How Retailers Should Sell to Anxious Consumers in a Time of Inflation and Uncertainty

Have you been to the grocery store lately? Up and down every aisle, rising prices on seemingly everything are causing consumers to change what - and how much - they buy to feed themselves and their families. And almost everywhere we go today in our daily lives, from fueling up at the gas station to fueling ourselves (for better or worse) in the drive-thru line at our favorite fast food place, prices are going up, up, up! It should come as no surprise then that inflation has become the issue today - economically, politically, and even socially as we talk with our family, friends, coworkers, even random fellow shoppers at the grocery store (“Can you believe how much this [whatever THIS is] has gone up since just last month - or even last week?)!

We certainly find ourselves in an interesting - and uncertain - economic time. Inflation is seemingly running rampant not just in America, but around the world. Prices are rising everywhere on everything, as a “perfect storm” - caused by the confluence of rising consumer demand in the wake of the COVID-19 pandemic, supply chain disruptions, rising - and record - fuel prices, unprecedented labor force issues, and yes, the largest land war in Europe since World War II - is wallopping the global economy. Now the 6-9% annualized inflation in the United States and much of the developed world that we are experiencing today is nowhere near the multiple double digit rates - and more - seen in many countries across Africa and South America. However, precisely because inflation has not really been seen at such levels since the late 1970’s and early 1980’s in the U.S., shopping - and indeed living - in an environment of rising prices and heightened economic uncertainty is a new experience not just for most American consumers, but also for retailers, both large and small alike, seeking to sell to them. So how should retail management adapt? This article presents recommendations for how to survive - and thrive - in retailing today.

The Anxious, But Still Shopping, American Consumer Today

And the U.S. consumer is still spending, despite their uncertainty. In what is a seemingly weird paradox, recently released data from Hamilton Place Strategies and CivicScience in their joint report, “Confidence In Personal Finances Remains Resilient As Other Indicators Collapse,” shows that Americans today are pessimistic overall about the economy, but yet, they view their personal financial situations far better than they view the economy as a whole. As can be seen in Figure 1 (The HPS-CivicScience Economic Sentiment Index, May 2021-May 2022) below, consumer confidence has been on a steady decline over the past year, reaching its lowest point with the most recent survey release (May 24, 2022).

Figure 1: The HPS-CivicScience Economic Sentiment Index, May 2021-May 2022

Source: “Confidence In Personal Finances Remains Resilient As Other Indicators Collapse,” May 2022 (Used with permission)

However, as Figure 2 (The HPS-CivicScience Economic Sentiment Index, Five Individual Questions) reveals that at the same time, Americans are far more confident in their personal finances (57%) than their outlook on the U.S. economy (34%) - more than 20 points! Even if they may be hesitant to make major purchases, anyone who has been to a big box store, a grocery store, etc., really any retail location of late knows one thing: Americans are out and about shopping today! Consumers are fueled by pent up demand - along with both some personal savings accrued and stimulus received from the government during the pandemic - and a desire to get back to normalcy, one aspect of which is going back to shopping in-person again.

Figure 2: The HPS-CivicScience Economic Sentiment Index, Five Individual Questions

Source: “Confidence In Personal Finances Remains Resilient As Other Indicators Collapse,” May 2022 (Used with permission)

So, how should retail companies best look to sell to a very anxious consumer, who is still looking to spend - at least on minor to even mid-level purchases, today? The winning strategy appears to be found in one word: Sale! The data analysis firm MarketingCharts recently released a report entitled “Inflation is Leading More Than 8 in 10 Americans to Change Their Spending Habits.” Their work was based on a larger survey on the sentiments of the American consumer (“Inflation is Americans’ Top Concern, And It’s Not Going Away”) conducted by the market research firm Ipsos. As you can see in Figure 3 (Marketing Charts - How Inflation Will Change US Adults’ Spending Habits) below, inflation is having a marked impact on the way most of us shop today (well, except for the 16% of Americans who say that they don’t expect their shopping habits to change due to inflation).

Figure 3: Marketing Charts - How Inflation Will Change US Adults’ Spending Habits

Source: Marketing Charts, “Inflation is Leading More Than 8 in 10 Americans to Change Their Spending Habits,” April 2022 (Used with permission)

But how will we change? In a nutshell, as shown in this graphic, we will be looking even more strongly than before for better deals, better values, and yes, sales! 42% of American consumers say that they are now likely to buy brands that are on sale, and 33% stated that they are now likely to wait to buy what they need (want) when an item goes on sale. Further, 32% of consumers say that they are now likely to buy cheaper brands, and 26% reported that they were more disposed to buying private label and/or store brands.

Analysis

So how does all of this latest reporting on the sentiments of U.S. consumers translate into actionable recommendations for retail management? From the perspective of this strategic management consultant/professor, I see only one viable strategy: Continuous sales - and advertising/promotion of them! Let’s face it: Inflation is very real today - and it looks to be with us for some time to come. Retailers need to adjust to this reality and change not just their pricing strategies, but also the way they make certain that consumers know that their stores are offering “sale prices” - whatever that may be - for them. Specifically, I would recommend that retailers of all stripes look to not just continuously offer many items at sale prices - no matter how much - or little - the discount might actually be. Having “sale prices” will be even more of a “necessary prerequisite” that shoppers will be looking for when they choose not just where to shop, but also what - and how much - to buy, of everything. Seeing sales - even small percentage markdowns - will be comforting to an anxious consumer, and engendering feelings that your chain is trying to help their customers “get through a tough economic time” will be a winning advertising and promotional strategy today.

And yes, not to be skeptical, just realistic about the math skills of the average American consumer, the perception that a store is offering “sales” - whether that discount percentage is 5% or 50% - is more important than the actual value being generated for shoppers. With prices rising constantly almost across the board, retail management really has the latitude to raise prices maybe a bit more than they have to based on their rising product, labor, and overhead costs, only to offer a “sale price” that might be close to what the actual price should be. While some may view this as being just a bit - if not more so - deceptive and manipulative, such pricing strategies have been in vogue for decades, especially in clothing lines (i.e. have you ever asked yourself how a department store can offer fashion items for 50%, 66%, even 75% off and still stay in business?).

No doubt, these are challenging times for all of us, retailers included. But with imaginative pricing strategies, and with supporting and reinforcing advertising and promotional tactics, retailers of all kinds and of sizes, from Walmart to your local corner market, can not just succeed in driving sales revenue today through offering more “sales,” but engender customer loyalty and build trust for the long-term with their shoppers, which is perhaps the greatest value of all for any retailer! So consumers should expect to see sales - lots and lots of sales and lots of advertising and promotions for them. Now exactly how much the percentage off is and how good a deal such sales really are may well be another matter, but anxious consumers today are going to be looking for sales as a way to cope with rising prices overall. Savvy retailers will thus follow the marketing concept and give their customers what they want - a deal, or at least the perception of a deal!

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About David Wyld

David Wyld is a Professor of Strategic Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, publisher, executive educator, and experienced expert witness. You can view all of his work at https://authory.com/DavidWyld.

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