OPINION1 August 2011

Pricing is such a precarious business

As highlighted in my report, the consumer is becoming more and more canny. They know when and how to buy – and this makes it a really precarious business for brands and retailers.

With this in mind, my eye was drawn to recent commentary in the Economist about Carrefour, the huge French grocery retailer. They’ve warned that operating profits for the first six months of the year would fall by 23%, mainly due to an abysmal performance in French hypermarkets (France accounts for 44% of the group’s sales).

The company has had to admit to a big mistake on pricing. This year Carrefour passed on commodity-price rises to consumers several months before its rivals, such as Leclerc and Intermarché. Canny shoppers objected and Carrefour lost market share. As Carrefour is the world’s second biggest retailer, it should have the clout to cut prices by more and for longer than any other supermarket chain in France. But that might displease the markets and shareholders, as short-term profits would suffer. Some of its rivals are privately owned, and so feel less short-term pressure to perform. A precarious situation indeed.

This example raises serious issues for companies and brands. Not only do prices rise for consumers, but for companies too. Consumers have been used to being protected from such direct price increases. As these rises are more and more transparent to customers, the question is how to manage these rises.

I provide some thoughts in the first edition of my report that brands and retailers need to consider with this trend – which I call ‘MyPrice’ – in mind. This example has made me consider a few more:

  • What role does honest engagement have to play? A really tricky one, but I feel brands really need to consider how to develop relationships with consumers.
  • Focusing the offer on key strengths. As I understand it, Carrefour is doing exactly this, by piloting stores that are more focused on the grocery offer.
  • Adding peripheral value to your offer at the same time such as experiential elements. Once again a tough one with consumers seemingly less loyal and more price focused.

In the next section of my report I will talk about how brands need to act as ‘butlers’. I believe it is approaches such as these that will engender a new style of loyalty. Check back next week.