Inflation: Marketers need to redraw innovation plans to keep pace with consumer behavior

By Chris Githaiga

Supply disruptions caused by COVID-19 pandemic and the Russian invasion of Ukraine has led to the spiraling of commodities prices across the world.

Latest statistics show that inflation in sub-Saharan Africa was set to reach 12.2 percent in 2022, after increasing steadily from the onset of the pandemic in 2020 onwards. The rate is estimated to decrease although it will remain high in the coming years. In North Africa, prices have also increased constantly from 2020 to peak in 2022.

Inflation is always driven by supply and demand. When consumers demand more goods than inventory can supply, or when the prices of production and shipping go up, consumer prices also rise.
According to Statistica.com, inflation in Africa varied deeply among the continent's regions. By 2022, the rate was projected at its highest in East Africa, at 24 percent. This was mainly due to factors such as reduced agricultural productivity and local issues, like the currency devaluation on domestic prices in Sudan. Central Africa, however, recorded the lowest inflation rate in the continent, at three percent.

According to Ipsos on inflation, three in four consumers globally are concerned that price increases in 2022 will outpace their income growth. On the other side, leaders in the consumer goods sector have faced disruption to their innovation pipelines as they fire-fight emerging priorities such as rising cost of goods, stock shortages and rapidly shifting consumer sentiments.

In terms of consumer behavior, the world has seen many taking up a variety of steps to cope with the new reality where prices are rising more quickly than incomes making it difficult for many to afford basic commodities.

Studies show that many are preferring discounted stores with Bloomberg recent report showing that 50% of consumers are responding to inflation by pursuing promotions more aggressively.

Data from recent Ipsos research (globally) indicates around 20% of consumers surveyed noted that they will or already had switched to cheaper brands. Around 17% also stated that they’d changed where they shopped, opting for retailers and discount stores with consistently lower prices. And another 17% noted that they often shopped sales or used coupons.

Other studies have also shown that consumers are now buying less often or not at all as prices go up. For instance, many consumers are slashing electronics purchases from their budgets entirely. Around 30% of adults are also skipping upgrades for personal devices such as phones and laptops. In short, they are shunning non-essential items and going for only basic commodities to keep pace with the rising inflation.
There has also been increased tendency by some consumers to buy in bulk to combat the high cost of food. Though with no numbers, this is a phenomenon we have observed locally in Kenya.

As consumers devise new ways to keep pace with the soaring cost of goods, brands are facing disruption to their innovation pipelines as they fire-fight emerging priorities like stock shortages and the rapidly shifting consumer priorities.
Innovation leaders face choices to completely redraw their pipeline, launch inflation-resilient innovations or renovate to reduce pricing vulnerability. Even when price increases are inevitable, whether to directly raise prices, downsize or use other indirect methods still present tough choices to make.
Innovating during inflationary times is tough but successful leaders have followed a disciplined approach empowered by strong research tools to navigate through the challenging times.

Successful marketers start by understanding the pricing landscape and decoding the driving forces that determine the magnitude of impact their category and segment will face. They map out cross-elasticity across existing offers in their space to find the best competitive position to innovate in.
To build an inflation-resilient innovation portfolio, marketers must bring differentiation to the space to reduce substitutability. Overlaying claims beyond the category’s core cost-of-entry has proved effective overall, but the key is choosing the right claims that offer superior “permissibility to pay” and choosing brands with the right equity to carry those claims.

Marketers must also constantly adapt their pipeline based on changing consumer behavior and attitudes, while balancing value and premium innovations to protect profitability.

When a price increase is inevitable, whether to increase price directly, or indirectly using discreet approaches like downsizing and cost reduction, is a delicate choice. To be successful marketers must balance short-term gain and long-term risks.

At Ipsos in Kenya, we evaluate thousands of innovations propositions each year and the relationship between concept performance and pricing resilience are often examined. One performance that continuously stands out as showing high correlation with price resilience is differentiation. Innovations that offer distinctive benefits reduce substitutability and consistently outperform competitors in withstanding price increases.
From the propositions we have tested in Kenya, we found that innovations that make meaningful claims beyond category entry requirements create differentiation vs. competitors and make them more resilient to price increases. During inflationary times, as consumers diligently seek value for money, overlaying claims beyond basic efficacy claims often provides the justification consumers need to pay a little more than the absolute minimum to get the job done.
At Ipsos, we believe knowledge is the best weapon against uncertainty. When the COVID-19 pandemic first hit three years ago, we helped our clients navigate the rough waters through historical comparisons of crisis cycles of the past.

The author is the Managing Director at Ipsos in Kenya.