Can brands meet increased consumer expectations because of higher prices?
- There are now 12 car models that are selling above the list price.
- American vacationers are finding just about everything significantly more expensive this summer.
- Most of what people see in price inflation is due to how cheap things were last year.
- Consumer prices rose 5% year over year in May, the fastest pace since August 2008 and higher than Wall Street expectations.
- Households that have a strong itch to spend have the means to do so, and they have fewer and fewer health reasons not to indulge.
According to Deloitte “with the US economy slowly returning to prepandemic levels, consumer spending is likely to get a shot in the arm as consumers eagerly spend on activities that had screeched to a halt during the COVID-19 pandemic”.
The American consumer is pretty intelligent, though, as early signs suggest they are shifting their spending patterns, in apparent recognition that a few key items are way out of step in terms of price increases. Instead of caving to higher prices, Americans appear to be holding off on some purchases and giving suppliers some extra time to catch up.
Recent indicators show the price surge slowing sharply in June. The Manheim Used Vehicle Value Index rose just 0.3% in a preliminary June reading, down from the 4.8% jump in May. The meager increase signals used-car inflation could be nearing its peak before reversing course.
According to Bank of America economists, demand is likely to persist well after supply constraints are addressed. Americans spending today will simply pay a “temporary inflation tax” on some goods, and those deferring their demand will drive a jump in activity once price growth cools.
So prices will cool as consumers shift spending.
The personal-saving rate remains high: 14.9 percent in April and 12.4 percent in May. With large unemployment benefits and waves of free cash now starting to recede in the country’s rearview mirror, the continuation of that high level of personal savings threatens a strong expansion into 2022 and 2023.
Eventually high prices will level off and consumer spending will return to prepandemic levels. Some brands, however, are seeing a post in their brand equity due to strong demand. Kia, for example, has seen a huge shift in their brand equity due to the great reviews in auto magazines. Apple is selling so many new iMacs that it can take over a month to get one. Trying to purchase a Kia Telluride is an exercise in futility for some.
It’s more than the laws of supply and demand, it’s the willingness to spend on products consumers feel are worth the extra money for brands that are well positioned. There is however some risk. Brands that are seen as exploiting consumers will pay a price strategically.
Consumers will continue to spend money on brands that understand their needs but trying to exploit people flush with cash is a huge mistake. I believe that some brands will continue to be in high demand after the economy starts to cool, but others are in for a rude awakening. Consumers will always pay extra for great brands like Apple, but other brands will find that they have to continue to justify higher prices with a higher investment in things like customer service.
Originally published at https://www.newmediaandmarketing.com on July 4, 2021.