With the cost-of-living crisis in full swing thanks to soaring inflation, supply chain squeezes driving costs sky high, and of course sterling’s nose dive, pricing these days is not for the faint-hearted.
Pricing has always been four parts science to one part art, topped with a drizzle of consumer tolerance. But at the moment it feels like sheer chaos.
Veblen goods, like Rolls-Royce or Hermes, sail through turmoil: the more they raise prices, the more demand they enjoy. But for other brands it’s a different story. Some recent pricing fluctuations illustrate just how tricky it is to get things right.
The security-tagged £9 Lurpak is one of the stand-out memes of 2022. Its meteoric price hike was genuinely shocking, spreading faster than anything even the Love Islanders came up with.
Petrol breaching £1.90/litre or £100 for an average tankful, was another milestone earlier this year. Fuel prices then fell but the RAC says any decreases didn’t mirror the fall of crude, hinting at conscious pricing strategies by fuel companies.
The continuing switch to own-label also demonstrates that price is paramount for grocery consumers. Own label sales increased by 8.1% in October, according to Kantar.Meanwhile, traditional grocers have launched budget own-label ranges to compete with discounters and they now price-match many of their key product lines to Aldi rather than to each other.
Even in a sector assumed to be price inelastic, Peloton reduced the cost of their Bike Plus by £150 only to reverse it three months later. Italso increased the price of its Tread machine by £900, more than the initial decrease.
Such yo-yoing does little for consumer’s confidence in a brand, knocking loyalty, prestige, even residual values in sectors such as Automotive. The effects can also prove long-lasting if consumer trust is lost.
So, here are six pricing principles to protect your brand whilst giving you room to manoeuvre.
1. Don’t act in haste. However dire the outlook, think hard before changing price. It’s one of the most visible facets of your brand and conveys many things: quality, positioning, comparative worth, a reward, a comfort or a staple. Beware creeping up into a different competitor set, where your brand is no longer viable.
2. Benchmark, including outside the sector. Know where key competitors are positioned and model what you expect them to do in response to a change by you. Importantly, benchmark against some common goods at parity – a pint of milk, a litre of petrol, a loaf of bread – whatever is appropriate. Starbucks benchmarks a Grande Americano against a gallon of US gas.
3. Add perceived value. If product or service enhancements are imminent, align them with a price change to boost perceived value. Even minor changes to packaging or marketing can help soften a price increase narrative.
4. Price strategically, discount tactically. Price is a strategic brand pillar, so price beyond the current crisis and discount tactically to boost current sales if needed. There are many discreet channels available that avoid the distress historically associated with discounting.
5. Test and research. Trial your price change in a discrete test market to gather data. Or, if it’s a price reduction, consider a limited-time discount first. Conduct research with both loyal and conquest consumers to understand both the immediate impact and the longer-term effects on your brand.
6. Be transparent. Don’t hide amid complexity, like moving to a la carte pricing (airlines) or bundling (streamers). Consumers see through this quickly. Keep it simple, justify your value proposition and embrace transparency.
Remember price doesn’t stand alone. View your brand holistically and adjust other elements of the marketing mix to support the new price point.
Pricing is undoubtedly a challenge at the moment for marketers. Hopefully the above can help you shepherd your brand safely through the chaos.
