Note: We've previously covered the impact of inflation on the retail customer experience, but as fears of a recession are on the horizon, we want to offer more solutions for retailers.
There’s no question that inflation has caused a massive disruption in retail over the past year, and recession fears remain on the horizon. In fact, some experts say the U.S. economy is already in a recession, and they point to the definition given by the National Bureau of Economic Research. This definition states that a recession requires a significant economic activity slowdown across the country for more than a few months.
Whether the current retail landscape reflects these characteristics or not, even the mere mention of a recession can spark changes in consumer behavior. Combine recessionary fears with inflation, and retailers could be in for a rough ride.
Although inflation and fears of a recession are never good things, we’ve been down this road before. Experienced retailers know that these things come and go in cycles, and given the ride we were just on over the past few years with the pandemic, it’s not a surprise that inflation and a possible recession are kicking in.
Before you get too concerned, consider that a two-year period of inflation followed the wartime boom after the end of WWII. Right after this, another period of inflation hit the United States and lasted for a year from December 1950 until December 1951. The end of the 1960s marked another inflationary period, and then all through the 1970s and into the 1980s, inflation and recession concerns jumped around depending on who you asked and where you lived.
The point is that inflation is nothing new, and the economy always rebounds. Retailers do, however, have to make smart decisions to come out on top during times of inflation, and understanding consumer behavior relative to economic woes is an excellent place to start.
Consumer behavior during times of high inflation tends to follow predictable paths. While no retailer wants inflation to erode profits, understanding consumer behavior when the economy is tight can help retailers to come out on top. Below are a few ways consumer behavior tends to change when inflation is high:
One of the most common ways consumers adjust buying habits when inflation ramps up is by switching to less-expensive alternatives. As a result, CPG brands may notice specific low-cost options bringing in more market share as consumers look for ways to continue enjoying certain product categories without spending as much. Retailers can also use this information to get ahead of the curve by introducing more low-cost private-label products.
Another expected consumer behavior noticed during high inflation is reduced spending on non-essential items. The intensity of this reduction can vary since what is considered essential to some shoppers may not be vital to others. Additionally, the income level of consumers also factors in here. For the most part, luxury item sales don’t tend to suffer as much because high-income shoppers aren’t affected by inflation as profoundly as lower- and middle-class shoppers can be affected. These items also typically have a higher margin and respond well to in-store promotion activities.
Lastly, shoppers may place a more significant emphasis on DIY solutions rather than buying new or pre-packaged. This may mean attempting to repair items at home in the general merchandise category. In grocery retail, this may mean purchasing things to cook at home instead of buying prepared meals (more on this below).
Left unchecked, changes in consumer behavior due to inflation can have a fairly negative impact on retailers. For example, when times get tough economically, shoppers tend to abandon store loyalty and begin looking for the best bargain instead. This, of course, depends on how high inflation gets and how long a recession lasts, but given enough time and with enough of an impact, almost all shoppers will reach a point where loyalty to a store or brand no longer holds the same weight as it once did.
The good news is that there are things retailers can do to keep shoppers engaged and on board when inflation and recession fears start to mount. Below are some ideas your store can use to calm consumer fears and earn future business once things return to normal:
Retail marketing needs can change drastically based on the economy. You probably won’t think twice about marketing aspirational purchases when everything is rocking and rolling. Still, as belts tighten across the country, it may be time to revisit your retail marketing strategy. Instead of promoting large, aspirational purchases, one retail marketing solution that can keep shoppers engaged with your store’s shopping experience is to market smaller purchases that are easier to obtain. This allows shoppers to buy more with less while still walking away satisfied with your store's customer experience.
During historical periods of economic uncertainty, many people got creative to stay afloat. “Cash for Clunkers” is a famous example of government intervention to try to jump-start auto sales, and the infamous “stay-cation” push during the economic crisis of ‘08 into ‘09 was a way for families to still spend time together without spending a fortune.
Your store can offer the same by promoting fun events that don’t cost an arm and a leg to host. For example, eggs are the latest boogeyman scaring up prices in retail grocery. While your store may be limited in what it can do about costs, you can maintain control over the customer experience by promoting cooking classes and nutrition workshops that demonstrate alternatives to eggs for cooking.
A store demo event that involves egg alternatives combined with a fun and educational workshop and store sampling experience can get shoppers in the door, keep them engaged, and get them talking for word of mouth marketing opportunities. The nice thing about this approach is that it can create a memory in the minds of shoppers, who will then return to your store once the economy picks back up. As a bonus, personalized in-store promotion offers for your event can give you a chance to learn more about your store’s demographic on a personal level.
The point-of-sale in retail is where the customer feels the weight of the purchase the most. Whether a purchase involves handing over cash or swiping a card, in that moment, the customer is actively engaged in handing over their hard-earned money. Because this moment can be so impactful, consider payment solutions that lessen this impact.
For instance, stores that offer loyalty rewards and perks can offer double- or triple-point days or times to help shoppers stretch their budgets. When a shopper uses their points, they’re still actively involved in the payment process, but instead of feeling the pain, they can feel the benefits they receive.
If your store isn’t already using a pay-over-time solution, this could also be a benefit during times of high inflation. Paying over time is an alternative for large purchases, and when every penny counts, shoppers like knowing they have options if payday is still a few days or weeks out.
Even when customers keep a tighter grip on their wallets and purses, retailers can still stay top-of-mind using automation. As a retail marketing solution, automation frees up your time and provides opportunities to engage customers 24 hours a day with minimal effort. For example, automated email and SMS services allow you to keep your CPG brands in front of customers when they aren’t in your store, and you can also use social media to engage shoppers on the web.
Once again, the key thing to remember when using these strategies is that they serve a few different purposes at the same time. Yes, they can get shoppers in the door, but automated communications allow your store to remain a part of a customer’s consciousness when money is tight. The next time they plan to spend on retail, they’re likely to consider the retailers that come to mind first, and you want your store to be the retailer at the top of the list.
Seasoned retail executives know that the U.S. economy has gone through periods of inflation and faced recessions before. Economic downturns are nothing to ignore but aren’t a reason to panic. The smart money is always on optimism, and retail in the United States will weather this storm just like it has others in the past.
Grapevine Marketing Solutions is the trusted team for store demo retail automation management. Our retail marketing solution, Demo Wizard, helps retailers maximize the use of store sampling experiences to generate more WOM marketing opportunities. In addition, Demo Wizard makes it easy to manage store demo experiences that boost customer engagement regardless of the economy.
To schedule your free demo and personalized consultation, call our team today at (510) 859-8919, or click to schedule your consultation online right now.