Inflation and Trading Down Brands

Rising prices and a move to cheaper brands are a hallmark feature of the economy over the last 5 years. However, with the UK recently reaching the lowest inflation level for 2 years, could this be the start of the premium brand revival? 

Source: Guardian Data Store, May 2012. UK CPI inflation rate since 2000 [click to expand]. 

Inflation has gathered momentum since mid-2009 to mid-2011 placing pressure on consumers to make savings with a tighter disposable income.

High inflation resulted in consumers substituting premium and high value brands for standard or value brands. According to Mintel, the market for own-label food and drink products reached £37bn in 2011, a 24% increase since 2006. 

Falling inflation as a continued trend could make strides for a sustained recovery. Slowing inflation not only increases purchasing power put provides a powerful psychological reassurance, boosting consumer confidence. 

Nigel Wixcey, head of consumer business at Deloitte stated

 “Despite all this uncertainty, the consumer economy is looking a little brighter this year than last. This may not be saying much, but we are at least moving in the right direction”.

Premium brands may start to see a revival in sales with consumers more inclined to ‘trade up’ or, at least, less likely to ‘trade down’. Jose Mendoza at Cranfield University recommends marketers stretch the premium brand and price offering while identifying segments of their customers. 

Offering a range of brands or prices can keep customers by allowing trading up or trading down within that range. For example, Blackberry has a range of smartphones, priced from £80 to £480.

Whether inflation does fall, or stays high, an extended range for a brand can help keep customers regardless of how they respond.

Paul Barnes 

Media Analyst