Faced with a cost of living crisis, consumer perception towards products and services may change. What do consumers expect from their favourite brands when they notice price increases, and how can companies meet these expectations to maintain customer loyalty?
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Due to the current cost of living crisis in the United Kingdom, many households face difficult financial circumstances and a reduction in spending power. With the Consumer Price Index (CPI) rising by 10.1% in the 12 months to March 2023, consumers’ perceptions of price increases may affect their behaviour towards their favourite brands. However, where are consumers noticing price changes, and what expectations do they hold for companies that raise their prices but still want customer loyalty?
Capterra surveyed 1,006 UK consumers who are either in charge of paying for home expenses and goods in their household or share the responsibility with people they live with. We wanted to gain insights into where these consumers notice changes in products and services, how they address these challenging economic circumstances, and what they expect from companies to maintain their brand loyalty. The full methodology for conducting this study can be found at the bottom of this article.
81% of respondents are anxious due to the increase in prices
As the cost of living in the UK rises, this can impact consumer anxiety. Our survey found that 81% of those who manage household expenses are ‘somewhat’ or ‘very anxious’ about the rise in prices and costs. This anxiety is compounded by concerns about the threat of an economic recession, with 81% of respondents stating they were ‘somewhat’ or ‘very worried’ about the possibility.
In addition to price increases, other noticeable changes to products and services may contribute to consumer concerns. These changes include decreases in the sizes of products or the scope of services and scarcity in their availability in the UK.
The majority have noticed a price increase in products and services
According to our survey results, 88% of respondents had noticed a price increase in a product or service in the last year. This increase in prices can make it difficult for consumers to maintain their standard of living and can lead to anxiety about their financial situation.
In addition to price increases, over a quarter (26%) of respondents had noticed a decrease in product size or service scope. When companies make these changes, a practice often called shrinkflation, it can also be considered a form of hidden price increase, and this can be frustrating for consumers who feel they are receiving less for their money.
Finally, one in five respondents (20%) had detected a decrease in the availability of products or services. This year, for example, poor weather led to lower harvests in Europe and North Africa. Combined with reduced supplies from Northern European crop producers facing a rise in energy bills to heat glasshouses, this has caused a shortage of fresh food in the UK.
Where are consumers noticing price changes?
Rising prices and costs can affect various products and services in the UK. Soaring energy bills, tough trading conditions due to resource limitations, and a weaker pound making produce imports from Europe more expensive can all contribute to increasing prices.
We asked our survey respondents who had noticed increased prices where they had detected these changes in products and services they use regularly. The majority had noticed price differences in groceries (96%), with beauty and accessories (79%), and clothing (69%) also featuring in the top three categories where changes had been noted.
Major UK supermarkets have reported that many consumers are swapping from fresh to frozen food to combat rising grocery prices. Additionally, the need to focus spending on groceries that are increasingly more expensive may leave consumers with less money to spend on other less essential items.
In terms of services, 93% of respondents who had observed price changes in general over the last year had noticed an increase in household bills. Restaurants and bars came in second (82%), followed by entertainment (76%).
Household bills are rising for multiple reasons. Europe’s current gas supply squeeze has had an impact on energy supplies to the UK, where 85% of households use gas boilers to heat their homes and around 40% of electricity is generated in gas-fired power stations. Consequently, Western European energy costs have hit UK households the worst.
Like groceries, essential household bills can take up a significant portion of a consumer’s budget. A report by the Office for National Statistics (ONS) showed that food shop prices and electricity bills were by far the most commonly reported reasons for the rise in consumers’ cost of living. As a result, the report says 69% of adults spent less on non-essentials, and 60% used less fuel in their homes.
When coupled with anxiety over price changes, consumers will most likely look for ways to save money to cover these costs at the expense of other products and services. However, consumers may also expect their favourite companies to do their part to help mitigate the impact of the cost of living crisis.
What expectations do consumers have of companies that raise their prices?
Many firms have had to raise their prices in response to rising costs. With consumers sensitive to these price changes and looking for ways to save money, we wanted to know what customers expect from their favourite brands to help them deal with the cost of living crisis and maintain their loyalty.
Respondents had varied expectations when it came to how their favourite brands should react to price increases. Below we discuss some of the most solicited changes.
Consumers want more discounts
Over two-thirds (69%) of respondents who had noticed price increases wanted their favourite companies to offer more discounts as a reaction to rising costs. However, to help build and maintain a loyal customer base, businesses should consider when, how, and to whom they offer discounts.
How to offer discounts to customers
Below are some suggestions for different discount strategies companies can deploy to attract or retain customers.
- Attract newcomers and invite them to commit to your brand: Offer new visitors to your website a discount code in exchange for a small but valuable commitment, such as providing an email address to sign up for a newsletter, to initiate and personalise the buyer’s journey.
