Australia’s headline inflation rate has increased to 5.4% over the year (down from 7.8%) but remains well above the Royal Bank of Australia’s target of the 2 to 3% range. According to Australian consumers surveyed, 88% have noticed an increase in the price of products and/or services they buy in the year, with the majority seeing a surge in household bills.
As a result of the current economic situation, 82% of Australian respondents said they have had to change their spending behaviours. Rising inflation rates have hugely impacted shoppers’ purchasing decisions, with two-thirds of those who have changed their spending behaviour on average saying they are buying cheaper products (66% across all countries surveyed, or 65% of Australian consumers).
Impact on supply chains
Inflation often leads to higher prices for raw materials and labour and production costs for businesses, which could impact profit margins. With consumers cutting back on spending and buying cheaper products, there is also likely a reduction in demand for goods.
Some of the areas where consumers in Australia are cutting back the most include groceries (66%), clothing (62%) and entertainment and cultural events (including streaming services, cinemas, theatres, and museums) (58%). This can create a ripple effect throughout the supply chain and affect production levels and inventory management.
Impact on pricing
Increasing product prices means consumers are more inclined to consider buying cheaper brands. Shoppers are also likely to do more price comparison research and search for loyalty deals. When asked how they have modified their spending habits, Australian respondents most frequently said they were looking for more discounts (79%). This was followed by doing market research before purchasing (51%).
Australian survey-takers who noticed price increases were asked how they would like their favourite companies to react to these increases. 62% said they would most like the brand to offer more discounts, followed by companies being more transparent with price changes (59%). Brands must be upfront about any product changes, from costs to sizes, and communicate honestly about the current economic situation with customers. This can help protect brand reputation and keep regular customers returning by reinforcing trust.
How operations are affected
Increased inflation rates can impact consumer spending patterns, making customers more price-sensitive in their purchasing decisions. Opting for essential items over non-essential or luxury purchases can affect the sales and revenue within retail operations. Retailers may need to adapt their business models to navigate the challenges posed by inflation. This could involve optimising supply chains by exploring retail technologies that can help to enhance operational efficiencies.
Future outlook for the sector
Consumers are changing their purchasing habits to adjust to the current economic pressures, but that won’t last forever. Now is the time for retail companies to strategise and experiment behind the scenes to find ways to update processes or identify potential marketing trend opportunities for when confidence returns. This could be achieved by creating or enhancing loyalty programs and remaining communicative and transparent about price changes.
The recently published Capterra Consumer Behaviours Trends eBook looks at consumers’ online and offline purchasing behaviours worldwide.
Laura Burgess is analyst at Capterra.