News Feb 26, 2024 12:18 AM EST

Consumers Fight Back, Forcing Businesses to Rethink Pricing Strategies

By April Fowell

A lot of Americans now buy differently due to inflation. These shifts in consumer behavior are now contributing to a decrease in inflation.

(Photo : by Joe Raedle/Getty Images)
A lot of Americans now buy differently due to inflation. These shifts in consumer behavior are now contributing to a decrease in inflation.

Customers are retaliating against prices that are still, on average, 19% higher than they were prior to the epidemic. People are buying less products like snacks or gourmet meals at grocery shops, moving from name brands to store-brand items, or transferring to cheap retailers.

Additionally, more Americans are purchasing used automobiles than new ones, which is pressuring some dealers to start offering discounts on new vehicles. However, food and consumer items like paper towels and napkins have seen the greatest consumer backlash against what opponents denounce as price-gouging.

A major focus of the public's resentment toward pricing is President Joe Biden's campaign for reelection. According to polls, many customers are dissatisfied that prices have remained much higher than they were before to inflation picking up speed in 2021, even if there has been a notable drop in inflation.

Many left-leaning economists have criticized firms for raising prices above what was necessary to pay their own increasing costs, hence boosting their profits. Biden has repeated these criticisms. The White House has also denounced "shrinkflation," a practice in which a business reduces the quantity of a product instead of increasing its price. Super Bowl Sunday saw the publication of a video in which Biden called shrinkflation a "rip-off."

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A Shift in Buying Behavior

Inflation could further drop, according to several analysts, given consumer backlash against high costs. This would distinguish this inflationary wave from the crippling price surges of the 1970s and early 1980s, which were harder to overcome. When high inflation rates continue, buyers frequently adopt an inflationary mindset in which they rush to make purchases before prices increase much more, which can feed inflation in and of itself.

Rather, a lot of customers have responded this time around like Stuart Dryden, an Arlington, Virginia-based commercial underwriter for a bank. During a recent visit to his usual grocery shop, 37-year-old Dryden saw significant pricing differences between Kraft Heinz-branded items and its store-label rivals, which he now prefers.

Dryden, for instance, adores bagels and cream cheese. Kraft Philadelphia cream cheese, in a 12-ounce container, costs $6.69. He mentioned that the store brand only costs $3.19.

Kraft single cheese slices cost $7.69 for a 24-pack; the store label costs $2.99. Additionally, a bottle of 32-ounce Heinz ketchup costs $6.29, whereas the substitute only costs $1.69. Macaroni and cheese and shredded cheese products have similar gaps.

Kraft Heinz's representative, Alex Abraham, stated that although the company's expenses increased by 3% in the last three months of 2017, it only increased its own pricing by 1%.

According to Kraft Heinz, revenues decreased in the last three months of 2017 as more customers switched to less expensive brands.

Other financial measures that Dryden has taken include moving into a new apartment a year ago when his prior landlord raised his rent by around 50%. His previous flat had been close to Whole Foods, a more expensive grocery shop. He now purchases at a neighboring Amazon Fresh and has begun going to Aldi, a cheap grocery store, every few weeks.

According to Corbu investment strategist Samuel Rines, a number of consumer food and packaged goods companies, including PepsiCo, Kimberly-Clark, Procter & Gamble, and others, took advantage of supply-chain disruptions and Russia's invasion of Ukraine to drive up input costs, which in turn led to sharp price increases in 2021 and 2022.

Millions of Americans saw significant salary increases and got government assistance like as stimulus cheques, which made it easier for them to afford the increased costs. This was one of the contributing factors.

However, others criticized the phenomena as "greedflation," and Isabella Weber, an economist at the University of Massachusetts Amherst, referred to it as "seller's inflation" in a research paper published in March 2023.

However, many of the same businesses found that the technique was no longer effective starting late last year. The majority of customers squandered the funds they accumulated during the epidemic long ago.

Customers with lower incomes are more likely to accrue credit card debt and miss payments. The general trend among Americans is more frugal spending. Daco points out that while overall sales increased by merely 4% over the Christmas shopping season, the majority of that increase was due to price increases rather than additional purchases being made by customers.

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