A perfect storm of raw goods price hikes and supply chain disruptions — on the heels of forced trial during the pandemic — has created The Great Loyalty Rebellion. Marketers need to create long-term pricing strategies to keep consumers increasingly squeezed by inflation.
Record-breaking inflation rates have become more than a temporary after-effect of the pandemic. Supply chain gaps have turned grocery lists into guess lists of what's available on store shelves. Items cost more across all categories, with many marketers raising prices multiple times or shrinking package sizes to charge more per ounce.
The Wall Street Journal recently reported that first quarter prices continued to rise for CPG companies such as Procter & Gamble, Nestle, and Unilever, with Unilever reporting some softening in consumer demand, which it. expects will continue. Rising commodity prices and raw material shortages continue to reduce margins, creating more earnings pressure. Given the persisting inflationary trends, CPG companies are likely to take further price hikes, reports Modern Retail.
Consumers are clearly feeling the squeeze. According to Statista, 70% of shoppers said as prices increase they plan to change their shopping behaviors, switching to lower-priced brands or seeking promotions and discounts.
"This inflationary period is unprecedented. Marketers shouldn't be looking back to their 1980s playbook for guidance. This perfect storm of raw goods price hikes and supply chain disruptions — on the heels of forced trial during the pandemic — has thrown the concept of loyalty up in the air and is redistributing it," said Sean Murphy, Catalina's Chief Data & Analytics Officer. "Marketers need to closely monitor and quickly respond to changing consumer purchase patterns across grocery categories."
Catalina tracked ten common product categories and found that their aggregate price in 2022 Q1 was nearly 10% higher compared to the same quarter one year ago. This echoes the Consumer Price Index for food at home. which is 11% for 12 months ending April 30, 2022.
The basket's price increase was led by Cereal (+13%), closely followed by Frozen Prepared Food (+12%). Soft Drinks & Water (+12%), and Soaps & Detergents (+12%). On the other end of the spectrum, the basket's price increase was mitigated by relatively modest increases in Hand & Bath Soaps (+6%) and Frozen Vegetables (+4%).
This guide offers ways for CPG marketers to fight the Great Loyalty Rebellion by offsetting inflationary price increases with personalized marketing campaigns that rebuild consumer trust and loyalty. For example:
Personalized marketing and, specifically, price promotions become even more critical this year, as marketers are forced to be more judicious with their limited marketing dollars.
"Inflation forces all companies, brand-based or not, to reassess the strength of their business models," Chris Burggraeve, founder of consultancy Vicomte and former global CMO of Anheuser-Bush InBev wrote in Marketing Week. "Companies that can prove they have sustainable pricing power will receive high marks from the investment community. Inflation is an acid test for how excellent a company really is in terms of marketing."
Inflation also tests the resolve of even the most loyal shoppers. Often brands assume regular purchase equates to loyalty that overrides price sensitivity. But it's not that simple. Catalina purchase data shows value-seeking behavior across all brand loyalty segments - not just with Low Brand Loyal shoppers and Switchers.
"Nearly every consumer is balking. Reconsidered purchases are now the norm, not the exception. Price increases trigger new behaviors, especially amongst a brand's most loyal consumers," said Catalina's Murphy. "But data-driven insights and optimizations can guide marketers on how to allocate brand dollars based on price sensitivity."
In this environment, Catalina recommends sending personalized price discounts to the most price sensitive buyers and offering content — recipes, brand information, usage ideas — to those less concerned about price, to keep them engaged or stretch them to trade up.
In the yogurt category, known for brand switching and price incentives, our client decided to implicitly raise prices by pulling back on its trade promotions. In doing so, they saw their volume decline by 18%.
Although the client experienced volume ebbs and flows before, the magnitude of change was more extreme than usual. Catalina was called in to provide deeper insights on exactly what was driving the decline.
Our client was surprised to learn that 60% of the volume decline was driven by their High Brand Loyal shoppers.
Catalina confirmed that value-seeking behavior is represented across all levels of brand users and is not just something concentrated in the Low Brand Loyal shoppers or Switchers.
We recommended focusing efforts on Switchers and High Brand Loyal shoppers, with offer values tailored to the price-seeking behaviors of individual shoppers within each group.
During the height of COVID-19's lockdown period, panic shopping and stockpiling attracted 75 million new shoppers across Retailer Private Brands (PB), according to Catalina's Shopper Intelligence Platform. While forced trial accounted for some of those temporary gains, 41% made repeat purchases.
However, once brands re-opened their marketing war chests when their products were back on the shelves, national brands grew at double the rate of private brands (see chart below). Grocery categories with the highest inflation are seeing the most PB penetration, gaining traction in the meat, poultry, and frozen foods aisles, Dataweave reports.
