Product and pricing actions during inflation

Inflation affects all industries globally. What common tactics can help businesses adapt?
Conjointly Guide to Inflation

In this post, we cover the four product and pricing actions businesses can take to capture opportunities during periods of high inflation.

Evaluate your product mix

The current pandemic and inflation have seen some manufacturers and retailers of non-essential goods face a significant drop in demand 1 . As there are uncertainties about whether demand could recover to previous levels, brands are forced to seek new ways to reach and engage more customers to sustain their businesses.

Some brands started to change their product mix to suit the demand arising from the pandemic. For instance, apparel manufacturers manufacturing face masks, IT retailers putting thermometers and sanitisers on shelves during the crisis. While these immediate and short-term changes can help firms survive in the current market, businesses also need to anticipate the landscape in the long term.

During times of high inflation, it is useful to examine profitability by each SKU or service because:

  1. It allows brands to minimise cost by eliminating low performing products and focussing on higher-performing products.
  2. It helps identify products with inelastic demand or segments with low price sensitivity for price mark up without sacrificing volume.

Research methods like conjoint analysis allow businesses to simulate different portfolio scenarios. For example:

Increased revenue and maintaining market share while reducing SKUs

In this disguised example, after removing two of its SKUs, the consumer goods producer increased its revenue and retained market share.

Innovate and premiumise

Innovation allows businesses to launch premium offerings that deliver greater value to customers, and thereby avoid negativity associated with simple price increases on existing products.

In these cases, businesses may want to seek cannibalisation of their existing products by the premium NPDs. Conjoint analysis simulations can help validate if the NPDs in your pipeline help achieve this goal:

Capturing greater profits through more premium SKUs

Intelligently communicate price increases

If you have to do a simple price increase, keep three things in mind when communicating price increases:

  1. Customers are more willing to accept temporary surcharges than permanent hikes 3.
  2. Customers are more willing to accept price increase when they are informed about the rationale behind the price change 4.
  3. Especially in times of inflation, consumers may have different needs and pain points 2. A single message may not be enough to appease all.

Establishing a positive brand image

There is no denial of the significance of branding, and there is no better opportunity for brands to show their genuine and integrity than a humanitarian and economic crisis like the current pandemic induced inflation 14 .

Brands often neglect the influence of pricing in attracting customers 15 and how good pricing strategies can build good relationships with customers while generating desirable profits 16 . Communicate to the customers that your brand stands by the customers and defends them during their most challenging times17 .

On the other hand, your customers may not be ready to accept a price increase, even when your brand faces increased costs and needs to raise prices. Show empathy and explain how much value your products offer compared to the next-best alternatives. Research has shown communication efforts and strategies contribute to building a solid relationship with customers 18 .

Taking the time to build a positive brand image allows businesses to improve their brand loyalty among their customers. Improved brand loyalty results in higher brand power. Stronger branding can reduce the negative impacts of inflation on businesses as consumers are willing to pay more for branded goods.

Impact of price increase of essential and non-essential goods

What market research is needed to perform these business actions?

With various potential courses of action for your business, and official statistics being less relevant to individual industries, market research can play a useful role. Next, we explore how and what research to do during inflation.


References

[1] Roggeveen, A. L., & Sethuraman, R. (2020). How the COVID-19 pandemic may change the world of retailing. Journal of Retailing, 96(2), 169–171. https://doi.org/10.1016/j.jretai.2020.04.002

[2] Armantier, O., Koşar, G., Pomerantz, R., Skandalis, D., Smith, K., Topa, G., & Van der Klaauw, W. (2021). How economic crises affect inflation beliefs: Evidence from the Covid-19 pandemic. Journal of Economic Behavior & Organization, 189, 443–469. https://doi.org/10.1016/j.jebo.2021.04.036

[3] Abraham, A. T., & Hamilton, R. W. (2018). When does partitioned pricing lead to more favorable consumer preferences?: Meta-analytic evidence. Journal of Marketing Research, 55(5), 686-703. https://doi.org/10.1177/0022243718800724

[4] Shaddy, F., & Shah, A. K. (2018). Deciding who gets what, fairly. Journal of Consumer Research, 45(4), 833–848. https://doi.org/10.1093/jcr/ucy029

[5] Anderson, J. C., Wouters, M. J., & Van Rossum, W. (2010). Why the highest price isn't the best price. MIT Sloan Management Review, 51(2), 69–76. https://ris.utwente.nl/ws/portalfiles/portal/6981891/why.pdf

[6] Hünerberg, R., & Hüttmann, A. (2003). Performance as a basis for price-setting in the capital goods industry: Concepts and empirical evidence. European Management Journal, 21 (6), 717–730. https://doi.org/10.1016/j.emj.2003.09.014.

