Reviewing the impact the cost-of-living crisis has on shoppers and navigating the economic crisis with brand promotions. Updated 21/03/2025.
Brand Promotions & Shopper Activations
How is the Rising Cost of Living Affecting Business? (Original article in 2023)
Around a year ago, at Promotions Interactive, we wrote an article on the cost of living crisis and how it affected businesses’ operations which can be found below out updated version. Refer to the contents to jump to the older version.
In 2022 and 2023, the cost of living was at an all-time high, with the consumer price inflation rate reaching 9.6% in October 2022 according to the Office for National Statistics. A year later, consumer price inflation fell to 2.6% in September 2024 and then to 3.9% in January 2025.
For many shoppers, prize promotions are becoming a way to engage in an everyday escapist fantasy - the chance of winning a grand prize is an appealing result for many. The bonus is that the prize promotion accompanies a promotional product in on-pack promotions.
Although inflation has eased, prices are still rising and we’re still experiencing a cost of living crisis, there’s still a lot of financial struggle and insecurity for businesses and consumers.
Whilst there was a slight decrease in the CPIH annual rate circa 2023 - 2024, the value has started to rise yet again, though it's too soon to tell in 2025. However, it’s unlikely prices will ever come down by any significant amount.
However, with the current inflation rate, we can expect prices to increase much more slowly than they have in the past few years. The issue here is that it takes time for wages and salaries to increase and catch up with the current price of rent, food, and other daily essentials, meaning many, if not most households, struggle to afford what they need and are still spread thin.
During periods of national financial insecurity, many brands, retailers, and companies assume that price promotions, such as sales and price-slashing, will be the most effective way to get consumers to buy their products.
However, when it comes to price, retailers and brands will find competing with discounters and whitelabelled goods on their price, especially difficult. Medium-to-large manufacturers in FMCG/CPG are likely to see a fall in sales as shoppers and consumers opt for more inexpensive goods, trading the branding for a cheaper price.
Price promotions are not necessarily the most effective way to appeal to shoppers during national economic crises since dozens of other cheaper, white-labelled alternatives will almost always beat out the bigger brands.
To attract shoppers, brands need to add value to their products. One way is through shopper activations such as brand promotions.
This can be an on-pack promotion that shoppers will come face-to-face with in stores - combined with a prize draw or instant win promotional mechanic to entice shoppers to choose one brand over another. Brands can also offer a gift with purchases that offer shoppers something extra and additional with the purchase of a product at no cost; a try-me free (aka money-back guarantee) promotion can also be offered, allowing customers to receive a refund on their purchase if they don’t like it, improving purchasing confidence when it may be low during cost-of-living crises.
Not only do consumers favour brand promotions, but retailers love them too - even more so if a retailer-exclusive brand promotion overlay is offered. It’s a great way to win over category managers for more prominent shelf space and FSDU opportunities. It’s simple really, your brand needs to shout louder than competitors and add more value via brand equity vs own-label.
Brand promotions are an incredibly effective way to appeal to customers. It offers shoppers a chance of escapism and justifies the cost of a brand’s product with a well-thought-out shopper activation in the form of a promotion, offering shoppers more in exchange for the standard price.
What do consumers and shoppers look for beyond cutting and saving their spending when it comes to shopping? If we refer to ‘The Retail Experience Economy Model’ within a shopper experience, four factors are identified as determining the overall experience.
According to 25% of Retail Economics’ survey respondents, escapism is seen as the most important aspect of a shopping experience.
For that reason, on-pack promotions, for example, can provide escapism by proposing the possibility of winning a grand prize. On-pack promotions by themselves are already an effective way of garnering awareness and attention from shoppers. Beyond that, brand promotions also provide the opportunity to entertain and engage customers through gamification and other promotional mechanics, adding to the product offering and overall perceived value.
However, according to the same survey and research conducted by Retail Economics, “all consumer age groups recognise the psychological value of escapism while shopping, while interestingly, older age groups place more importance on it than younger consumers, which could be explained by the level of social responsibility, commitment and routine.”
The study also proposes that ‘concept stores in retail’ are an important and emerging addition that allows “consumers to immerse themselves in fashion, art, food, music and design, in an environment of beautifully constructed and interwoven social spaces.” Within brand promotions, this has been proven true.
Sampling and experiential events and shopper activations are some of the most effective ways to interact and engage with consumers, building loyalty and memorability over time. Even without a full ‘concept shop’ brands can integrate on-pack promotions and point-of-sale display materials in-store to emulate that experience and immerse shoppers into the brand.
