The Narrative Always Wins: War Economy, and the Economics of Brands Controlling Pricing Power
Multiple narratives are running simultaneously through the global economy. And the friction between them is producing something more complex — and more structurally damaging — than an individual story alone would suggest.
Why brands can command more while service providers are trapped — and how Robert Shiller's most important idea explains the structural forces tearing markets apart.
In 2019, Robert Shiller made an argument that economists found either obvious or unsettling, depending on their disposition. His book Narrative Economics proposed that the stories economies tell about themselves — not the data, not the fundamentals — are among the most powerful drivers of economic behaviour. Stories spread like viruses. They infect decision-making in boardrooms and at kitchen tables. They create self-fulfilling cycles of confidence and collapse, expansion and contraction.
Six years later, amid a prolonged, multi-front cost crisis, his framework reads less like an academic provocation and more like a field guide to what is happening right now. Because what is happening right now is, at its core, a story problem.
Multiple narratives are running simultaneously through the global economy. And the friction between them is producing something more complex — and more structurally damaging — than an individual story alone would suggest.
The War Economy as Permission Slip
The first narrative is the war economy. Not war in a geopolitical sense — though conflict in Ukraine, the Middle East, and renewed great-power struggle has caused untold harm — but war as a framing device. A permission structure. A story that, once it achieves cultural velocity, fundamentally alters what markets will accept.
Shiller's epidemic model of narrative spread is useful here. When a war economy story goes viral — "supply chains are broken," "energy is scarce," "the old rules don't apply" — it does something precise and powerful: it provides collective legitimacy for price increases that might otherwise face resistance or scrutiny. The narrative detaches price from cost. It does not need to be precisely true for any individual business. It simply needs to be widely believed.
"The narrative detaches price from cost. It does not need to be precisely true for any individual business. It simply needs to be widely believed."
For consumer brands, this has been transformative. The data is unambiguous: across fast-moving consumer goods, premium durables, and branded experiences, price increases have consistently outpaced underlying cost increases since 2021. This is not greedflation in any simple, morally loaded sense. It is something more structurally interesting: it is narrative-enabled margin expansion.
Brands with strong identity — those that have spent years building emotional resonance, trust, and a story of their own — have discovered that the war economy narrative provides air cover. Consumers who have internalised the idea that "everything costs more now" apply it asymmetrically. They accept it from brands they trust. They absorb it into their mental model of the world.
This is not cynicism. It is the rational behaviour of agents operating inside a shared story. And it rewards the brands who earned that trust long before the crisis arrived.
The £5 Coffee: Starbucks and the Anatomy of Narrative Pricing
How genuine cost pressures — energy, wages, beans — justified a ~30% rise across the high street, and how Starbucks used those same pressures as a permission structure to go considerably further.
No single example illustrates the mechanics of narrative-enabled pricing more clearly than Starbucks in the United Kingdom. But to make that argument fairly, we first need to acknowledge what is genuinely true: running a coffee shop in the UK between 2019 and 2024 became materially, measurably more expensive. The question is not whether costs rose. They did. The question is how far price increases were justified by those costs — and where narrative takes over from arithmetic.1
Sources: ONS Consumer Price Inflation; ONS Impact of Higher Energy Costs on UK Businesses 2021–2024; Low Pay Commission.1,2,3
The Real Cost Stack: What Legitimately Justifies a Higher Price
A cup of coffee sold on the UK high street is not just beans and hot water. It is the product of a cost stack spanning commodities, energy, labour, property, and equipment — every element of which moved sharply upward in this period.
| Cost input | Increase | Est. contribution to a £3.00 cup |
|---|---|---|
| Coffee beans (Arabica)~2–3% of retail price. Surged 80%+ in 2024 — a genuine shock, but a modest share of final cost. | +80%2024 | ~2–4p |
| Commercial energyNo price cap for businesses. Peaked 90%+ above 2021 levels; still 75% higher by end of 2024. Govt support ended March 2024. | +75–90% | ~10–15p |
| Labour (National Living Wage)NLW rose from £8.21 (2019) to £11.44 (2024). Labour = 35–40% of total F&B costs. | +39% | ~30–40p |
| Milk, sugar, packagingUK food inflation peaked at 19.2% in 2023. | +15–20% | ~5–8p |
| Property & commercial rentBroadly tracked CPI. Independents on flexible leases hit harder. | ~+26% | ~8–12p |
| Estimated cost-justified increaseBlended across inputs, weighted by share of cost stack. | ~25–35% | £3.00 → ~£3.85 |
| Starbucks White Chocolate Mocha (actual)Approx. 2019 baseline vs 2024 menu pricing. Reflects brand premium and narrative-enabled margin expansion. | ~76% | ~£3.10 → £5.45 |
Sources: Silver Oak Coffee; ONS (energy, food inflation); Low Pay Commission; FinancialContent / MarketMinute.2,3,4,5
The cost-justified range of roughly 25–35% is not trivial — for many independent operators these pressures were existential, not strategic. But a blended cost increase of 25–35% does not produce a 76% rise in the price of a branded drink. That gap is not explained by arithmetic. It is explained by narrative.
Sources: ONS; Low Pay Commission; Silver Oak Coffee; FinancialContent.1,2,3,4,5
"The high street average of ~30% is what the cost stack demands. Starbucks at ~76% is what a story enables. The gap between those two numbers is not inflation. It is brand equity, denominated in pounds."
