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Pricing Strategy: The Lessons of Inflation

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Pricing Strategy: The Lessons of Inflation

Behavioral Economics.com,

5 min read
3 take-aways
Audio & text

What's inside?

This informative report explains the behavioral psychology behind consumers’ inflation expectations.

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Editorial Rating

8

Qualities

  • Analytical
  • Background
  • Hot Topic

Recommendation

US and UK inflation metrics reached their high-water marks in May 2022,yet consumers’ erroneous perceptions of price levels continue to affect their spending behaviors and financial decisions. Consultants Henry Stott, Benny Cheung, Jerry Luukkonen, and Alice Pearce undertake a comprehensive analysis of how consumers form their opinions and ideas about inflation and prices. Consumers are frustrated, but their beliefs about prices often do not align with the data. Investors, executives, and business owners will find this an insightful review of the behavioral dynamics underpinning inflation.

Summary

Inflation peaked in 2022, but consumers still consider inflation to be high.

Across Europe, the United Kingdom, and the United States in 2021 and 2022, consumers faced elevated prices for a spectrum of goods and services. Price levels peaked in 2022, however, and inflation rates have since normalized. Yet consumers remain disgruntled over costs that are now substantially higher than they were prior to 2021. The cost of living crisis has delivered inflation levels in the UK, USA and EU not experienced by consumers for a generation. Consumer grumbling about prices and inflation has as much to do with behavioral psychology as it does with headline price levels and sticker shock for items and services. In this context, “price rise perception” plays a pivotal role in how people assess inflation and its implications for purchasing power and spending decisions.

Consumers’ perceptions of inflation...

About the Authors

Henry Stott is a co-founder and managing director of Decision Technology (DecTech), a UK consultancy that applies behavioral science to business. Benny Cheung is a director, Jerry Luukkonen is a senior associate, and Alice Pearce is a senior associate research analyst at Dectech.

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