The cost-of-living crunch: what it means for marketing, and what to do next

2022 was always going to be a difficult year as the after-effects of the pandemic played out. Now war in Ukraine is dialing up the impact. WARC’s Anna Hamill introduces a new series in which industry experts consider what it all means for the 4Ps of marketing.

Coming into 2022, brands hoped that the new year would herald a more optimistic outlook for business after a long period of upheaval. With the successful vaccine rollout promising an end to two years of COVID tumult, there were indications that life would – at long last – go back to something resembling normality. For brands, that meant a welcome return to growth and stepping away from the crisis-management whiteboards.

Unfortunately, the first three months of the year have turned those good intentions upside down for many marketers. A cost-of-living crunch, ongoing supply-chain issues and the economic impact of the invasion of Ukraine have changed the calculus once again.

Many marketers who did the hard yards during COVID are benefitting from lessons learned about scenario planning and ensuring business stability in a ‘black swan’ event. But the basic principles of marketing – the famous 4 Ps of price, place, product and promotion – will need a rethink if brands want to stay top of mind as the screws tighten for consumers.

In a new series for WARC, industry experts examine each of the 4 Ps in the context of a cost-of-living crunch and offer practical advice on how marketers can respond.

The cost-of-living crunch is set to define 2022

The cost-of-living crisis that emerged in the second half of 2021 shows few signs of abating and is now being super-sized in many aspects by the knock-on economic effects of war in eastern Europe.

According to KPMG, one in three British households will trim their household spending this year and most people will likely cut the products they see as superfluous. Oil and gas prices have soared to previously unthinkable highs, while resurgent inflation is hitting shoppers directly in the pocket. The rising price of essentials such as heating and food is hitting lower-income households especially hard, and wages simply aren’t keeping up.

At the same time, ongoing supply chain challenges mean that many brands are struggling to ensure consistent product availability, while managing customer expectations amid shortages and delays.

These concurrent economic storms are hitting brands just at the time they had hoped to move toward clearer skies post-COVID.

“The war in Ukraine has created a new negative supply shock for the world economy, just when some of the supply-chain challenges seen since the beginning of the pandemic appeared to be starting to fade,” reported the Organization for Economic Cooperation and Development (OECD) in mid-March. The report noted “numerous significant economic implications”, including for the price of basic commodities such as oil and wheat, which are key exports from the affected region into wider Europe.

“The war is having an impact on the rest of the world through two main economic channels: higher food prices, which will hurt low-income and emerging markets especially, and energy prices, which will affect businesses and consumers worldwide,” said Laurence Boone , the OECD’s chief economist, as reported by the Guardian.

This complex reality is redefining plans in real time for businesses of all sizes and categories, but consumers are still likely to bear much of the burden of increased costs.

Here’s what WARC’s industry experts have to say about how brands can respond to a cost-of-living crunch, with a focus on each of the 4 Ps.

Place (distribution and channels)

Choosing the most appropriate distribution channels with care is vital to preserving a brand’s carefully orchestrated position. This is especially important when dealing with business conditions outside of the norm, writes Frances Dennis, Client Development Director at Brandwidth.

Marketers should remember this fact during the cost-of-living squeeze, when the temptation to ‘spray and pray’ gets ever greater. Brands in a position to do so should invest in a comprehensive digital strategy (where relevant) and do so with the same care and consideration as the brand would approach a flagship store location.

“Creating a distribution strategy requires strong insights gleaned from market research and economic analysis,” says Dennis.

“The choices a marketer makes about these, and how those augment the brand’s approach in response to the cost-of-living crisis, can have a huge organizational impact on the business and how your customer encounters and considers your product.”

Price

In these unpredictable times, brands have crucial choices to make about how they set prices. Do they cut prices and keep customers buying the brand, eating into their bottom line but ensuring a long-term customer base? Or do they put prices up, increasing their margins but risking significant churn?

According to Will Humphrey, Strategy Director at Wunderman Thompson, when pricing in a crisis, brands should be aware of four central lessons:

  1. The effects of the crisis will be unevenly felt: Depending on who they serve and what they sell, some brands will have to take far more drastic actions than others.
  2. For customers, every brand sits between status and satisfaction: Brands are not created equal: some sell status and may be able to put prices up with little ill-effect; others meet a more functional need, and even a small price increase can harm margins unless there are genuine product benefits.
  3. Acknowledge that a crisis won’t stop consumers from consuming: Savvy marketers will look to focus on how small changes in customer behavior can help guide their brand’s behavior.
  4. Recognize that, above all, that fairness rules: Transparency is key – customers can easily find out why you’re raising prices, and some may even sympathize; but if it’s unwarranted and profiteering, they’ll churn, especially if competitors haven’t put their prices up.

Product

As inflation and the increased costs of living bite consumers at a time when brands are aiming for post-COVID growth, companies will need to rethink their product propositionwrites Jacob Lovewell, Senior Strategist at RAPP.

Lovewell offers sound advice for marketers with regard to managing their product portfolios:

  1. If a brand’s product serves more than one purpose for a consumer, then it is an investment more worthy of spend than a single-purpose or single-use product.
  2. Understand the individual needs of customers and talk to them in a way that treats them as people instead of numbers. In doing so, marketers can forge a more prominent and positive presence in the mind of their audience.
  3. It doesn’t have to be a binary choice between super expensive or bargain bucket products. Giving customers the chance to choose their level of spend is an emerging trend.
  4. Wise premium brands will understand that their products offer an experience of escapism that is worth paying more for.

Promotion

Soaring everyday costs impact consumers in different amounts. Brands will need to walk a line between staying relevant and top of mind, while also being sensitive to their increasingly challenging financial circumstanceswrote Jamie Kenyon and Louise Martell from Yonder Media.

Brand owners must acknowledge economic disparity and ensure all aspects of their marketing communications are responsive. This means getting to grips with audiences’ financial reality and aligning all communications to their expectations, priorities and behavior.

Those still able to invest in big-ticket items will crave security in their purchases. Brands in this space should bolster trust cues – emphasizing protections, approval ratings and testimonials while employing social proof bias in messaging to reassure potential customers.

The ‘lipstick effect’ will assume increased importance with consumers placing emphasis on things they have been denied during the pandemic as more cheaper indulgences.

The full articles in WARC’s new series addressing the rising cost of living are available to WARC.com subscribers.

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