- Reward loyal and frequent customers: Encourage repeat business with personalised offers based on purchase history. Free shipping can also be offered as an alternative to discounts. Additionally, offering rewards for customer referrals can incentivise recurring customers to refer others.
- Develop pre-order discount strategies for new products: Pre-order discounts with limited availability may help businesses promote new products, providing the amount of discount does not devalue the product. When deciding between percentage or flat-rate discounts, choose the option with the highest perceived value.
- Offer discounts to avoid cart abandonment: Consider offering discounts to shoppers who have shown interest in a service or product but have not completed the purchase. Some eCommerce software can send out targeted emails to customers at different stages in the buyer journey; for example, those who have abandoned their carts. However, UK GDPR guidelines should be followed to ensure consent has been obtained to email customers and they are given the option to opt out at any time.
Transparency and communication are highly valued
More than half (53%) of respondents who had detected an increase in prices wanted businesses to be more transparent about these changes, and a significant proportion (45%) said they would find it ‘very useful’ if their preferred companies communicated a price increase of products or services to them personally; for example, via an email or newsletter.
If companies are transparent and communicate the reason for a price increase, customers may react more positively to this change. Using email marketing software, or social media marketing, companies can inform customers via a newsletter or social media messaging about company and product updates.
Providing advance notice of significant price changes may help build customer trust and give customers time to adjust to new prices. At the same time, businesses should show customers the value proposition of their products or services to explain, for example, how the price change allows them to maintain or improve quality.
Customer loyalty schemes can strengthen customer relationships
From this group of surveyed respondents, nearly half (49%) wanted their favourite brands to react to the UK economic crisis by strengthening their customer loyalty schemes. This indicates that consumers value rewards for their loyalty to brands.
Companies can use loyalty programs to offer benefits to customers such as insider perks or points for frequent purchases that can be redeemed for discounts, free products, or other rewards. This can not only motivate repeat purchases and build trust between customers and brands, but provide valuable insights into customer behaviour.
Are companies doing enough to meet customer expectations?
After looking into what customers expected of companies during the cost of living crisis, we wanted to know if consumers thought businesses were meeting those expectations. Almost half of the respondents who had detected price increases (46%) did not feel companies are making an effort to help customers manage rising prices.
However, the top four results among those who had observed companies making an effort to alleviate the effects of the economic crisis offer some insights into steps companies could take to strengthen their relationship with customers and meet their expectations. These respondents noticed firms:
- Giving more payment options that make it easier to acquire products/services (21%)
- Offering loyalty programs options to make easier to acquire product/services (21%)
- Offering discounts and/or coupons to make it easier to acquire products/services (14%)
- Launching generic brand products to offer more affordable alternatives (10%)
This shows that some companies are already reacting to the cost of living crisis by offering options such as loyalty points and discounts. Consequently, businesses implementing price increases but not offering these options could risk losing customers.
Additionally, two in ten respondents who had noticed price increases had also seen that some businesses were providing more payment options. Offering customers a variety of ways to pay can, for example, enable customers to spread payments. Options such as Buy Now, Pay Later (BNPL) allow customers to buy and pay for products in instalments, often with no interest or fees. This may appeal to customers who want to make purchases but do not have the funds available immediately.
Businesses need to find ways to maintain customer satisfaction
The current cost of living crisis and the risk of an economic recession in the UK can lead to an increase in anxiety among consumers. These consumers may expect companies to change their strategies to help them adapt to these challenges and lessen the financial strain caused by the elevated inflation rate in the UK.
Additionally, when determining price increases, businesses should consider the reactions and expectations of their customers to help them decide whether to remain more consistent in their pricing and service scope offerings or whether to deploy targeted marketing strategies to these consumers to emphasise the value proposition of their products. Survey software can be a useful tool for gathering market insights about customers. Additionally, companies can use price optimisation tools to help them determine the best price based on factors such as market conditions, promotions, and revenue goals.
Finally, UK businesses need to take proactive measures to retain customer loyalty during these difficult times. Some solutions proposed by consumers are for companies to provide discounts and be more transparent in their communication campaigns. Understanding consumer buying behaviour and implementing effective customer loyalty schemes can also help businesses maintain a loyal customer base and mitigate the effects of the economic crisis. In the second part of our survey, we will explore how consumer spending has changed during the economic crisis to understand better the impact of the rising cost of living on UK consumer habits.
To collect the data for this report, Capterra conducted an online survey in March 2023 of 1,006 consumers who are in charge of paying home expenses and goods alone or with someone else. Respondents were selected based on the following criteria:
- Resident in the United Kingdom
- Over 18 years old and under 65 years old
- Responsible for paying home expenses and goods either alone, or with a partner, or with people they live with