How Marketers Can Manage Price Inflation
Before you can come up with a strategetics, you need to understand which inflation means to your customers and which their options are
by John Quelch
Posted on Marketing KnowHow: June 4, 2008 4:53 PM
When driving these days, do you look at the prices every time you end a gas business? Do you notice yourself paying besides attention to the prices of everything you bribe? You are not alone. Consumers everywhere are more reward aware. People who’ve been indifferent to price increases by reason of years are unexpectedly amazed at the kind of things now cost. How can marketers cope not just with distension but with consumer sticker shock?
1. Understand Your Customers. There are at least four ways in which customers have power to respond to higher gas prices: downgrade from premium to fixed; take fewer trips by means of car, consolidate errands, switch to public transportation; take the same number of trips but reduce the miles driven per trip by, for example, vacationing closer to home; drive additional economically and less aggressively to improve miles per gallon; and buy a specific dollar total of elastic fluid rather than filling up every occasion, even though this may mean more visits to the pump. Some consumers may even purchase and sale in (at a loss) the SUV for a hybrid, an example of how price inflation on person product can cause demand shifts in a second, related, category.
2. Invest in Market Research. You must discard your existing purchaser segmentation assumptions and segment consumers steady every side of product usage behavior and worth sensitivity. You must get by heart public into the marketplace yourself and talk to consumers expressly to understand their pain points and how they are changing attitudes and behaviors in response to price inflation. You be required to then quantify these shifts and develop product and pricing strategies that balance the need to maintain both profitability and market share.
3. Redefine Value. Customers buying soft drinks can think over price in three ways: the complete require to be paid through can or bottle, the cost per ounce, and, less common in this division, the monthly consumption cost. Customers short put on cash will focus much more on the absolute price. They’ll be considered toward the 99 cent soft drink rather than the $1.29 container with 50% added volume. To motivate cash-poor consumers, marketers must reverse engineer products and packaging to gain the point key retail price points. This may dishonorable downsizing package sizes, something the candy industry always does in response to inflation.
4. Use Promotions. If you’ve always passed through uncooked material price increases to the extreme point consumer, you don’t necessarily need to change that policy. However, lagging competitors in passing on price increases can have the same effect as a temporary price promotion. More customers than usual will be looking out in spite of price promotions, but don’t give away the store to those who don’t need the discount, and divide prices not across the meals moreover only on items selected as your inflation-busters. For cash poor consumers, these promotions should win the key price points on small pack sizes. For cash rich consumers, hearten multi-unit purchases ahead of the inevitable next price increase.
5. Unbundle. Customers who previously welcomed the convenience of buying product, options, and services rolled into one may now ask notwithstanding the sake of a detailed price breakdown. Make it easy for your in addition price-sensitive customers to more familiar cherry-pick the options and services that they strictly need by giving them an unbundled menu of options.
6. Monitor Trade Terms. Beware of powerful distributors paying you more slowly than they turn the inventory they buy from you. In an inflationary environment, they’re making money on the buoy by stretching their payables. Manage your inventory on a last-in, first-out basis to insure that increases in your realized selling prices answer the purpose not footprint the increases in your input costs.
7. Increase Relevance. You need to persuade customers to cut back their expenditures on other products, not on yours. In tough times, consumers more than at any time need and deserve the occasional treat. So, if you are Haagen Dazs, tell the consumer to substitute confidential label peas for the name brand but to not cede the comfort of curling up on the seat to recline on with a tub of her favorite freeze cream. Strong brands can gripe consumer loyalty while increasing deal out in small portions price points. Weaker brands risk not to be disclosed label and generic substitution.
Clearly, not all marketers are equally affected by price inflation. Commodities like gasoline, where the manufacturer adds little value before the product reaches the end consumer, are more vulnerable, season sales of the most invidiously choice global luxury brands hold up pretty well regardless of price. Especially challenged are marketers of goods and services for which consumers don’t necessarily understand the input costs: decorative candles, for example, are highly impressible to oil prices and the purchases are discretionary. The lock opener in the present state is to educate the consumer, apologize for the violent price increases, give price-sensitive consumers more promotional options, and reemphasize product benefits.
