotion investment – or do they risk missing out to competing brands who take the early advantage?

The reality of the consumer packaged goods (CPG) market today is that even minor alterations to price or promotional strategy can have significant costs, and consequences for sales and loyalty – and more so today than even a year ago, with smaller changes having even more of an impact. Can I keep shoppers loyal by switching them to other pack sizes or another of my products? Is my current portfolio pricing strategy working as effectively as it could? And how should I respond to competitors’ own pricing and promotional changes? Without a crystal ball to answer these questions, brands are taking a big risk by guesstimating the impact of tinkering with pricing or promotions that could either pay off handsomely – or spectacularly backfire.

In these changing times, clued-up brands know that success isn’t about securing short-term wins. They’re in this for the long game, where growth in revenue, margins and profitability must be secured and sustained, and done so by appealing and listening to their consumers in both their mindset and behavioural characteristics

At dunnhumby we spend an awful lot of effort investigating the factors that shape consumer brand preferences and long-term loyalty. And we’ve distilled 30 years of demand forecasting science development into a powerful but easy-to-use self-serve tool that enables CPG brands to predict volume demand for the coming 12 months based on different pricing and promotional scenarios.

Launched earlier this year, Revenue Growth Planner helps brands predict the impact on sales of changes to a product’s pricing and promotional strategy. The heavy lifting’s done by a well-trained machine learning algorithm that draws on two years of actual transactional data across billions of baskets. Updated on a weekly basis, this huge dataset yields a realistic portrayal of UK shoppers’ behaviours – giving brands the ability to understand and act decisively on shifting consumer behaviours.

In this volatile environment, Revenue Growth Planner provides a safe space to experiment with tweaks to pricing and promotional tactics within a virtual environment. This allows the likely impact of changes to be understood with a far higher level of confidence before taking the plunge in the real world.

Want to find out more about how Revenue Growth Planner can help you anticipate shopper behaviours, overcome major challenges and capitalise on key opportunities during a stormy year ahead?

Read more here about The Power of Revenue Growth Management for CPGs.