Inflation redirecting shopping behavior across SE Asia—report

Rising inflation is changing the behavior of shoppers across the Southeast Asian region, particularly those on low incomes, presenting challenges for some businesses but also giving rise to opportunities for others, according to a new report from Kantar.

The data analytics and marketing consultant said its recent study on the impact of inflation on fast-moving consumer goods (FMCG) in SEA found that to deal with inflation, consumers are moving away from impulse purchases in favor of more planned purchases as household budgets are increasingly squeezed by increasing prices,.

“Many brands are already seeing the impact or considering their response,” Kantar said. “Recent work in Asia by Kantar Worldpanel revealed that a move to more planned purchasing was having an impact on impulse purchases, a sector already hit by reduced time in store thanks to Covid, while some marketers were excited by the opportunity for innovation under pressure and the need to deliver a more rounded brand experience.”

The report mentions three factors companies need to consider when developing marketing strategies for these inflationary times.

One factor to note is that inflation is causing changes in shopping baskets, channels and brands. Shoppers will have different strategies to cope with rising prices: they might buy less or buy bigger packs of key products, change where they shop, or trade down by switching to private labels or non-branded products.

Another factor to mull is that as price gaps shrink, premium brands could realize gains as a result of mainstream or value brands being forced to raise prices due to rising production costs. This allows shoppers to consider premium options, said Kantar, noting that Thailand has already seen a shift away from cheaper stores.

The third factor is that shoppers could choose to keep more stock for essential products during shopping season. “Shopping behaviours can also change around key celebration events. For example, during Vietnam’s Lunar New Year in January, consumers in urban cities made more branded purchases and shopped in more channels. This significantly reduced after the event.”

The paper also reports on its findings on how lower-income households, which make up a substantial element of the population, are reacting to inflation.

For many such shoppers, income comes in daily and shopping is based around buying small amounts from traditional neighborhood stores, a single cigarette for example. Many brands have responded with a sachet-based offer, allowing shoppers to buy small quantities more often, combining affordability with accessibility via convenient general trade outlets.

Faced with this combination of factors, entrepreneurs need to consider five options for boosting performance in an inflation-driven market, Kantar said.

They could increase the list price, for one. But sellers need to understand first what impact price has on sales and how much more shoppers might be willing to pay. Since margins are more generous for premium items, perhaps such goods could more easily absorb production cost increases.

“Brands that do go down this path will also need to justify rises to shoppers. They should have a ready explanation for the increase in order to avoid any suggestion of profiteering,” the paper said.

Enterprises can also opt to change their product mix. Every brand has a mix of margins and offers in its portfolio. Dove in India, for example, has a selection of pack sizes ranging from sachets to bottles designed to offer a laddering solution for every single shopper group.

“The challenge for marketers here is to assess how they can maximize the distribution of higher-priced products, as accessibility is critical when meeting the needs of shoppers who use smaller general trade as their daily shop,” said Kantar.

Another option for a company is to reduce price promotion. Price promotions are a staple of marketing but they are also costly for firms. Reducing the scale and frequency of promotions may allow them to cover increases in production costs.

“By carefully analysing which promotions actually boost sales growth and, more importantly, add incremental sales, marketers can be much more targeted in how and where they run promotions,” Kantar said.

Firms could also go down the innovation path. Understanding how offering new product benefits would allow a brand to justify or encourage shoppers to accept a price premium is an essential route to innovation. Researching the unmet needs and developing niches in the category will allow marketers to identify growth opportunities and boost share of the basket.

The fifth option is to look at the possibility of reducing pack size. Cash-strapped shoppers may still want a taste of the brand, but they may not be able to afford the existing product. Keeping them in the brand family will also enable their consumption to be increased back to previous levels once the inflation crisis is passed.

Kantar observed, for example, how Skippy Peanut Butter introduced an 18-gram sachet to improve its availability in proximity stores in the Philippines and boost accessibility among its target group.

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