The Front Page: Greedflation - why are some brands hiking prices faster than others?

Buying the wrong product could lead to consumers spending more than they need to. Photo / Getty Images

Numbers crunched by the independent cost comparison site PriceSpy show that the impact of inflation is not uniform across all companies.

The data shows that some companies are definitely increasing prices much faster than their competitors, often at a far higher rate than overall inflation figures indicate.

Figures released by Stats NZ showed inflation sitting at 6.7 per cent for the year to March, down from 7.2 per cent in December.

Despite this, the pricing data released by PriceSpy across a number of popular categories showed that some products had increased by as much as 29 per cent when comparing January to May in 2022 and 2023 respectively.

Speaking to The Front Page podcast, PriceSpy head of PR Carl Lindholm points to the example of vacuum cleaners.

While the average price of vacuum cleaners rose 8 per cent, Samsung products shot up by a whopping 29 per cent over the same period.

In the case of smartwatches, you have a similar trend. While the overall category price increase was around 16 per cent, Apple smartwatches shot up by 28 per cent (Samsung’s prices rose by just 7 per cent over the same period).

Interestingly, Fitbit smartwatches went the other way, as their prices dropped around 6 per cent.

“Our research suggests that inflation may not be the sole factor driving price points up, as we are increasingly seeing competing manufacturers up their prices at differing rates, not only to each other but in comparison to the rate of inflation,” Lindholm says.

“The observed differences in price increases indicate the presence of varying strategies being played among manufacturers.”

A recent report conducted by Sense Partners on behalf of BusinessNZ suggested that the trend of “greedflation” - which involves corporates exploiting inflation to create excessive profits - was not happening in New Zealand, given that profit margins were actually declining in most cases.

Sense Partners economist Shamubeel Eaqub said that shrinking margins on average suggested that businesses were finding it harder to pass on costs. He also noted that insolvencies had risen sharply in recent years.

While these insights are certainly valid from an overall economic perspective, the averages don’t take into account the individual pricing strategies of some companies - particularly those on the higher end of the market.

“Brand equity may be a contributing factor impacting price differences between manufacturers,” explains Lindholm.

“When consumers hold a high perception of a brand, it can effectively drive price points up. Even if a manufacturer offers a very similar product for a lower price, consumers often feel more compelled to pay a premium for the brand with the strongest equity.”

While it may seem counter-intuitive for a company to increase prices when money is tight, premium brands often take a longer-term view and refuse to cheapen their brands during a recessionary slump.

“Manufacturers selling products perceived as premium may also deliberately increase price points using prestige pricing strategies, to help grow their profit margins,” Lindholm says.

“Furthermore, some of the price increases may also be a result of manufacturers, who had not raised prices before the inflation rate rises, now having more room for price adjustments.”

This trend is perhaps best seen in the fragrance category, where the likes of Gucci (14 per cent), Estee Lauder (27 per cent) and Giorgio Armani (19 per cent) have all increased prices significantly over the last year. Sunglasses are yet another example of this, with the PriceSpy data showing that Oakley increased its product prices by a massive 34 per cent over the last year.

“Being a premium brand is really, really profitable,” says Lindholm.

“That’s something all shops and brands would like to be if they could. One key thing to a premium brand is to have a higher price as it’s an indication of quality. But you can’t just increase your prices and then automatically expect consumers to pay for that item.”

Lindholm says that it takes years, often decades, of brand-building to create something that consumers are willing to pay extra for. And this is part of the reason these brands will continue to hike prices even when the economy hits a wobble.

The choice ultimately sits with the consumer and whether they’re willing to pay those high prices for the perceived privilege of carrying a certain brand around.

Listen to the full episode of The Front Page to hear more on the state of the economy from Wellington business editor Jenée Tibshraeny.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. It’s presented by Damien Venuto, an Auckland-based journalist, with a background in business reporting, who joined the Herald in 2017.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.