For example, in 2023, Tesco created an experiential activation in response to the cost-of-living crisis. Creating an entirely free experience that families with all economic backgrounds could enjoy in response to the massive impact of the cost-of-living crisis.
The grottos appeared in and near Tesco stores, providing families and shoppers with a completely free and unforgettable memory, building love and loyalty for the brand.
Families were even encouraged to send information about the child’s likes and interests to personalise the experience, making it even more special and memorable.
With around 21,500 families visiting, this promotion was so successful that in 2024, it was shortlisted and won IPM awards with Gold in both ‘Best Experience at or Near Point of Purchase’ and ‘Best Staffing and Event Support Service Award’.
With the nation’s inflation rates showing no sign of returning to pre-coronavirus levels, brands need to consider other ways to create value for shoppers through their goods.
To learn more about how to run a promotion, refer to PromoNow’s article, ‘Instant Win, Prize Draw & Brand Promotions: A Complete Guide’, which outlines the considerations and steps involved in running a campaign, including regulations and prize sourcing.
If your brand needs support for your next promotional campaign or if you’d like to build a CAP-code compliant, brand promotion or have more questions regarding building promotions, get in contact with us via our form, email hello@promotionsinteractive.com, or call +44 (0) 203 80 555 36. We guarantee that your promotion will go live on time, every time and pixel perfection for every page of your promotions.
Please note: the following part of the article is a version written 10/11/2023 titled, "How is the Rising Cost of Living Affecting Business?"
How is the rising cost of living affecting business?
The past few years have been a challenging journey for all of us, with the ongoing pandemic and more recently the cost of living crisis. As we grapple with the impact of these economic challenges, and businesses are seen to be struggling especially small businesses . Small businesses are key in many communities, contributing to local economies and providing many employment opportunities. But in recent years this has become an increasingly hard factor for all businesses many struggling with :
Talent acquisition and retention
The high cost of living in certain regions poses a serious challenge for businesses when it comes to attracting and retaining top talent. In competitive cities and towns with high living expenses, companies are compelled to offer higher salaries or enhanced benefits to entice skilled workers. Consequently, this drives up overall labour costs, adding a strain on already struggling businesses.
Employee productivity
Employee productivity is on a decline as employees struggle to make ends meet due to the high cost of living , this can be seen to negatively impact their productivity and job satisfaction which is reciprocated in their work. Financial stress stemming from the cost of living is something many people and brands are struggling with currently and this can lead to absenteeism, reduced concentration, and lower morale which can hinder the business's overall performance.
Inflation and operational costs
The cost of living crisis isn't just affecting wages; it's also spilling over into operating expenses. As the cost of living rises, it often correlates with higher inflation rates. This, in turn, drives up the costs of essential goods and services, including raw materials, energy, transportation, and rent. Businesses are left with no choice but to adjust their pricing strategies to cope with these rising costs, potentially impacting their competitiveness and profitability.
Consumer spending
With the cost of living on the rise, consumers are finding themselves left with less disposable income and are, therefore, making an effort to save money. Consequently, consumer spending is taking a hit, particularly impacting industries like hospitality and retail. These sectors, often reliant on discretionary spending, are facing considerable challenges in keeping their doors open.
Small businesses
Small businesses that already operate on thin profit margins and have limited resources are particularly vulnerable to the cost of living crisis. Many are finding it increasingly difficult to adsorb higher labour and operating costs, as a result, they must adapt rapidly to stay competitive and remain afloat in these challenging times. But with having a very limited budget this is becoming increasingly difficult and many businesses are having to close their doors due to this.
Government policies
Government policies aimed at addressing the cost of living crisis can have a direct impact on businesses. For example, an increased minimum wage (Rates for those under 18 and 18 to 20's are getting a 9.7% upturn with the 21 to 22 bracket getting more at 10.9%. The apprentice rate is being boosted by 9.7% with a 0.47p per hour rise from the 22/23 tax year.) or tax changes policies can influence labour costs, consumer spending, and overall economic conditions. Businesses must navigate these policy changes and adapt their strategies accordingly.
In conclusion, the cost of living crisis is undeniably having a significant impact on businesses ranging from small enterprises struggling to stay afloat to larger corporations grappling with escalating labour and operational expenses. This economic uncertainty has placed businesses at a crossroads of uncertainty and shifting customer behaviour. Nevertheless, amid these challenges, opportunities for innovation and cost-effective solutions emerge. In these trying times, businesses that embrace adaptability, empathy, and forward-thinking will not only weather the storm but also emerge as champions in the evolving economic landscape.
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