Consumers losing trust in brands as CEOs rake in millions and profits rise
Google, which for years ranked as the top company to work for in the United States, laid off thousands of workers by e-mail. And not just any employees: Decades-long veterans of the company, at least one employee on health leave, and even an employee in labor with her second child were all cut, with little explanation. Still, their CEO will take home over a $200 million pay package. There is something basically wrong with that. CEOs were paid 399 times as much as a typical worker in 2021
Although overall inflation is starting to cool, shoppers haven’t seen much relief in grocery prices, up 11.8% in December compared with a year earlier. Gone are the days when someone could walk into a grocery store and buy a dozen eggs for $1.50 or a gallon of milk for under $3. Instead, nearly every food group costs more than it did a year ago: grade A eggs are up 138%; margarine, up 43.8%; butter sticks, up 38.5%; all-purpose flour, up 34.5%; and spaghetti and macaroni noodles up 31.3%, according to the most recent Bureau of Labor Statistics (BLS) data.
Some of the biggest packaged food companies raised their prices last quarter, and their profits rose along with executive compensation but consumers are pushing back and are saying “enough is enough”.
Americans have faced substantial inflation at grocery stores and restaurants. Over the past year, food prices increased by 8.5 percent as consumers paid more for staples like eggs, fruit, and meat. In earnings reports over the past week, some of the biggest packaged food companies said they raised their prices last quarter and saw their profits increase. But consumers are starting to resist price increases by cutting back or trading down to lower-priced options. Some of the same multinational companies that raised prices on food said the volume they sold went down.
Brands risk alienating consumers with these high prices, said Sucharita Kodali, a retail analyst at Forrester. “Customers may or may not come back,” she said. “At some point, they will say enough is enough.”
Consumers are opting to buy cheaper generic products. When companies raise prices too much, consumers seek alternatives like private-label products.
And still, CEOs are collecting huge paychecks. CEO pay continues to outpace the pay of working people across the country. In the past ten years, CEO pay at S&P 500 companies increased by more than $540,000 annually to an average of $18.3 million in 2021.
Jennifer was oaid off from Google while she was in the hospital for a sugical procedure. As she was recovering she noticed that she was locked out from her Google employee system. She then read an email notifying her that he had been laid off even though she had outstanding reviews and had been promoted twice. “I don’t understand how a CEO can collect $200 million after laying off so many hard working people” she told me. She also vowed never to work for a big corporation again.
Recent US commerce department data shows corporate profits rose 35% last year and are at their highest level since 1950. Inflation, meanwhile, rose to 8.5% year over year in March.
As gas prices soared, Chevron’s 240% profit spike was part of “the best two quarters the company has ever seen”, prompting a dividend increase and assurances it would keep production low to maintain high prices.
Steel Dynamics profits increased by 809%. The company was “not materially affected by inflation” as higher prices “exceeded” increased supply chain costs.
While consumers might be more accepting of higher prices when pandemics and wars drive them, their patience around corporate greed looks thin. Consumer sentiment around inflation goes beyond mere concern. When prices rise as much as they have been, perceptions of fairness can come into play. While consumers may not react favorably to higher prices, people’s willingness to pay might be stronger when they feel costs are being driven by factors such as pandemics-higher prices are more likely to be perceived as unavoidable, something we all must live with. But that’s not how most consumers are thinking. Globally, slightly over half (54%) feel companies themselves are also at fault-by raising prices beyond their own rising operating costs in an attempt to increase profit.
Businesses believe they are much more trusted than they are, especially regarding consumers. Almost nine in 10 (87%) executives think consumers have high trust in their businesses. But only 30% of consumers say they do. Elsewhere, the gap between executives’ estimations of employee trust and the reality is much narrower: 84% of business leaders say employee trust is high, compared to 69% of employees. These gaps between perceptions of the level of trust are essential because employees and consumers are business leaders’ two most important stakeholder groups.
The positives of customer trust-building can directly impact your bottom line. Our previous research showed that 33% of customers have paid a premium for companies because they trust them. In this survey, nine out of 10 (91%) customers say they would buy from a company that gained their trust. Of that group, 14% say they would buy significantly more. On the other hand, of the 71% of customers who say they would buy less if a company lost their trust, a whopping 73% say they would spend significantly less. This highlights the potentially dire consequences of mistakes or missteps concerning stakeholder trust. It also aligns with earlier data on the ramifications of losing trust, in which 44% of respondents say they had stopped buying from a company due to a lack of trust. The saying “trust is hard to earn and easy to lose” holds, especially if your company needs to manage the fallout from a data breach, product recall, or other trust-crisis events. A solid foundation of earned trust is the leading defense against having to rebuild it.
The bottom line?
Brands are losing customers because of price increases and over-the-top CEO compensation. They will lose market share, but they are making more money because of higher prices, but eventually, consumers will say, “enough is enough.”