OPINION3 August 2023

Finding the pricing sweet spot in an economic storm

Cost of Living Opinion Trends

With economic turbulence underway, how do brands make sure their pricing is right for the current environment? By Jane Ostler.

Boat in a storm

A pricing storm is brewing during global political and economic instability. Getting to the shore in good shape will depend on the true value brands have in the minds of consumers; the courage to invest, to protect your bottom line and an unshakeable confidence in your business’ identity and relevance.

Earlier this year, Kantar’s Global Issues Barometer study uncovered consumer attitudes and concerns about inflation and the series of disruptions affecting people around the world. With more than half ( 53%) of people worldwide struggling to meet their monthly outgoings and seven in 10 believing that inflation rates will continue to rise, even for recognised brands, launching a new product in the current financial climate is challenging.

Many consumers have adopted different coping strategies in light of increased economic pressures – but many look out for discounts of their favourite brands, shop around in cheaper stores or, worst case, downgrade in quality.

For businesses, brand equity is everything when deciding on your price, especially for new products. Strong brand equity may enable them to launch at a higher price point without backlash; getting it wrong can alienate customers who may perceive that the brand is trying to squeeze out extra profit at their expense.

Does your brand equity support your price point?
Pricing pressures will affect all brands, but some brands are better placed than others to support their price. Therefore, understanding whether you are entering this period with a greater degree of ‘exposure’ versus your competition is critical.

Brand equity consists of loyalty, awareness, associations and perceived quality, each providing value to a company in numerous ways. Once a business identifies the value of brand equity, it can follow this roadmap to build and manage that potential value. Mapping your brand equity versus your current price helps to identify whether your price point is a risk or an opportunity in the current climate.

A recent global analysis of 44,000 brands found that 34% failed to justify their perceived price. With inflation taking a bite out of disposable income, these companies are most at risk when people consider where to spend their money. On the opposite end of the spectrum, strong brands drive more significant commercial growth and are less price elastic, providing the opportunity to unlock additional profit by increasing prices.

Focus on the meaningful difference of your brand
Understanding price elasticity is essential for businesses. Price elasticity helps companies understand how much they can stretch the price of any product before it impacts and measures how price changes impact buying behaviour.

Doubling down on building your meaningful difference is the best response to drive predisposition and perceived brand value to help you justify your price. We know that difference is vital to making your brand less price elastic. The lower the price elasticity of demand, the less impact a price change will have on the demand.

This meaningful difference is related to three key metrics:

  1. Meaningful: the brand has an affinity and meets needs or the extent a business can build an emotional connection and is seen to deliver against consumer needs
  2. Difference: the brand is unique and sets trends. This indicates which businesses set themselves apart from the category by leading the trends or simply offering something that others don’t (which can be intangible)
  3. Salience: spontaneous awareness indicates how quickly and easily a brand comes to mind.

All brand encounters should ladder up to something clear and consistent to amplify a company’s meaningful difference. Creating mental connectivity matters, as it helps ensure that the positive associations you have built come to mind quickly when people are asked to pay more for your products and solutions.

This mental connectivity is often created at an emotional level – it’s a consistent feeling and tone of voice. Clear, consistent brand essence is not only reflected in what is said and how they show up, but also in the benefits they bring and how they justify their price premium. This makes sure that they remain distinct, authentic and desirable in the face of pricing pressure.

When navigating the current storm of pricing pressure, businesses should understand their unique situation, as not all brands are equally well-placed to support their price point. Now is the time for the equity that has been built to work for you – don’t devalue your brand through excessive price promotion. Being meaningfully different better insulates your brand against price sensitivity – express your meaningful difference authentically to weather the storm and seize competitive advantage.

The current market conditions might be tough to navigate through, but there are tools available to help brands get pricing right – and technology has made pricing sensitivity planning far more accurate than ever before.

Jane Ostler is executive vice-president, global thought leadership at Kantar