Feature
The Gist
- Rising costs impact perceptions. Increasing fees and changes to loyalty programs can lead to dissatisfaction and distrust among consumers.
- Transparency and communication are key. Open communication about price increases fosters understanding and empathy, helping to maintain customer loyalty.
- Focus on added value. Providing enhanced services or loyalty rewards justifies price increases and reinforces the value customers receive.
The cost of goods is going up. Labor is going up. And, for the consumer, that means the price of everything is skyrocketing.
Just take a look at inflation over the past several years. In June of 2022, the rate of inflation hit a staggering 9.1%. And while we’ve steadied out — currently sitting at around 3.2% — it doesn’t seem like the price of anything is dropping. In fact, it feels like the opposite.
Multiple airlines have raised their fees for checked bags. Costco has considered increasing the price for membership. And Wendy’s announced new digital menu boards in an attempt to introduce dynamic pricing — which the company quickly backtracked on after customer outrage.
These rising costs make a big impact on customer perceptions of brands, leading to distrust, frustration and looking to competitors to get staple products for lower prices.
Prices Are Going up, up, up
You’ve probably heard people say that inflation is down, said Marbue Brown founder of The Customer Obsession Advantage. So why are prices up?
“The rate of inflation peaked at 9% at one point, now it's down in the threes,” said Brown, a CMSWire Contributor. “But what does that mean? It doesn't mean that the prices that went up when they were 9% have come down. What it means is that prices are increasing at a slower rate. What it means is those prices that went all the way up when inflation was 9%, they're still baked in. They didn’t go down.”
And there’s another problem we’re not taking into account, Brown added. To bring inflation in check, the Federal Reserve raised interest rates. And when that happened, it raised the cost of the two biggest expenses that families have: housing and transportation.
“Bottom line is that there's certain things that are baked in,” he explained. “So therein lies the problem for the businesses. All of the components that are going into what they produce for you have increased. They are racking their brains to figure out how to keep from passing all of these costs on to you.”
Baseline inflation, Brown continued, overwhelms businesses’ ability to tweak here and there to keep from passing those costs on to customers. “And if that's the case, they're going to have to do it at some point.”
Related Article: Perks, Promotions and Personalization: Brand Loyalty in the Age of Inflation
Rising Costs Impact Customer Perceptions
Fee increases and changes to loyalty programs significantly impact your brand’s image and customer perception, often leading to dissatisfaction and perceived broken promises, said Brooke Sellas, founder and CEO of B Squared Media and author of “Conversations That Connect.”
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“This is particularly true if your customers feel that the value proposition of the loyalty program diminishes,” she explained. “It's not just about the costs; it's about how these changes are communicated and how they align with your customers' expectations and values.”
Right now, added Brown, we’re in a period where customers are not too trusting because they’ve already been burned in many ways.
“There's shrinkflation, which has been kind of like a stealth way for companies to maintain their profits. But at the same time, kind of blunt the effects of inflation.” This tactic may have worked for a while, he explained, when the smaller packaging was less noticeable. But once those smaller packages became noticeable, people started complaining.
“Then on the other hand, you've got the fast food group, which of course Wendy’s is included in, that have been quietly raising prices. And so the moment Wendy’s talks about [dynamic pricing], people won't think about it potentially in the context of discounts, they immediately think of it in terms of ‘Oh these guys are figuring out how to raise prices.’ Because we've already broken trust with the customers. We've already undermined our basis of trust with the customers.”
How to Maintain Customer Loyalty Amid Rising Costs
Brands need to increase costs, but customers aren’t happy about it. So what’s the solution?
To make rising prices and new pricing models more palatable, brands must focus on transparency, communication and added value, said Sellas.
- Transparency: Be open about the reasons behind price increases, which can foster understanding and empathy from customers.
- Communication: Should be proactive, clear and empathetic, providing customers with advanced notice and explanation of the changes.
- Added Value: Can come in the form of improved services, exclusive offers or enhanced loyalty rewards that justify the price increase and reinforce the value customers are getting for their money.
“Brands can manage this balance by focusing on operational efficiency and customer-centric strategies,” Sellas added. “This might involve investing in technology (AI, anyone?) that improves service delivery or streamlines operations to reduce costs. At the same time, engaging with customers to understand their needs and preferences can help tailor the customer experience in a way that maximizes satisfaction, even when prices are higher.”
Brown seconded the importance of transparency. When in a situation like this, he said, businesses have no choice but to raise prices or offer smaller portions. “But when the customer feels like they're doing it in stealth, then the customers don't trust you. And this is a scenario where, if there were more open communication between the brands and the customers, it might be more palatable to the customer.”
If brands actually took the time to listen to customers, Brown continued, they might find out what customers are willing to accept. Then, they can make the right choices. At the same time, he said, they can also communicate what they’re already doing in an attempt to keep prices in check.
Related Article: Building Customer Trust: The Only Currency in the Age of AI
Building Customer Trust in an Evolving Economic Landscape
In times of change, said Sellas, whether due to rising costs or shifting markets, the importance of listening to and truly understanding your customers cannot be overstated.
“Brands that succeed are those that maintain a dialogue with their customers, showing empathy and a willingness to adapt,” she said. “It's also vital to remember that trust, once eroded, is hard to rebuild. Therefore, every decision, especially around sensitive issues like pricing and loyalty rewards, should be made with the long-term relationship in mind.”
