The most recent 2022 World Bank report points to a series of structural problems that will define the health of the economy, society and politics in the next 5 years. Among the most important is the increase in inflation or the price-driven economy, climate change and the lack of initiatives to improve productivity. The prospects for economic growth and inflation have fallen short. The Federal Reserve of the American Union indicates that the effect on the price increase will be maintained for at least one more year, in Mexico, a plan has been detonated to stop the increase in prices in daily consumer goods. Inflation is here to stay and becomes the most radical change that young people have experienced.
It is very difficult for brands to build brands in a market based on prices. The only solution is to have a credible story (truthful storytelling) focused on consumer welfare as Dove or Thrive Market have done. The price-motivated consumer makes decisions in real time based on the information available to him. To build a long-term relationship with consumers, we must plant the central idea of our added value months before. The now was built twelve months ago.
Inflation was considered under control in most modern economies, to the extent that the speech of the president of Mexico rarely boasted about it. Today at a press conference, President Andrés Manuel López Obrador announced an agreement / pact / strategy to control prices, ironically at the hands of brands that he has decided to criticize for 4 years. Curious that the help comes from those he accused of being the cause of the country’s debacles. However, this change is a reflection of an economy worried about rising prices. Inflation is an incredibly serious issue for the Latin American region, it is a tax on poverty: Furthermore, in an effort to control inflation, central banks must raise interest rates to get money out of the economy, this increases the cost of government finance, consequently affects growth.
Price-driven consumer: What economic theory says
For Thomas Piketty —French economist professor of economics at the School of Advanced Studies in the Social Sciences, associate president of the Paris School of Economics and Centennial Professor of Economics at the International Institute on Inequalities of the London School of Economics.—author of Capital in the 21st century, As a general rule, wealth grows faster than economic output, a concept that is captured in the expression r > g (where r is the rate of return on wealth and g is the rate of economic growth). Other things being equal, faster economic growth will decrease the importance of wealth in a society, while slower growth will increase it. In a simplified way, an economy that does not grow generates inequality.
We know that the consumer uses consumption as an exercise to reduce inequality, that is the secret of the American Union, access to credit allows consumption between a millionaire and a middle class person to look very similar. The two can drive similar cars and live in a comparable way, of course the second one owes a large part of their properties. It is also understood that to the extent that the consumer perceives that his assets rise in value, he spends more. Known as “wealth effect” to the economic theory of behavior that suggests that people spend more than the value of their assets increases. The idea is that consumers feel more financially secure and confident about their wealth when their homes or investment portfolios rise in value. In that sense, inflation causes huge problems in consumer behavior, perceiving that products rise in price, they also think that the goods they own grow, therefore they spend more but get less.
Brands that have turned inflation around
The consumer begins to make decisions based on price and the best indicator is the growth of trends such as the second hand market. Clothing resale accounts for a much larger share of the total retail resale market than any product category, with the value of the secondary industry estimated at $27 billion annually. Brands like Thrift+ and ThredUp have found positive reception in the market. Another example occurs in eCommerce with the DropShipping phenomenon that takes advantage of minuscule price differences and has become a market of 149 billion dollars a year according to Grand View Research.
On the part of the consumer there is also responsibility, responsible consumption must be encouraged. In times of economic disparity, it is the consumers who are asked to sacrifice. Joe Biden, President of the American Union called on Americans to buy less food on Thanksgiving Day 2021 because of rising prices. Ironically, consumers are now being asked to buy electric cars in the face of rising gasoline prices, and what to say about Mexico, which seeks to get consumers to buy hybrid cars in the context of the largest increase in prices for new cars in the last two six-year terms. The consumer must make more sophisticated purchase decisions that reduce the environmental impact and protect their economic and social situation as much as possible. Everyone loses if the consumer falls off a cliff. Brands must take care of the consumer, they are simply symbiotic.