This chart shows how private brands gained sales share during the early days of the pandemic. In 2022, inflation is once again turning consumers to lower-priced brands. The hope is for a relatively quick, soft landing compared to inflation in the 80s, which lasted eight years with unemployment hovering above 10% compared to 4% in April, 2022. Brands can't wait it out, and they are operating as if today's inflation rates are a momentary blip. McKinsey recommends these ongoing price adjustments call for "nuanced approaches that, when done well, can strengthen customer relationships and overall margins."
"Brands need to step in and help consumers with this transition by developing a more sophisticated, consumer- centric approach. CPG marketers need think beyond this quarter and create a new, long-term loyalty playbook with next-generation marketing support. This is a generational shift," said Catalina's Murphy.
For one of Catalina's hot cereal brand customers, COVID-19 drove consumers back to the center of the store and, as a result, sales and shopper penetration grew. However, share was at risk because competitive entries in the category – including store brands – posted similar growth.
Catalina worked with the client to protect household penetration and share for its upcoming peak season by acquiring those Lapsed Buyers and Competitive Shoppers.
To do so, Catalina created targeted, omni-channel activation to engage shoppers at every stage of the purchase funnel. Digital ads alternating between recipes and shoppable media helped drive interest and engagement with all targets. For Lapsed Buyers, a targeted CTV overlay was designed to increase awareness and response rate.
Lapsed buyers – including those who had switched to store brands – responded well to the campaign. Conversion from omni-channel activation was 11% higher than digital activation alone. In addition to the long-term brand building benefits of the campaign, the client warmly welcomed the immediate benefits of an 8% sales lift and $2.31 ROAS.
The Great Loyalty Rebellion calls for CPG brands to personalize their offers through responsive marketing designed to make targeting more precise and ad buys more efficient.
Sequential Marketing uses a sequence of ads to tell a brand story, creating touch points in a planned manner over a measured time period to ultimately prompt a purchase. Retargeting allows marketers to segment audiences so they can hone messaging and drive conversion. This increases personalization opportunities and may help bring a consumer back into the brand conversation. Audience Suppression keeps specific people or groups from receiving an ad if they have already purchased a given brand or recently bought a competitor’s brand. Like retargeting, it shows how consumers are engaging with that brand, except, rather than adding an engagement it eliminates one. Suppression works specifically to reduce redundancy, ensure media efficiency, and respond in real time to supply chain issues.
Deterministic data can uncover price-sensitive audience segments such as Value Seekers and Lapsed Buyers. Brands can then allocate more of their limited price-discount dollars toward shoppers who care the most and will return the greatest bang for the buck. A campaign can suppress the least price-sensitive shoppers from receiving any price: discount offer and, among the remaining shoppers, varying degrees of discount can be delivered based upon consumer price sensitivity. Incentives that use advanced targeting strategies will attract price-sensitive shoppers at the right time, using increasingly popular channels such as Digital Out of-Home. Selective use of promotions can also help mitigate price increases.
Inflation is impacting more than consumers' wallets. It's also shifting how, where, and when they shop. As consumer touchpoints continue to grow exponentially, it's especially important to understand which media channels are most efficient at reaching and converting a brand marketer's target audiences.
Let data drive any activation channels, using an omni-channel marketing strategy. Omni-channel surrounds customers with relevant, targeted 360-degree marketing that seamlessly connects experiences across media channels. It gives brands multiple ways of representing themselves to their target consumers more efficiently. It also builds loyalty – companies with strong omni-channel customer engagement strategies retain 89% of their customers compared to 33% for those with weak ones, according to industry reports. Marketers using three or more channels in any one campaign earned a 287% higher purchase rate than those using a single-channel campaign
To stretch your advertising budget, take a test-and-learn approach to targeting your most valuable buyers. Rather than spreading precious ad dollars across every channel they use, refine your strategy through consistent measurement. Work with 1:1 deterministic, third-party enriched data to optimize the media mix of your ad spend, focusing on the channels that deliver the best results given your brand objectives. In the future, we’ll see more marketers favor those channels, whether cutting-edge or traditional, that work best for their brands.
As marketers map out their inflation response for the remainder of 2022 and beyond:
- Dissect specific brand buyers using first-party, purchase-based insights and identify those "most at risk."
- Increase reach and penetration with custom audiences based on real-time purchase behaviors and the product attributes and lifestyle preferences that match the brand.
- Use responsive marketing solutions to efficiently serve personalized incentives based on target audiences – from awareness ads for new users to higher discounts for more price-sensitive shoppers.
- Work with a media partner that can provide attribution measurement and a test-and-learn approach to understand what omni-channel activation works best.