Starbucks faced the same cost environment as every other operator. But it held a different asset. Decades of investment in the "third place" story — in ritualised ordering, seasonal narrative moments, and consistent identity — built a consumer relationship structurally more resilient to price sensitivity. When the war economy narrative provided external justification, Starbucks did not simply pass on costs. It used the narrative moment to expand margin in a way that a generic operator structurally could not.5
Analysis based on ONS cost data and FinancialContent UK pricing data.2,5
Consumer satisfaction with value-for-money at branded coffee chains fell by 9% in 2024, and average spend per visit dropped as customers traded down.5 In December 2024, new CEO Brian Niccol paused all price increases for 2025 and pivoted toward "value" and "foundational quality" — recognising that the war economy narrative was beginning to exhaust itself, and moving to rebuild the brand story before the permission structure collapsed entirely.6
The Structural Asymmetry
Here is where the picture becomes considerably more complicated. Because not every sector of the economy has equal access to the war economy narrative. And the sector with the least access is, by many measures, the most important: professional and commercial services.
"Brands" here refers specifically to established FMCG and retail brands with significant market presence and narrative equity — not SMEs or independent businesses, which face many of the same pressures as service providers.
| Brands (FMCG & retail) | Service providers | |
|---|---|---|
| Pricing behaviour | Raising prices, often beyond direct cost justification | Competing on price; clients resist increases |
| Narrative access | Strong — supply chain, energy, conflict visible | Weak — costs invisible to buyers |
| Cost trajectory | Rising — materials, logistics, energy | Also rising — wages, tech, compliance, premises |
| Margin outcome | Protected or expanded | Progressively squeezed |
| Dominant buyer narrative | "Premium quality commands a premium" | "Competitive market; someone will do it cheaper" |
Analysis based on ONS cost data, sector pricing research, and Shiller's narrative economics framework.
Service providers — from professional consultancies to marketing agencies, from facilities management to specialist technical services — face a structural narrative deficit. Their costs are, from the buyer's perspective, invisible. There is no barrel of oil. There is no shipping container delayed at a port. There is no raw material whose scarcity can be pointed to on a Bloomberg terminal. There are only people, systems, and the compounding overhead of operating a knowledge business in an inflationary environment.
Meanwhile, the dominant buyer-side story in B2B services is not the war economy narrative. It is an older, stickier story: the competitive market. "If you raise prices, someone else won't." This narrative was baked in during the post-2008 austerity years and never properly dissolved. It survived the pandemic. It survived the talent crisis of 2021 and 2022. And it is surviving the current inflationary environment, because buyers have no strong counter-narrative to replace it with.
The Loop Nobody Is Naming
The collision of these two narratives is not producing equilibrium. It is producing a slow-moving structural crisis — one that shows up not as headline inflation, but as degraded quality, mounting delivery risk, and the quiet hollowing out of service markets.
Analysis drawing on Shiller's narrative economics framework and UK sector cost data.
There is also a wage dynamic that compounds the pressure. Service workers see branded goods costing more. They experience inflation in their daily lives and, rationally, seek higher wages to compensate. Service providers face a rising wage bill. But they cannot pass it on. So they face a choice between losing talent and losing margin — and increasingly, they lose both.
What Would Shiller Say?
Shiller's framework compels a specific question: what narrative would need to change for this to resolve?
It is not a policy question, at least not primarily. Regulation can influence behaviour at the margins, but it cannot rewrite the stories people tell. What is needed is a new narrative — one that can achieve the kind of cultural velocity required to shift how buyers value and price professional services.
Several candidate narratives are already visible, though none has yet achieved critical mass. A resilience narrative — reframing quality service provision not as overhead but as strategic insurance — gained traction after the supply chain failures of 2020 and 2021 but faded as memories shortened. A fair value narrative, similar to the ethical sourcing movement in consumer goods, is beginning to emerge in professional services procurement, driven partly by ESG pressures and partly by well-publicised delivery failures in major outsourced contracts.
Most promisingly, a talent scarcity narrative is quietly reshaping some corners of the market. In sectors where the expertise required is visibly rare — specialist technology, certain engineering disciplines, specific regulatory knowledge — buyers are beginning to accept that the competitive market story simply does not hold. The narrative of scarcity is overriding the narrative of competition.
"The brands that will survive the next decade are not those with the highest margins today — they are those whose story remains credible when the war economy narrative eventually exhausts itself."
The Strategic Implication for Leaders
For business leaders on either side of this divide, the practical implications are significant.
If you lead a brand business, the war economy narrative has been generous to you. But Shiller's history of economic narratives contains a consistent warning: narratives exhaust themselves. Consumer tolerance for price increases has limits, and those limits are approached faster when the underlying trust in a brand's story begins to fray. The brands that will survive the next decade are not those with the highest margins today — they are those whose story remains credible when the permission structure dissolves.
If you lead a service business, the most urgent task is not operational — it is narrative. You are not losing on price because your costs are too high or your model is broken. You are losing on narrative. The buyer's story about what you are worth is older, louder, and more entrenched than the reality of your cost base. Competing on price in that environment is not a strategy — it is a slow surrender to someone else's story about your value.
The firms that are beginning to break out of the service squeeze loop share a common characteristic: they have stopped competing inside the buyer's narrative and started replacing it with their own. They are not arguing about price. They are telling a different story — about risk, about capability scarcity, about what it actually costs to get things right in an uncertain world.
That is, in the end, exactly what Shiller's work points toward. The economy is not a machine governed by invisible forces that operate independently of human belief. It is a system of interlocking stories, and the actors who understand that — who can read the narratives in play, identify the ones that are fading, and construct the ones that will travel — hold a form of strategic advantage that no spreadsheet can fully capture.
The war economy is a story. The competitive market is a story. Pricing power is, ultimately, a story you are either telling or failing to tell.
The question is whether you are the author or simply a character in someone else's plot.
Drawing on Robert J. Shiller, Narrative Economics: How Stories Go Viral and Drive Major Economic Events (Princeton University Press, 2019). The epidemic model of narrative spread, and the application to inflationary dynamics, are developed throughout Part I of that work.
