We are facing unprecedented price increases and many consumers face real concerns about being able to afford their post-pandemic lives. As described in this article, most companies will need to raise their prices due to increased costs, but many consumers are likely to blame these rises on corporate greed. How pricing strategies and associated price messaging are executed will likely determine whether brands are able to increase perceived empathy or erode brand trust and loyalty.
As prices increase and consumer purchasing power decreases, consumers must re-evaluate the perceived value that they obtain from their purchases. For example, as the costs of essentials like food and energy increase, these items take priority over purely emotional purchases. Purchase questions therefore shift from, “What do I want?” to “What do I need?” or “What can I afford?”. During this consumer transition, it is important to remember the following:
Perceived Value = Brand + Offering Quality + Price
As consumers become more value conscious in this era of rising prices, brand and offer quality become increasingly important. Typically, to maintain perceived value, a rise in price must be accompanied with either a rise in offer quality or brand value, or both. It is true that, for some products, raising the price without changing quality can lead to an increase in perceived value, and even provide some brand lift; however, this is a rare phenomenon which is unlikely to occur when all companies are raising their prices.
To maintain high perceived value, and remain on the list of essential purchases in consumers’ minds, brands will not only need to maintain quality, but also maintain or even lift their brand value. This is where strong brands have an edge, as consumers are more likely to be forgiving of brands they love. This is also an area where conscious brands have an opportunity to gain ground.
If your company is forced to raise prices due to rising costs, here are some ways you can do it more strategically without eroding brand value:
1. Know price elasticities
Not just for the category but for your individual brand.
Most companies will be able to accurately calculate month to month how much they will need to raise prices to meet revenue targets and other business objectives. However, those calculations need to be tied to what the market will actually support, today. Though highly desirable brands will likely be able to handle price increases better than other brands, the price premium a brand can demand is likely to be smaller during an era of high inflation when consumers are re-prioritizing their purchases. The consumer decision may switch from deciding to buy a premium brand vs a discount brand, to buying a discount brand vs not purchasing anything from that category. Understanding individual price elasticities in a high inflation environment will be critical to maintaining market share and optimizing pricing strategies.
2. Know your customers
Which segments will accept price changes, and why.
As Peter Drucker stated, “The customer rarely buys what the company thinks it’s selling.” It is important to know your customers and why they are buying your products and services, and how higher prices may impact this. Some segments of shoppers will tolerate price increases better than others. For example, the high-end shoppers of luxury brands are typically the most insulated from price shocks, and shoppers with a strong emotional attachment to a brand may be more drawn to it during times of uncertainty as a means of maintaining a sense of normalcy. However, in the first case consumers may be purchasing status, and peace of mind in the second – both of which can be difficult to accurately price.
3. Communicate effectively about the price changes
Be open with consumers about the reasons for price increases.
Most consumers are aware that the previous two years have been difficult for everyone across the globe. Moreover, most acknowledge that rising transportation costs and labor shortages are likely contributing somewhat to rising prices which they will not hold brands accountable for. Just as consumers want to support companies they perceive are making the world better, they will be more likely to support companies they believe are trying to minimize the impact of rising global prices rather than contributing to them. Communicating that “we are in this together”, or that you hope that the price increases are only temporary, can go a long way to building a sense of empathy and trust.
Designing a pricing strategy for cost-conscious consumers
Hall & Partners know and understand brands and pricing. We are experts in brand strategy, market segmentation, pricing studies, and brand tracking, with a reputation for generating ‘uncommon insight’. We are a diverse group of thinkers, problem solvers, storytellers, brand strategists, and statisticians who believe that ‘uncommon insight’ is discovered through the fusion of advanced statistics and the latest social science discoveries. As such, we are leaders in the science of human decision-making and experts in modelling consumer choice and motivation, especially related to brands and pricing.
We have been studying pricing for decades and, since the start of the pandemic, have helped major technology, food distribution retail/apparel, and financial services brands strategize on how to adjust their prices, and messages, in ways that help rather than hurt their brand. We would love to help your brand flourish in this time of consumer unrest.
Create the optimal strategy for responsible and responsive pricing and messaging.
About the author
Sam Sturgeon, PhD, is the Global Head of Marketing Sciences at Hall & Partners. He completed a dual-title PhD in Human Development and Demography and has over 15 years of experience as an applied statistician, demographic forecaster, and mixed-methods market researcher. He loves answering complex questions with innovative research methods and then bringing compelling stories to life through captivating data visualization. His work on marriage and dating has been featured in Politico, the Wall Street Journal, USA Today, the Washington Post, and other publications.