How Do Pandemics Impact Consumer Psychology and Pricing? ⏱️
Consumer psychology and pricing reveals the darker side of consumer sentiment and spending. Take the recent coronavirus pandemic, for example, when we saw consumer psychology and pricing changing overnight as mass media made us all feel guilty and ashamed for our bad hygiene. The overwhelming consumer response to this was to stock up on hand sanitiser and toilet roll (strange combo, I know..but this is what we all did – some way more than others).
Next, we witnessed governments uniting across the globe to impose lockdown restrictions on our movements and civil liberties. We felt ashamed for being selfish; they told us they cannot trust us. They often accused us of being insensitive to the needs of others.
Response to lockdown in consumer psychology and pricing
The overwhelming consumer response to harsher lockdown restrictions was every man, woman and child for themselves. Consumers in their billions rushed into supermarkets around the world to buy as much shelf goods, flour, medical equipment, and dried goods as they could. Businesses either increased prices to make quick gains out of the crisis while others slashed their prices by 80% on single line item purchases to keep the cash coming through the door.
Fear took over our logical brains and panic set in across the board.
Then, we saw some countries go to the next level, and shoot people in the streets if they were seen walking around – even for food for their families. Both government and consumer response to coronavirus were either:
DEFEND & PROTECT consumer sales of hatchets, screwdrivers, wine and food price hike soared,
OR DENY and dream of better times.
On the latter point, for example, cruise liners saw one of their biggest sales months in March and April – with cruise booking increasing 40% compared to 2019 and only 11$ cancellation. Then a poll today reveals that most people have not been coping well at all, drinking their way throughout the crisis without even a day’s break.
The lighter side of consumer psychology and pricing in a pandemic
But to say pandemics only show the dark side of consumer psychology and pricing would not be true either. While some people have been acting selfishly, many people have behaved in a civilised and orderly manner. They’ve actively gone out of their way to help each other; they have assisted vulnerable members of the community wherever possible; they waited in line for food selflessly – without panicking or grabbing everything for themselves.
Having stuck to the social distancing rules and locked themselves indoors for weeks on end, many people haven’t only helped their families and friends but strangers as well – and in extremely difficult conditions that go against all our survival instincts.
So, as we see examples of irrational consumer psychology and pricing during COVID-19, we have also seen many examples of people acting logically, calmly and with dignity. They have not acted like small children that can’t think a day ahead as governments have said or erroneously predicted.
So, how do these extreme psychologies co-exist during a pandemic? What can we all learn from consumer psychology and pricing during a pandemic?
In this article, we’re going to take a closer look at how pandemics psychologically impact shoppers, and what companies can learn from this. Including a pricing contingency plan that covers:
- Breakdowns in production
- Supply chain failure
- Unusual and large spikes in consumer demand
- Irrational psychology overriding logical buying patterns.
We argue that even amid the pandemic, companies can show they understand the plight of the public – and not to take advantage of the situation.
We believe that in the end, companies can plan to prevent panic buying by the public and keep the shelves replenished to meet demand, make money and ease shopper anxiety.
By the end of this article, you’ll learn how to price items to maintain a leading price position in the market without making your customers feel ripped off or taken advantage of when they feel down.
Contrary to popular belief in crisis on consumer psychology and pricing
Psychological research shows that people don’t generally act as irrationally or selfishly in crises as we are told repeatedly by the government or by the media. On the contrary, recent research emphasises how experiencing a common threat or danger can lead people to develop a sense of shared identity or ‘togetherness’, leading in turn to enhanced cooperation and support for others. So, contrary to even our own beliefs and misconceptions, panic makes people overall much calmer than they usually are. People conform quickly and amicably to rules and regulations rather than putting their feet down and resisting in a hysterical and belligerent fashion.
However, these stoic human tendencies are fragile; and susceptible to persuasive techniques or psychological interventions. Shared identity can occur to a greater or lesser extent, and – as demonstrated by both real-life studies and virtual reality simulations, this is associated with better or worse support and coordination in dealing with an emergency. Conversely, shared identity (and effective responses) can be undermined by creating divisions and inducing competition between people. A technique widely used by the British government in India and many governments since then.
Talk of ‘panic buying food’
This is precisely what is happening right now with all the talk of ‘panic buying food’. In a context where people are told to prepare for potential self-isolation over an extended period, stories about others in the community being out of control and buying up excessive amounts of a valuable resource serve to create a sense of ‘everyone for themselves and the devil takes the hindmost’.
Moreover, it’s entirely reasonable for people to go out and buy such resources themselves. They are compounded further by images of empty shelves which illustrate the cost if one delays purchase.
All in all, if one is persuaded that one’s neighbours are irrationally buying up (say) toilet roll, then it isn’t ‘panic’ to go out and buy up toilet rolls oneself before they are all gone. It is an entirely reasonable response to the information one has available. If anything, one would be daft not to respond.
Notion of panic-buying
The underlying point to panic buying is that overusing the word and notion of ‘panic’ during a pandemic – and of panic-buying more specifically – is simply unreliable. It is also actively harmful. Psychological studies show that news stories that overuse and employ the language of ‘panic’ actually create the very phenomena that they are condemning. They also create new divides to our already fractured concept of ‘togetherness’ by over-dramatising stories of selfishness and competitiveness. From here, careful planning turns into dysfunctional stockpiling on the consumer side and price wars, commoditisation and outrageous pricing decisions on the business side.
“Nothing in modern history” had led to as many shutdowns and self-isolation as COVID-19. The magnitude of the spread has to lead to a shift in consumers’ mindsets and our pricing needs to adjust to deal with this immense change.
