The hottest ‘P’ in marketing

Given the state of the economy and how people’s budgets are vastly different just 6 months on, Ryan France – head of brand strategy, Kantar Australia - has penned a follow-up piece to his earlier op-ed to discuss why price is now the ‘hottest’ p in marketing.

Oh, how fast things change! In February, I wrote that price was the forgotten ‘P’ of marketing to direct more attention to this critical brand growth lever (units and dollars). I anticipated that as inflation crept up, price would become more front-of-mind for marketers. But things escalated quickly and suddenly price is the hottest ‘P’ in marketing. This time last year barely anyone talked about it. Now it’s all we talk about.

With perspective, it’s zero surprise that price is the hottest marketing topic

No-one running a brand today has dealt with an environment like this. Technically, the last time inflation ‘rose’ to today’s levels was 1999 – but 5.8% then didn’t feel as dramatic as now because inflation sat at similar levels in the mid-90s, and way higher in the early-90s. The last time inflation ‘rose’ this much coming off what was a low base was the 1973 oil crisis (the same for most OECD countries). No-one managing a brand today was doing so in 1973, nor many consumers today managing their family budgets then either. This is all unfamiliar and feels risky.

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Historical inflation rate in Australia

Exacerbating the strangeness of inflation is that in the living memory of most brand managers, macro-forces pulled prices down not pushed them up. Think the ‘Walmart effect’ of big box retailers, ‘Amazon effect’ of digital retailers, and economies of scale from technology, robotics, automation and offshoring. Remember talking about how the internet made everything free? How pricing models shifted from ownership to usage? And how ‘cheap’ shifted from a characteristic that brands wanted to avoid to one to embrace. This is the marketplace that’s shaped the experiences of a generation.

As my colleague J Walker-Smith says, “Deflation is the experience of consumers and brand managers. It’s how we know to operate—we expect prices to be low, therefore compete on everything else. We have built brand propositions, delivery models, fulfilment strategies, retailer relationships and more on the presumption of a marketplace ruled by deflation. And it’s the expectation of consumers.”

What will inflation do to consumer behaviour and how do marketers anticipate and respond?

A good place to learn from is the wallet tightening GFC. In 2009, McKinsey observed that as consumer willingness to pay decreased (out of necessity), brands unwittingly found themselves in new scenarios. Brand B found that people started to trade down to their offer (more often than not discovering it performed just fine), while Brand A was stuck on the wrong side of the fair value line and in a share losing position. Brand A’s options then became to drop price (move south) or improve value perceptions (move east). Knowing how meaningfully different your brand is (its intangible value) and what drives that helps navigate these scenarios.

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Remember, not every consumer has the same willingness to pay

The build I’d like to make (and real thrust of this article) is this absolutely critical but easy to overlook point: not every consumer has the same willingness to pay. There are multiple fair value lines in any given category. Some people are willing to pay more, some less. It depends on the priority each consumer places on your category.

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Understanding that consumers will NOT be trading down equally in all categories is critical

Answer these questions to get pricing right in this inflationary environment.

  • How big are the high and low willingness-to-pay (WTP) segments in your category?
    If the ratio is 80-20 that is a VERY different scenario from 20-80.
  • How big of a priority (elastic) is your brand?
    If your brand is low priority (elastic), then dropping price (or holding when competitors increase) may be an efficient way to gain enough market share to retain or grow your position. But if your brand justifies its premium (inelastic) then pricing too low may cause more harm than good – little share gain, undermining profits, and long-lasting damage to brand image.
  • Is there scope to create a tiered offer aimed at different price partitions?
    Netflix has gold, silver and bronze offers that hit the sweet spot for different WTP segments. Is that something to consider while minimising costs and limiting brand impacts?

Choice modelling techniques provide very precise answers to questions like these
There is no need for guesswork. This is where ‘marketing science’ can deliver informed answers for ALL the 4Ps:

  • Pricing: should we decrease or increase – and by how much?
  • Product: should we create a lower- or a higher-tiered offer – and what configuration at what price point?
  • Place: should different offers be available at different price points in different channels?
  • Promotion: should we ignore the price lever and invest more (or less) in brand-building?

Whatever you do, beware the ‘fair value’ trap: if you devalue your brand to fight on price, you might just destroy the very thing that made it a priority for consumers in the first place.

Ryan France

Ryan France – head of brand strategy, Kantar Australia


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