The Steadfast Series: “Pricing and Promotion in Inflation”

Welcome to the second edition of The Steadfast Series: Inflation-Proof Marketing.

  • At press time, the price of groceries has gone up 15% YOY.

  • The price of health and beauty products has gone up over 10% YOY.

  • Retail spending rose in June.

  • Yet consumer sentiment is down.

  • It’s a strange time of inflation + strong jobs + unhappy consumers who are getting less for more.

Developing pricing strategies during times like these can be difficult and nuanced.

While you’re likely facing the challenges of increased cost of goods and labor, you’re also challenged with how to develop a pricing strategy that doesn’t alienate your core customers or soften your competitive value proposition: 

The Price: Value Proposition 

There is a great Harvard Business Review (HBR) case that highlights what customers think about price/value—in this case for soft drinks. It notes: “Customers buying soft drinks can think about price in three ways: the absolute cost per can or bottle, the cost per ounce, and, less common in this category, the monthly consumption cost. Customers short on cash will focus much more on the absolute price. They’ll go for the 99-cent soft drink rather than the $1.29 container with 50% more volume.” 

Today, customers are more focused on the absolute price.

To drive sales during times of inflation, brands need to reevaluate price points and pricing models. For one client, we learned that customers are happy to pay more for their products but less for shipping, which resulted in their raising the prices of their products to allow for free shipping. 

You may consider reconfiguring your product offerings: Samples/product trials, unbundled product offerings, or free consultations, among other options.

For subscription businesses, we’re noticing that customers are less likely to sign up for ongoing subscriptions and have much higher expectations for what they get for those subscriptions. (This trend was echoed in Netflix’s earnings/subscriber loss a few months ago.) In this case, we encourage a focus around fixed subscriptions (e.g., a fixed fee for three months).

We also encourage our clients to build more value behind their brand and product line, and to take some of the decision off of price. Your brand and what you have to offer is more about what’s inside the feature set: It’s what’s gone into building it. It’s the people behind your organization. It’s the processes and steps you take to build it. And, it’s the community you create among your customers. 

More resources and investment should be focused on value than ever before. 

One other way of creating more intrinsic consumer value is by involving your customers as part of the process, build, and selection of your products. It’s called “The Ikea Effect.”

The Ikea Effect

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Personalizing the customer experience and including them in the upfront process has a direct impact on value creation and perception. 

If you must raise prices, be sure to invest in this important step to keep your value proposition in line. 

Finally, now is the time to take a “test-and-learn strategy” regarding your product offering and pricing. Any previous data you might have had concerning this is likely no longer relevant: The post-COVID customer who’s living in an inflationary times has a whole new set of behaviors and needs. 

We also encourage you to read our “Needs Vs. Wants” article from last week, which shares a strategy to make your company a need in times of inflation. 

Next Up: “How Data and Analytics Can Support Your Strategy”