The problem you’ll have though is that people naturally start to change their behaviour based on their instincts, to think ‘do I want to go to the movies, do I want to go to a sporting event, do I want to sit in big crowds?’ So it’s the psychology behind pricing here as the virus begins to spread that is most worrisome. People just begin to pull back on their willingness to be out there and spending, and of course, the consumer has and continues to be the economic bright spot for many countries. Without spending, we all go bust.
This causes businesses to rethink their pricing strategy and cut back on discounts, promos among other things. The law on supply and demand have taken precedent which in effect increased the prices.
COVID-19 – an unwitting stress test
The coronavirus outbreak is not only a time of confusion and uncertainty but also a period in which many are experiencing social isolation. Both of these factors can trigger people to elastic consumer response, which means they buy things they don’t need. Businesses need to be doubly aware of changing elasticities as nothing remains constant in a crisis. New SKUs are quickly showing inelastic demand. Older, once popular SKUs are not as profitable as they were. Times change; price optimisation is inevitable to keep up.
Unable to cope with uncertainty associates with more extreme hoarding behaviour. An individual’s perceived inability to cope with distress is one of the strongest predictors of hoarding behaviour. If it’s in a person’s general nature to avoid distress, they may be at risk of buying more products than they can feasibly use during the pandemic. This is big news for businesses as risk aversion is universal, not case by case. Whole segments are changing their behaviour at once. So you’re pricing has to change too…
For such people, it may be difficult to believe authorities when they announce supermarkets will not close. Or, if they do believe them, they may decide it’s best to “prep”, just in case things change.
Companies shouldn’t place more burden on already distressed shoppers. They must instead offer some guidelines limiting their purchases on essential items and not to overprice their products. Yes, adjust prices quickly – but retain a clear sense of your price positioning strategy in the market. Case in point is Woolworths who recently announced its strict guidelines on food limits – but they have been less than clear about their pricing positioning strategy…
You can see supply lines disrupted at the source. Workers are afraid of infection. As a result, breakdowns in production are inevitable and supply and prices are erratic/unpredictable.
But production will double once the crisis passes and prices will stabilise – this is what happened in China as the coronavirus curve flattened out – and as Farre’s law predicted it would over a hundred years ago.
The question now though is will the prices go back to ‘normal’ or will there be a new ‘norm? Woolworths supermarket announced today that its new consumer catalogue will be showcasing 50 per cent off its biggest named brands across most dry food and snack categories – this has never happened before, accelerating, in turn, their very aggressive EDLP and private label strategy.
Consumer demand can’t avoid large spikes
When faced with uncertainty, people will find ways to survive the crisis. The same with irrational behaviours of buyers: Their instinct is to buy anything will be greater just to get through this. Companies can only hope that logic and calmness will override the urge to overspend or underspend.
Even if the pandemic dies down, retailers will need to be ready for the next crisis; expect changes to happen. As numbers of coronavirus cases continue to grow in many countries, we are witnessing a dramatic psychological change in consumer behaviour that is ultimately changing how people buy and how businesses price their goods.
As consumers unite over common feelings of fear, helplessness and anxiety, consumer psychology tells us all to hoard stuff to survive uncertain times. A close analysis of the instinct of self-preservation in what people do in disasters paints a picture that is very different from the conventional image. Indeed, there are times when people died not because of an excess of selfishness but delayed by looking after others.
Consumer confidence has risen less than expected this year, as a result of the coronavirus (although economists tell us that the coronavirus would unlikely dent consumer sentiment).
Social media, fake news and lockdowns are negatively impacting consumer sentiment across the globe. When consumer sentiment is low for a sustained time, panic spreads fast. More consumers switch to survival mode. They hoard every item on the shelves and overspend on irregular items. Alternatively, they begin to hold back on spending across the board. All scenarios are terrible for the economy.
Mixed messages to people in consumer psychology and pricing
Consumers are currently rethinking their options and altering their plans. News of shortages on essential items and an uncertain future creates anxiety among us. News outlets must counter fake news by providing the public with factual information and assurances.
Consumers will return to stores, malls, and social gathering places after the crisis passes. Government officials will start to appear less on the news as people take control of their lives and spending again. However, this crisis will encourage retailers to look for more ways to deliver virtual experiences.
Consumers are now in the habit of going online to buy stuff. Businesses in response must get in the habit of interacting with customers online rather than through a distributor, supermarket.
Days of drawing crowds to stores are numbered: E-commerce sales, in general, are expected to surge, as shoppers stay home during the crisis, but grocery sales are where the biggest psychology behind pricing could occur.
The global response to COVID-19 should be a strong warning for many to be better prepared should something similar happen [in the future]. Retailers should be making contingency plans if and when similar situations occur.
Yes, making money in a crisis is fine – this is how the free market operates. But destroying your brands with excessive discounts and specials one day. Then blowing the ceiling off your prices the next day is not the best approach to making money.
For consumers – When shopping, make a list and stick to it when you are in the shop. This way, you won’t be susceptible to anxiety-driven purchases triggered; by the sight of empty shelves, or thoughts of supermarkets closing.
For businesses – one, diversify production and sort out your stock inventory management. By knowing which items will be in more demand during a pandemic; you’ll be able to manage and control the flow of stock. Two, be ahead of the curve managing suppliers. Be on the ready to replenish stock and shelves rather than on the back foot. Don’t leave gaping holes in supermarkets that consumers are not used to seeing and/or associate with ‘end of world’ scenarios.
Above all, our message to the media, to politicians and expert commentators is: don’t say panic! It’s ok to feel anxious, but just don’t panic.
When your pricing strategy is not working out because of the crisis. Contact us and we’ll assess how you can improve your company’s strategy. Don’t miss out on this opportunity.
Download this whitepaper to learn more.
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