Working in the world of market research, many of the client questions ask me essentially boil down to this: “how do we grow?”. This usually translates to: “how do we sell more stuff to more people?”
However, if the client follows Byron Sharp, the question might be phrased as “how do we increase penetration?”, knowing that if they can do that, their brand will have more light buyers (more people) and a more loyal customer base ( buying more stuff).
Funny though how seldom growth discussion starts out with value share rather than volume share. I hear these questions far less: ‘how could we sell the same amount of stuff, but at a higher price?’ or ‘how could we sell the same amount, but be less relying on price promotions to do it?’
Yes, ‘price’ would seem to be the forgotten ‘P’ of marketing
If what we mean by growth is making more money, then it doesn’t pay to ignore price. Mark Ritson is on the price war path too (he hates it when marketers forget any of the P’s!) pointing out that with impending inflation companies won’t have an option to ignore price – whether marketing is invited to that meeting or not.
If you’re in the business of making a profit, and the cost of goods sold goes up, simple arithmetic says pricing must be on the agenda. That’s going to be tough for many brands stuck in the ‘spiral of doom’. This will be hauntingly familiar to many Australian marketers – just check out the number of yellow stickers on supermarket shelves.
In fairness, marketers are in a position where it’s VERY hard to view price as a value driver (holding or raising) rather than volume driver (discounting to shift product). Competitors are dropping their pants, retailers are demanding it from you too, and the boss is focused on short-term sales figures. And with the average tenure for an Australian marketer just two-and-a-half years, most have inherited their death spiral, not created it (well, not for their current brand anyway…).
The challenge is that the decisions required to escape the spiral of doom won’t pay off in the short-term. They’re a long-term investment. And most marketers will be rightly worried about losing their jobs by the time those investments start to bear fruit (in another plug for Ritson, google his thoughts on ‘Bothism’ for a perspective on escaping that trap).
So, what to do when the topic of price inevitably comes up in 2022?
The thrust of this article is to suggest that there is no one answer to that question, the path forward really depends on your brand’s starting point. My three-word slogan of advice: Know. Your. Context. Here’s how.
It’s an empirical fact that some brands can charge more for functionally similar (or identical) products. It stands to reason that your brand can order a higher price if it:
- does a good job of meeting consumer needs
- is liked or even loved
- is perceived as being a leader
- is perceived as being different to alternatives in some way
This is not just common sense though; the data is clear. People will pay on average 24% more for brands that are meaningful (meet needs, are liked) and different (leading or unique) – you can see this effect in action in this illustrative example of the Australian beer market.
When talking price, ask ‘how strong is my brand in the consumer’s mind?’
To narrow in further on your brand context, consider (or measure) where your brand sits on the 3×3 below. This will depend on how it scores on:
- Meaningful difference – does it have the right to charge a premium based on meaningful difference?
- Price – what is it perceived to be charging relative to category average (do people think you are priced low, average or high)?
This creates nine possible scenarios – invaluable context and a reason for the finance and sales teams to be glad they invited marketing to that meeting after all.
For example, your brand could be similarly priced to a competitor in the middle of the market, but in a very different position when considering raising that price.
- A meaningfully different brand (scenario 2) is well-placed to price above like-for-like competition. So, you can then consider which aspects of the offer might be subject to the price increase, along with if and how you communicate to customers.
- For the less meaningfully-different brand (scenario 8), life is harder and riskier. Customers are more likely to move on to alternatives if you increase prices, especially if you move ahead of competition. Any price increase should ideally be accompanied by renewed investment in building brand equity – a prospect finance may not be overly keen on. As a marketer, it’s vital to justify this move as an essential investment, not a frivolous expense.
The two greatest extremes on the 3×3 are brands that see themselves targeting different price partitions – one at the value end, another at the premium end. But a clear understanding of brand strength is critical to decisions that both these brands must make. A ‘great value’ brand for example should understand that it’s in a more advantageous position than its competitors in retailer negotiations. It could also consider product range moves into slightly higher price tiers. An ‘over-priced’ brand however has different fish to fry and will likely need to do some renovations to survive an inflationary environment.
In the end, inflation or no inflation, don’t forget the power of price – the neglected lever of brand value growth. As any primary school kid with a pencil could tell us, selling 100 units at $1.10 is better than selling them at $1. Justifying that higher price is of course far trickier – and certainly easier said than done in Australia where we are more and more ‘trained’ to shop on price. But a good place to start is by asking if your brand is meaningfully different.
Ryan France is head of brand strategy at Kantar Australia