[7] Piercy, N. F., Cravens, D., & Lane, N. (2010). Thinking strategically about pricing decisions. Journal of Business Strategy, 31(5), 38–48. https://doi.org/10.1108/02756661011076309

[8] Kienzler, M. (2018). Value-based pricing and cognitive biases: An overview for business markets. Industrial Marketing Management, 68, 86–94. https://doi.org/10.1016/j.indmarman. 2017.09.028

[9] Friedman, E., & Toubia, O. (2020). Pricing fairness in a pandemic: Navigating unintended changes to value or cost. Journal of the Association for Consumer Research. https://doi.org/10.1086/711850

[10] Töytäri, P., & Rajala, R. (2015). Value-based selling: An organisational capability perspective. Industrial Marketing Management, 45, 101–112. https://doi.org/10.1016/j.indmarman.2015.02.009

[11] Raja, J. Z., Frandsen, T., Kowalkowski, C., & Jarmatz, M. (2020). Learning to discover value: Value-based pricing and selling capabilities for services and solutions. Journal of Business Research, 114, 142–159. https://doi.org/10.1016/j.jbusres.2020.03.026

[12] Jommi, C., Armeni, P., Costa, F., Bertolani, A., & Otto, M. (2020). Implementation of value-based pricing for medicines. Clinical Therapeutics. 42(1), 15–24. https://doi.org/ 10.1016/j.clinthera.2019.11.006.

[13] Reynolds, H. (2018). Advantages and disadvantages of value-based pricing.Saasbrand. https://saasbrand.com/advantages-value-base-pricing/

[14] van Schalkwyk, M. C., Maani, N., & McKee, M. (2021). Public health emergency or opportunity to profit? The two faces of the COVID-19 pandemic. The Lancet Diabetes & Endocrinology, 9(2), 61–63. https://doi.org/10.1016/S2213-8587(21)00001-2

[15] Krutova, A., Nesterenko, O., & Levina, M. (2019). Transfer pricing as a means of the state tax base optimization. Fundamental and Applied Researches in Practice of Leading Scientific Schools, 31(1), 100–107. https://doi.org/10.33531/farplss.2019.1.21

[16] Schoonveld, E. (2020). Creating win-win partnerships. In E. Schoonveld (Ed.), The Price of Global Health (pp. 395-402). Routledge. https://doi.org/10.4324/9780429320712-28

[17] Ertimur, B., & Coskuner-Balli, G. (2021). Brands expressing compassion and care through advertising. Journal of Advertising, 50(3), 230–239. https://doi.org/10.1080/00913367.2021.1925606

[18] Agnihotri, R., Dingus, R., Hu, M. Y., & Krush, M. T. (2016). Social media: Influencing customer satisfaction in B2B sales. Industrial Marketing Management, 53, 172–180. https://doi.org/10.1016/j.indmarman.2015.09.003

[19] Waters, R. (2021, December. 14.). Adobe takes on Canva with freemium offering. Financial Times. https://www.ft.com/content/0a8f2eef-ce20-42c6-bcad-d7e4a451fd72

[20] Sumukha, K. V. (2021, November. 29.). How does Slack make money | Slack's Freemium business model. The Strategy Story. https://thestrategystory.com/2021/11/29/how-does-slack-make-money-freemium-business-model/

[21] The Coca-Cola Company. (2020). Going dark, doing good: Coca-Cola channels millions in marketing spending to support COVID-19 relief. The Coca-cola News. https://www.coca-colacompany.com/news/going-dark-doing-good-coca-cola-channels-millions-in-marketing-spending-to-support-covid-19-relief

[22] The Coca-Cola Company. (2021). Refresh the world. Make a difference. The Coca-Cola Company 2020 Business and Environmental, Social, and Governance Report. https://d1io3yog0oux5.cloudfront.net/cocacolacompany/files/pages/cocacolacompany/db/761/description/coca-cola-business-environmental-social-governance-report-2020+%282%29.pdf


Written on 11 December 2021 by:
Chun Hui Lee image
Chun Hui Lee
Insights Writer