How sensitive are people to price hikes?
Procter & Gamble, the consumer products company that sells brands like Tide and Bounty, reported earnings Friday morning.
It beat analysts’ expectations, but the company also warned that its costs are going up, which could hurt profits.
To that end, the company is planning some price hikes in September. Other consumer-facing companies, like General Mills and Kimberly-Clark, have also raised prices.
There is usually a limit on how much consumers will pay for a given product. But figuring out that limit is not easy.
Sarah Jowett in California has noticed that prices are going up on everything, like the cost of going out to dinner.
“You definitely have this idea in your head, you know, I’m going to go to this restaurant. And it’s generally this amount for us, you know, but I generally get the same things. I’m kind of boring that way,” Jowett said.
So she’s been cutting back by skipping the soda or the bigger entree. But the key here is that she knew prices went up.
“A lot of this is driven by do people notice?” said Mark Bergen, a marketing professor at the University of Minnesota’s Carlson School of Management.
“Anything essential that we frequently purchase, we notice, we notice a lot,” he said.
But for one-time purchases or splurges, he said people pay less attention to the price.
If someone needs an item, like diapers or laundry detergent, they probably won’t forgo it altogether. Instead, they can look for substitutes.
“The biggest issue that matters is how close is the substitute? What is my alternative to buying that product?” said Tim Smith, CEO of the consulting firm Wiglaf Pricing.
How people respond to price hikes depends on something else too: How financially secure do they feel? That’s about their finances but also their expectations.
Colorado resident Missette Fleurissaint is cutting back on whatever she can right now.
“Almost every aspect of the economy just seems like it’s kind of slipping away from our fingers, whether that’s buying a house or looking for a new rental property or just day-to-day purchases,” Fleurissaint said.
And with prices rising and her salary stagnant, she’s nervous about the future.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
