In the age of inflation

Are you going to buy the brand  

or are you looking for a cheaper product?

This problem, which may seem difficult at first glance, is actually very simple. It depends on what the product is. 

As can be seen from the supply and demand theory in economics, when the price rises, consumers reduce consumption by the same amount. Demand will decrease. Of course, if the decrease in people's demand is small compared to the raised price, the profit will increase and it will be advantageous for the company. However, this is only a matter of theory. The problem here is that consumers really hate price increases, and they hate price increases without justification even more. In particular, if it is an unjustified impression, it will seriously damage the trust of the brand, and many consumers will leave.

No company likes a brand notoriety. I don't like to face direct consumer price resistance. Therefore, in order to minimize conflicts with consumers, companies also aim to reduce backlash by controlling the number and timing of increase as much as possible, rather than reflecting it in the price every time there is a cost increase factor. Even if you raise the price too often, consumers hate it.

More importantly, companies are competing. In the world of competition, there are many substitutes. So the higher the price, the more aggressively consumers are looking for alternatives. Because there is a competitor, if the price rises, there is a risk of being attacked by competitors in terms of sales and market share.

So, the biggest factor influencing the price change is the consumer's reaction. In the case of a company or brand where consumers are more or less satisfied with the price increase, it is easy to pass on the cost increase factor to the price. The leading players in this field are luxury brands. Consumers hate it when prices go up, but they tend to agree. In particular, brands with second-hand prices that remain fairly high in the market may be somewhat optimistic about price increases.

Most of the time, these products or brands are products that consumers purchase for display or expression. Luxury bags, cars, watches and more. If the consumption of it can be shown to others, consumers are less responsive to price increases because they can implicitly show their perspective and economic power by consuming it and accessing it that others cannot easily consume.

Of course, this is not the only product that is less sensitive to price increases. Consumers are also less sensitive to price increases in the case of market-leading products that have high utility for consumers by consuming the product. Apple's products are such a case, and in the case of Coca-Cola, consumers are less willing to switch to other competitors' products even if the price rises. This includes health food and functional food.

Consumers who eat these products have clear expectations from consumption. I don't like it because it's cheap. There is also a tendency to think that the higher the price, the better the effect. On the other hand, there are products with very high price resistance and high price sensitivity among consumers. Generally, it is in the fields of clothing, transportation, food, and daily necessities. Even if the purchase frequency is high and you buy a better one, it doesn't make a big difference. Closely related to consumer life

This polarization of the market is due to the consumption propensity of consumers. From the point of view of consumption, people make money to show off and express themselves in important areas that they consider to be important. And in the case of consumption that occurs on a daily basis for this expenditure, there is a tendency to save money. It is the consumer's propensity to consume that influences the pricing decisions of companies.

Because consumers' purchases are corporate sales, pricing decisions according to consumers are troublesome and work for companies. It's easy for consumers to think that businesses want to raise prices to make more money, but in reality it's a lot more complicated. Most companies don't like to get their hands on a set price.

Companies that manufacture and sell price-sensitive product lines, for example, are quite reluctant to touch the price. Food companies usually fall into this category. It's about maintaining a balance that makes it difficult to change prices, as raising prices means angering consumers and losing market share to competitors.

However, in the real economy, there is inflation, so firms cannot keep the same price. As costs incurred in the manufacturing and sales process, such as raw material costs, labor costs, and logistics costs, continue to rise over the long term, companies will experience a decline in profitability due to cost increases.

If the price is raised prematurely, it can damage the market share, so the price is usually left at the same time as the decline in profits. If we go further, we'll usually raise prices in a way that when the market leader raises its price, the rest of its competitors do as well.

Of course, there are ways to achieve the same effect as actually raising the price without raising the nominal price. As we all know, it is a way to reduce the quantity or reduce the quality a little. The nominal price is immediately recognizable, but changes in quantity or quality are not immediately recognizable. This is a trick that came out because consumers are very resistant to price.

That is why these tricks are often observed in food and necessities markets. However, if this persists for a long period of time, consumers will perceive the changed quantity and quality of the product and have a great distrust of the brand. This is because consumers feel deceived by the act of lowering the value of the product instead of maintaining the nominal price.

With the advent of the age of inflation, this pricing mechanism becomes important again. Products and industries that are as easy to pass on to consumers as inflation are not a big problem, but industries that do not are facing a situation where prices have to be raised. Perhaps this is the event that will lead to a decline in the consumption of value that has emerged over the past period. If the cost of daily life goes up that much, the consumption for show off will inevitably shrink that much.

작성자: 위디딧 명재영