There was one marketing lever noticeable by its absence in a recent IPA report on marketing effectiveness. None of brands featured used price elasticity as a key marketing metric.
That’s 0% of some of the biggest brands in the country able to understand what makes someone willing to pay more for their product or service. Which, when you think about it is pretty shocking given that getting people to paying more is the one task that marketing is uniquely placed to fulfil in an organisation.
Instead, a power shift has taken place – price-conscious shoppers have seized control. Our own research found that 69% of 14,000 shoppers would not be prepared to pay more for one brand over another.
We face a bleak landscape. Brand worth has never faced fiercer scrutiny. European FMCG prices are rising at their lowest level for over five years and there were more profit warnings in the second half of 2017 than in any of the years after the crash. Maplin and Toys R Us are the latest stark examples of what happens when people no longer want to pay what a company wants to charge them.
The pressure to cut prices is stronger than ever thanks to the ever-growing influence of digital transparency and retail procurement departments; last year, Amazon and Walmart asked for 10-15% price reductions from many of their suppliers.
Cue the ubiquitous strategy of discounting to drive volume. In 90% of the trading weeks in 2017 over half of all fashion retailers had a sale on. But with cash-strapped, savvy shoppers challenging whether brands are really worth the price they are being asked to pay, discounting can only be replaced with a strategic smarts and creative thinking to protect prices and give people reasons to pay more. Our research shows that a 1% price increase can drive a 12-15% increase in profit, that’s three times the profit increase seen by boosting sales the same amount. Which shows that the commercial impact of protecting prices can outweigh cutting them to drive volume.
The good news is that consumers’ perceptions of pricing are fundamentally irrational. Behavioural economics studies show that when you flip the context, rebundle your output and shift the focus from price to value through added layers of experience, consumers are willing to pay disproportionately more for it.
The blurry pricing propositions of Dollar Shave Club or Marks & Spencer Dine In deals show how consumers’ perceptions of price can be hacked. Insight-led, creative thinking drives effectiveness in pricing just like it does in every other element of marketing.
By combining data-led pricing strategies with the creativity and behavioural science of a modern agency, brands can dramatically outperform the competition in a commodotised market. But that needs to start with bringing pricing strategy back into the marketing conversation.
To help us achieve this, we have recently integrated specialist pricing consultants into the heart the agency where they work with planners and creatives to help brands package and protect the worth of their offering.
So how can brands hack consumers’ sensitivity to price? By first answering a simple question: what about your offering are people prepared to pay more for?
Once you have dug into the data to answer this question, you can both amplify it and capture more value from it. The Pizza Legends platform Iris developed for Domino’s leveraged data that showed people were willing to pay more for customization and turned it into a branded customer experience platform - to drive a 38% increase in spend per customer.
It’s time to seize back control of the most ignored, most impactful lever in the marketing mix.
Ben Essen is global executive planning director at Iris Worldwide