As prices have continued to rise in 2023, trading-down behaviors have become entrenched among consumers. CMOs concerned about the risk of continued brand switching can turn to certain customer retention and acquisition strategies.
As rising costs have persisted in 2023, consumers have faced tough choices. Among those challenges is this quandary: Stick with tried-and-true brands, or opt for less-expensive alternativessuch as store brands or “off-brands?”
The bad news for marketers: Consumers are abandoning loyalty to brands amid rising prices. Some 90% of U.S. consumers sought out cheaper alternatives in at least one product category at the tail end of 2022, according to the 2023 Gartner Consumer Cost-of-Living and Price Sentiment Survey. That’s up from September 2022, when 53% of consumers sought out cheaper alternatives in at least one product category.
Inflation is clearly inflicting financial pain on households. One-third (33%) of consumers say that their household has felt a big impact from inflation/higher prices, leading to financial hardship.What’s more, consumers fear that businesses are increasing prices to fatten profits: Forty-five percent of surveyed consumers say they are highly concerned about price gouging. Contributing to this concern: Several companies that raised prices in 1Q23 saw their profits go up. These attitudes can undermine CMOs’ efforts to retain and attract customers.
Data from the 2023 Gartner Consumer Cost-of-Living and Price Sentiment Survey also revealed:
Consumers most impacted by inflation are least loyal to brands. Compared to consumers who have felt no impact from inflation, the consumers facing hardship are three times more likely to switch brands in three product categories: food, groceries and nonalcoholic beverages; personal care or beauty products; and clothing, shoes and accessories (see Figure 1 above).
Category impacts loyalty amid inflation.Consumers are most likely to stick with specific brands in certain product categories, such as consumer electronics and home appliances. In contrast, consumers are least likely to remain loyal to brands in the category of food, groceries and nonalcoholic beverages. Consumers are likely to look for less-expensive alternatives in other consumer goods categories, such as household products and over-the-counter (OTC) pharmaceuticals.
Brand-loyal consumers skew older and richer. Baby boomers and Gen X consumers, for the most part, are more likely than millennial and Gen Z consumers to remain with a brand across the survey’s eight product categories. Only 39% of Gen Z consumers say they haven’t traded down to a less-expensive option in the personal care/beauty product category, compared to 49% of the total population (see Table 1). Higher-income consumers tend to be more loyal, as well. Affluent consumers expressed the lowest likelihood to trade down across all product types, with one in five not trading down at all in the past year (see Figure 2).
Store, generic and discount brands acquire customers amid inflation.When choosing a product alternative, 46% of consumers say they’ve switched to a generic brand; 44% switched to a store brand; 39% switched a simpler, less expensive product type; and 35% switched to a less-expensive brand name. Walmart executives, for example, have said that the retailer has seen high demand for its private label goods across product categories, including groceries and personal care products. When it comes to household penetration, one study found that Walmart owns four of the top five private label brands (e.g., Walmart’s Great Value and Equate brands).In an earlier exploration of consumer switching, this kind of switching behavior was commonplace as well — highlighting the consistency of brand switching as a cost-saving tactic.
Consumers who traded down in at least one product category prioritized savings over premium-level services. Many consumers (49%) say that rebates or cash-back promotions are appealing; 46% say that free, discounted or expedited shipping is appealing; and 42% say that product or service discounts are appealing. Far fewer express interest in early product or service access (6%), higher-priority service (9%) or extended returns/exchanges (11%).
What You Need to Do
Brands want to find themselves on consumers’ must-buy lists even amid inflation, but most won’t.Because consumers remain in a high-price environment, the following advice from September 2022 still holds true in mid 2023: CMOs must emphasize strategic brand investments that retain existing customers or attempt to capture new ones. This is especially true for brands within categories most susceptible to a lack of consumer loyalty: food, household products and OTC pharmaceuticals. With an immediate advantage on spending directed toward brand building, premium brands should find it slightly easier to retain consumers. That said, as high inflation has impacted consumers in all demographics, customer retention will continue to be a challenge.
