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How Leaders Should Communicate to Employees and Customers About Inflation

July 15, 2022

Contributor: Jordan Turner

Organizations must anticipate and then communicate two inflation-based reputational risks.

As organizations adjust 2H22 plans to navigate the business impacts of inflation and extended supply chain disruptions, leaders must make time to plan a consistent approach to messaging inflation in a way that protects company reputation and prevents customer backlash.

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“Consumers are increasingly concerned about price hikes amid economic headwinds,” says Patryck Allen, Senior Director, Advisory, at Gartner. “Leaders must ensure the organization is delivering a consistent narrative, otherwise it risks being perceived as taking advantage of a difficult situation.”

To protect company reputation in the midst of economic disruption, address two critical topics with employees and customers: pricing and compensation.

Communicate early and clearly about products and pricing

According to a 2022 Gartner survey, the most common strategy to combat inflation is to increase prices. And while consumers have been fairly understanding of how market factors drive up prices, perceptions that companies are raising prices to increase profits are growing. 

Approach price increases carefully to protect your organization’s reputation. For example, feedback from the 2022 Gartner Consumer Community Survey indicates that consumers prefer organizations to announce price increases with rationale. You can share these plans via press releases or earnings reports.

Watch Gartner experts discuss: Top Inflation Concerns for 2022 and Beyond

There’s very little tolerance for companies reducing product sizes or quality as an alternative to price hikes. Keep in mind that customers will increasingly scrutinize their purchases as prices rise. Any surprise change in volume or quality risks a negative customer experience and poor effects on brand reputation. 

To deliver reputation-protecting messages around price and product changes, you should:

  1. Connect with your peers in product and supply chain to determine how market disruptions are affecting different products and services.
  2. Align with peers in investor relations, sales, customer service, marketing and communications to coordinate on messages about pricing to important stakeholder groups to avoid message fatigue.
  3. Communicate proactively, and with rationale, any changes the company is making to source materials or product ingredients to customers to avoid perceptions of product degradation or inferiority.

Be transparent about executive compensation changes

While the CEO pay ratio increased by more than 27% between 2020 and 2021, workforce compensation changes in 2021 actually led to a wage decrease. With inflation rising, consumers are feeling their purchasing power decrease significantly and are scrutinizing executive compensation more closely.

Although the 2022 Gartner Consumer Community Survey did not ask about executive compensation directly with regard to price hikes, several respondents indicated frustration with increases in executive pay. 

To deliver reputation-protecting messages around executive pay, you should:

  1. Connect with peers in HR, legal, communications and investor relations to surface key audience perspectives on upcoming executive pay proxy votes or other changes to executive pay. Avoid links to product pricing.

  2. Prepare an FAQ or other informational document for shareholders prior to and following executive pay proxy votes. 

  3. Proactively communicate inflation-triggered adjustments to broader workforce compensation along with executive compensation changes.

Ultimately, customers are not blaming companies for price hikes (yet), but with inflationary pressures likely to continue during the coming months, consider how you talk about pricing and compensation in a way that protects your company’s reputation.

In short:

  • Organizations are entering the last half of 2022 facing multiple economic disruptions with global inflation and continuing supply chain issues. 

  • Consequently, society is more price-sensitive as purchasing power diminishes.

  • To avoid reputational backlash and message fatigue, be especially mindful of how you communicate pricing and compensation changes to employees and customers.

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