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Again, Firms need to look at a specific category in which they operate, and depending on what they find, they respond to inflation in different ways. Procter & Gamble and Unilever generally have premium brands. if the premium products become less purchased, they will introduce what they call a lower tier or value brand. If store brands are highlighted, sales of brands do tend to go up in inflationary times.
Another thing firms do is make the donut’s hole bigger. that is, they charge the same price and offer a slightly lower quantity. The package of toilet paper will have fewer rolls. The six-ounce potato chips become five ounces which is, effectively, a price increase of 16%, but because it’s at the same price and quantity changes are harder to perceive, consumers don’t notice it as much.
One very clever thing Costco does is to offer a few cents discount on gas. People hate to pay for gas, so when gas prices go up a lot, they go to Costco more and end up buying a lot of other stuff.
How can the U.S economy improve its brand?
The economy has strengths and weaknesses right now- there is high employment, and high Inflation but many people see it as worse than it really is. So how can the economy help solve high Inflation?
Again, people’s beliefs are logical. people evaluate uncertainty based not on facts but on feelings. A classic example of this is after an air crash, many people think the risk of flying is higher than the risk of driving. In almost all cases, that’s not true. But when a plane crashes it’s in all the newspapers and television. Nobody’s processing all the facts and based rates; it’s simply, “I feel it’s not safe to fly.”
Similarly, if people I know are struggling with the cost of living if my social media feed is all about price increases, that’ll have a negative impact on me.
Democratic leaders might want to keep pointing out that the unemployment rate is 3.5%, but if you just present facts, it doesn’t change people’s feelings matter more than facts is very frustrating for political leaders, but it has important implications for how they communicate.
How should Companies respond to consumers’ perceptions of Inflation?