To increase customer retention amid inflation:
Offer exclusive coupons to existing customers. Coupons and promotions are often used as acquisition tools to encourage new customers to overcome their hesitancy to try a new brand. However, in this economic environment, exclusive coupons for existing customers may be one of the only ways to combat wandering eyes. For those consumers who have decided to switch brands in this inflationary environment, rebates and cash-back deals would be appreciated, with almost half (49%) of consumers who traded down saying these kinds of promotions would be appealing. Consider reinvesting in affiliate marketing channelsthat help retailers present cash-back or exclusive offers to consumers. Affiliate marketing can be efficient relative to other tactics when budgets are under pressure, because marketers only pay for performance.
To increase customer acquisition amid inflation:
Focus on perceived value if you market a higher-end brand; focus on low price if you market a value brand.Higher-end or leading brands that aren’t already perceived as a top-quality choice in a category are unlikely to win over new customers amid inflation. Instead, acquisition in this environment turns on perceived value and price, and most movement will take place around less-expensive brands. Consumers have never been more open to trying cheaper brands.
Ensure that your brand is investing in channels where newer consumers are. Now is a good time for new or lower-tier brands with less than the lion’s share of market penetration to invest in customer acquisition to gain market share.Forty-six percent of consumers have purchased a new product in the past year. In fact, this is especially true for Gen Z (68%) and millennials (52%),providing a nice opportunity for CMOs to draw in a younger consumer base already prone to switching to less-expensive brands. Store brands will see a natural lift. “Second-best” (or third, fourth or fifth) doesn’t carry the stigma it used to. Across categories, a quarter to a third of consumers who traded down said they’d already tried trading for an alternative less-expensive brand. Ensure that your brand is investing in channels where target consumers are. For example, Gen Z and millennials are open to using social commerce to make purchases more than older consumers are (see ).
Revisit customer insights/analysis from surveys and other sources to ensure that any points of differentiation and value stand out across all media and owned activations.
Gartner Recommended Reading
2023 Gartner Consumer Cost-of-Living and Price Sentiment Survey: The purpose of this survey was to understand how inflation impacts consumer decisions and attitudes toward brands and products. The research was conducted online from 23 November through 15 December 2022 among 2,013 respondents in the U.S. Respondents were required to be at least 18 years old.
Disclaimer: Results of this study do not represent global findings or the market as a whole, but are a simple average of results for the targeted countries, industries and company size segments covered in this survey.
2022 Gartner Consumer Community (n = 331, 1-9 September 2022): While the Gartner Consumer Community (n ≈ 500) resembles the U.S. general population, the data cited is based on the responses of community members who chose to take each activity. These samples may not be representative of the general population and the data should only be used for directional insights.
2023 Gartner Multichannel Marketing Survey: This survey was conducted to determine best practices for maximizing multichannel marketing investments in response to evolving customer journeys in a fluid marketing environment. It was conducted online from November through December 2022. In total, 397 respondents were surveyed in their native languages across North America (n = 201), Western Europe (n = 161) and the Nordics (n = 35).
Qualifying organizations reported enterprisewide annual revenue for fiscal-year 2021 of at least $100 million, with 83% of the respondents coming from organizations with $1 billion or more in annual revenue. The respondents came from a variety of industries: financial services (n = 61), manufacturing (n = 58), consumer products (n = 46), retail (n = 45), travel and hospitality (n = 45), healthcare (n = 44), pharmaceuticals (n = 35), media (n = 33), and IT and business services (n = 30).
All respondents were senior leaders who manage multiple marketing channels or were responsible for the execution of their organizations’ multichannel marketing strategies. Eighty-five percent of respondents were aligned to the marketing function, 9% to brand management and 7% to sales or other business units.
Disclaimer: Results of this survey do not represent global findings or the market as a whole, but reflect the sentiments of the respondents and companies surveyed.