Do Higher Prices Affect Advertising?

In case you missed it, consumer prices are up 7% over the past year, marking the largest single-year increase in 40 years. While that’s more a result of inflation and supply-chain problems, it presents a challenge for businesses: how to justify a price hike without improving quality or value. At the same time, prices are higher across the board, which means your competitors probably aren’t charging much less. Be that as it may, how does higher consumer prices affect advertising, if at all?

Are People Buying as Much?

a tug of war stock photoImportantly, while prices for household staples like food and gas have spiked, wages have remained stagnant. This has put a strain on most households’ buying power, and even though consumer buying hasn’t significantly decreased, it’s more a testament to higher prices than more purchases. In a nutshell, that puts a limit on what most folks can and will buy. However, like before Covid-19, all consumers are different; some are more willing to spend while others are frugal.

In a nutshell, when customers have a limited budget, they have to choose more carefully what to buy. Businesses, therefore, have to more carefully segment their customer bases and avoid marketing en-masse. That segmentation determines how businesses advertise, including who they market to as well as the content and placement of the ads. In other words, it’s more important than ever to craft marketing messages and content– that appeals to your customers’ real needs. 

Can Advertising Increase Demand?

an open laptop surrounded by emoji iconsIn theory, advertising can cancel out a decrease in consumer demand due to higher prices. Generally speaking, the more a business spends on advertising, the more demand it will create for its products and services. However, that’s only true if the advertising in question connects with the customer. It’s totally plausible to spend a bundle on an advertising campaign only to find out it fell on deaf ears. Therefore, it’s up to the business in question to create enough perceived value through marketing to justify charging more for the same product or service.

Regardless of the product in question, any marketing campaign should do more than display product info. If the end goal is to increase demand, advertising should inspire the customer to view the product as an integral part of an improved life. It helps to think about how the product will improve various areas of the customer’s life: independence, power, luxury, comfort, etc. 

Advertising can also foster more competitive pricing, especially if pricing is transparent. If all providers of product X know what the competition charges, they’re more likely to try to undercut one another. Customers are also more likely to at least glance at the lowest-priced option. Even if prices are higher across the board, the organization with the cheapest prices is going to get a lot of attention, unless the product is of noticeably lower quality. 

What About the Cost of Advertising?

an icon showing data and information on a computerThe cost of advertising must be placed somewhere. Either it’s passed onto the customer via higher prices or eaten by the business. It all depends on the competitiveness of market; in a transparent, highly-competitive marketplace, customers won’t pay higher prices if they have a more feasible option available. Especially right now, businesses should eat the cost of marketing and try to keep prices as low as possible. 

Put simply, before you go spending a bundle on advertising, think about what you’re trying to say. Strive to create as much perceived value as possible, if not through pricing, then through promotion, placement, or the product itself. Take advantage of as much free and organic advertising as possible, including word-of-mouth. 

In a perfect world, prices will come down and businesses will be able to advertise the way they want. Until then, it’s important to take price into consideration and create advertising campaigns that at least attempt to justify the higher prices.

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