Shoppers are less peeved by cost hikes due to scarcity – but retailers more often blame their own rising costs

Shoppers are less likely to protest price hikes due to scarcity, but retailers are increasingly blaming their own rising costs for the price increases, according to a survey by consultancy KPMG. Economists suggest that a "fair" justification, such as increased business and operational costs, may help companies convince customers.

However, a "market-based" argument emphasizing supply and demand and scarcity appears to be more effective in reducing customer churn. A Canadian self-storage company tested three types of price-hike justifications: higher company costs, increased quality, and market-based rationales. The market-based approach resulted in a 30% decrease in customer churn, as customers perceived it as creating an expectation of scarcity and harder alternatives to find.

This approach is particularly effective when the price increase is low and customers already believe in a shortage of good alternatives. Companies with tight margins should consider this insight to maintain customer loyalty in an inflationary economy.