During periods of high inflation, market research plays a crucial role in keeping businesses competitive. Here is exactly how.
How is research different during high inflation?
When performing market research during inflationary periods, keep in mind three important considerations:
1. Historical data and research become less relevant
As discussed throughout this series, there are two major inflation impacts on businesses:
- The general impact on all areas of the economy.
- The specific impact on each business and each consumer.
With volatile and rapidly changing preferences during inflationary periods, historical data becomes less relevant to current market conditions.
Therefore, businesses cannot rely on historical performance data and past research. Instead, businesses need to perform market research to understand current preferences, sentiments, and attitudes.
As inflationary periods make preferences more volatile, market research needs to be conducted more regularly to ensure that your business is up-to-date with the current market, rather than acting on outdated models.
2. Tailoring your offers and messages to different segments becomes more important
High inflation impacts each segment of your consumer base in different ways. We previously discussed how even the perception of current inflation and expectation of future inflation could vary wildly across consumers.
These extreme differences in expectations mean there are no one-size-fits-all solutions. Instead, investigating your consumer base to tailor a strategy specific to each segment will be more effective overall.
If you were to take a guess, how do you expect the prices of everyday goods and services that you pay for to change over the next 12 months?
- I expect prices will fall sharply (more than 4% down)
- I expect prices will fall moderately (1 to 4% down)
- I expect prices will largely stay the same (1% down to 1% up)
- I expect prices will increase moderately (1 to 4% up)
- I expect prices will increase sharply (more than 4% up)
3. Setting the correct price for products is important, but tricky
Naturally, consumers become increasingly price-sensitive during periods of high inflation. Even more so than ever, product decisions must be viewed from the lens of the value passed to the consumer and the monetary trade-off they are willing to make.
Brands that follow a value-based pricing strategy will use techniques like Van Westendorp to measure the perception of price for their products. But the interpretation of these results will be greatly aided by two tricks:
Test against comparable products from adjacent categories. For example, you can easily set up not just one Van Westendorp, but a whole Monadic Test with several stimuli. One of these stimuli will be your product of focus. The other stimuli will be reference products.
For example, if you are checking the price of a toothbrush innovation, you can insert several brands of toothpaste as stimuli to assess how far off the market selling price has shifted from the perception of price for toothpaste. If it has increased substantially, consumers have not yet accustomed to the new price levels and your Van Westendorp results for the toothbrush innovation will need an upward adjustment.
Include a Likert scale question about the perception of price changes.
Based on your experience, how have the prices of everyday goods and services that you pay for changed in general over the past 12 months?
- Prices have fallen sharply (more than 4% down)
- Prices have fallen moderately (1 to 4% down)
- Prices have largely stayed the same (1% down to 1% up)
- Prices have increased moderately (1 to 4% up)
- Prices have increased sharply (more than 4 % up)
If your audience claims to have seen little change, it’s a sign to again adjust the research results upwards.
Helpful types of market research during inflation
Market research is a key tool to remain competitive in periods of high inflation. Here are four areas of market and pricing research to help you during these times:
1. Discover your current consumer sentiment
External stimuli and emotions influence consumer judgment and decision-making 1 2. In general, happy consumers are more generous in consumption 3 and favourably perceive goods and services 4. The major challenge for businesses during high inflation is that consumers tend to perceive price increases negatively and as unfair 5 6.
However, consumer research found that positive mood change is a crucial influence on consumer behaviour 7. Emotions tend to change during and after a crisis 8, and the exit from lockdown has made people feel better 9. These positive changes may eventually increase consumers’ fairness perceptions of price increase 10. Nevertheless, other factors may also affect consumers’ reaction to price increases, such as the types of cost increases 11, customer loyalty 12, and cultures 13.
The current economic situation is changing rapidly, and inflation expectations and uncertainty may continue to change among consumers 14. This leads to high volatility in consumer sentiment, with moods changing on an almost weekly basis.
Market researchers can fill in the niche by conducting consumer surveys to track consumer sentiment at a much higher frequency than traditional quarterly and yearly indicators. Having an up-to-date understanding of consumer sentiment informs consumers of the best time to make pricing adjustments to minimise backlash.
Fully-functional online survey tool with various question types, logic, randomisation, and reporting for unlimited number of responses and surveys.
2. Re-measure acceptable price ranges and willingness to pay
Research has found that consumer buying behaviours are significantly different from normal market conditions when responding to financial crises and high inflation 15 16. Thus, previous data may become obsolete for predicting buying behaviour and responses to price increase during inflation.
Besides personal and socio-demographic characteristics, situational factors may also affect the price sensitivity of customers and their psychological willingness to pay 14 17. Established pricing research methodologies like Van Westerndorp’s Price Sensitivity Meter and Gabor-Granger enable market researchers to identify the acceptable price range and willingness to pay among the targeted customer segments for businesses.
The Price Sensitivity Meter helps determine psychologically acceptable range of prices for a single product and approximately estimate price elasticity.
3. Refresh your understanding of what brands, attributes, and claims matter
Research has acknowledged that effective branding can enhance an organisation’s business performance and competitive advantage 18 and lead to less customer resistance when increasing prices 19. Nevertheless, the psychological changes induced by inflation can lead to shifts in brand perception and preferences of the consumers.
Furthermore, inflation tends to more strongly affect the demand for non-essential goods rather than essential goods. A drop in purchasing power may also cause consumers to put price slightly more important than it used to be when evaluating non-essential goods.
Market research can help businesses gather data on consumers’ usage, purchasing behaviour, and perception of specific products and brands. This could offer businesses insights for further decisions, for instance, re-emphasising product benefits to price-sensitive consumers through winning claims.
Pricing, feature and claim selection in markets where product characteristics vary across brands, SKUs, or price tiers.
4. Test effectiveness of advertising
Brands and businesses use advertising to shape and influence customers’ perceptions and attitudes towards their products and services 20. However, when economic times are hard, advertising tends to undergo significant budget cuts to save costs. As advertising requires a significant resource investment 20 21, brands need to ensure every dollar is well spent by maximising the advertising effectiveness 22. And of course, in some cases, brand advertisements face backlash and risk alienating some of their customers 23.
As some businesses reduce their expenditure on advertising during periods of high inflation, other companies will take this opportunity to expand their advertising reach. Testing the ads before airing can help them in their quest to build stronger brand image, which in turn builds stronger sales pipelines 24.
Identify the most effective ads for your business and the products or services you offer, compare customer attitudes toward different ads, and understand what your customers liked or disliked about your ads.
Talk to an expert about research during inflation
Want to discuss how to utilise market research during times of high inflation to ensure your business is set up for prosperity and profitability? Conjointly’s team of research experts are here to help.
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