Manufacturers can’t coast on brand cachet during a recession. In an environment where you can’t rely on consumer loyalty, what are you doing to protect your product’s value?
It’s hard to overstate the impact of inflation and cost of living on consumer spending. People are hurting financially, and it’s trickling down to businesses bearing the brunt of price hikes. So while retail sales have risen around 10% (primarily due to the cost of goods like gas and food), the contracting economic environment has manufacturers and consumers twitching nervously. So it may not come as a surprise that more than 60% of U.S. adults feel anxious about the possibility of a recession in the coming year.
Manufacturers are also being hit from multiple sides. Shipping costs are up (the average cost to ship a container quadrupled during the pandemic), and price increases from higher production costs are putting a dent in consumer sentiment and discretionary spending . If the 2008 recession has taught us anything, manufacturers can’t coast by relying on brand recognition to get them through. Only four out of 10 brands could retain half of their brand-loyal customers through 2007 and 2008. As of August 2022, consumer sentiment was similar to the 2008 recession: 50% of people planned to switch brands, while 37% of consumers planned to stay brand-loyal but purchase less frequently.
So what’s a manufacturer to do? Consumer perception of worth will play a significant role. As prices continue to fluctuate, several categories – consumer electronics, skincare, and baby supplies, to name a few – are seeing a misalignment between consumers’ perception of inflation and actual inflation. A recent McKinsey study found that 30% of respondents perceived an upsurge in price in categories where there’s been just a 2% rise. Meanwhile, survey respondents did not detect a meaningful change within categories that have seen considerable price increases.
When price doesn’t always align with reality, what makes a product worth it to consumers? Now more than ever, brands need to show the value they can provide. We think that comes down to perception, protection, and people.
Perception of worth goes beyond product features; consumers need to be able to answer the question how does this transform my life? For example, the lipstick effect, often seen during times of recession, perfectly illustrates the perception of value. A swipe of lipstick can quickly transform a person’s face much more than other cosmetics for around the same price (or less). Understanding what kind of transformation your audience craves (a $10 lipstick? Or a $100 haircut?) and where you can support them will help you better communicate your value.
Action step: Undertake research (customer sentiment analysis, psychographic data, customer surveys, or questionnaires) to define your customer-perceived value.
Consumers are highly selective right now, with Forrester predicting that people will continue to be financially cautious well into 2023. For high-ticket items that may make consumers pause at checkout, consider adding product protection as an additional support layer. While product protection serves as a security blanket for the consumer, it can also let manufacturers create additional touchpoints after purchase to further deepen relationships with their customers.
Some businesses fear that offering product protection may lead to doubts about the longevity of their products. Just take a leaf out of Apple’s book: People don’t consider Apple products inferior because of AppleCare; they love the peace of mind it brings to owning the products they cherish the most.
Action step: Reach out to us to learn more about how product protection can serve you and your customers.
No matter the environmental forces at play, loyal customers keep businesses thriving, and those customers often come through referrals. Recommendations from friends and family are among the most potent marketing tactics, whether it’s customers that consistently return, customers who share feedback about your brand, or those who tell their friends or family about you. Ninety-two percent of consumers say they trust recommendations from people they know above all other forms of advertising.
Action step: Encourage social recommendations through a referral program or reviews and incentivize current customers to do so, too.
While consumer spending may be more strategic in this economy, you can stand out from the crowd in 2023, and Clyde is here to help. Our Extended Warranty plans will improve your products’ perceived value by providing customers peace of mind and enriching the ownership experience. Sign up for a demo today.
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