As economic challenges continue to impact consumer behaviour across the globe, the impact of marketing on pricing has emerged as a key consideration for brands. Many brands are finding that marketing and communications need to directly address what is often called the ‘forgotten’ P – pricing – as well as place, product and promotion.
Read The WARC Guide to marketing’s impact on pricing here
Chapter 1:
The link between strong brands and pricing power
Chapter 2:
How brands gain pricing advantage
Chapter 3:
Building a value equation
Chapter 4:
Pricing perils: discounts and private labels
Chapter 5:
Tackling the price-action gap in sustainability
While the tinderbox of supply chain issues, geopolitical risks and sticky inflation appear to be moderating in some markets, consumers are still feeling the impact of increased prices, especially in Europe, the UK and North America. In a recent Gallup poll covered by WARC, 41% of Americans cited the cost of living and inflation as their top financial concern. Analysis by the Financial Times found that British consumers spent 15% more over the past two years while buying 0.5% fewer goods.
The danger for brands, of course, is that these short-term responses to increased prices eventually result in longer-term behavioral change. 2024 data from GlobalWebIndex cited in the WARC Guide indicates that consumers are waiting on discounts and spending more time searching for deals. As price pressures continue, some companies are seeing volume sales decline. A number of key pricing heuristics, some subtle and more nuanced, and related purchasing triggers are now dominant. Understanding the ins and outs of modern pricing heuristics has never been more important, writes Impero’s Christopher Tyas.
With such a delicate environment, there are traps for brands, including discount spirals. According to Acuity Pricing’s Sophie Bailey, retailers and brands seem to already be in a pattern of discounting brinkmanship where brands will sign up to match others' promotions in order not to miss out. All this means that sales volumes will rise but margins will fall. Private labels are also on the rise as shoppers trade down, and retailers are putting more pressure on brands to stop increasing prices.
But customers can adapt to tolerate price increases if brands implement smart marketing strategies, note Grace Kite and Charles Cleasby, econometricians from magic numbers. While advertising is often targeted when businesses need to cut costs, brands that continue to invest in growing their brand equity end up more profitable and more resilient, the pair write.
Brand equity is essential to minimising pricing sensitivity. Brand advertising substantially reduces the net long-term price sensitivity for the brand, allowing it to raise prices without much demand decrease. However, the reduced-price sensitivity is predominantly observed among consumers who already consider and prefer the brand. Therefore, notes Prof. Koen Pauwels, stimulating existing brand consideration and preference in the market is essential to boost the pricing power benefits of advertising.
High-quality advertising plays an essential role in building equity, with positive knock-on effects for customer retention even as prices rise. Likewise, superior product quality and product performance are among the reasons some brands are able to charge more than others without losing customers, writes David Gutting, SVP at BarkleyOKRP.
For brands facing the reality of price increases, building out a strong price-value equation will help consumers understand the benefits of buying the product even at a higher price. Reviewing a brand’s value proposition provides a helpful process for protecting volume sales in a period of pricing pressure, writes BBH’s Simon Gregory. Doing this well can offer brands a price advantage in their category, even versus lower-priced competitors.
Brand differentiation plays an outsized role in pricing power due to factors such as perceived accessibility, quality and authenticity. In many cases, homegrown brands are leading their multinational competitors by innovating with new formats such as live streaming to drive additional value. This is especially the case in Asia-Pacific, writes Adji Saputro, Regional Brand Guidance Director APAC at Kantar.
Price/pack architecture which reflects local buying power, such as India’s powerful sachet economy, is also essential to the value equation and can introduce new customers to brands they otherwise couldn’t afford, writes Bang In The Middle’s Naresh Gupta.
With the climate crisis ever more prevalent, more consumers are balancing price considerations with sustainability concerns. But research indicates a value-action gap still exists, especially as consumers become more price-motivated with household budgets squeezed. Price incentives for sustainable behaviours offer a way for consumers to make greener choices without impacting their squeezed budgets.
Read more in the The WARC Guide to marketing’s impact on pricing, out now.
