When money is tight, consumers care more about price.
You don’t need a business degree to understand that one.
But what’s less obvious is what that looks like in reality. While the natural tendency may be to assume that consumers are only interested in cheaper alternatives to cut back on spending, the reality is more nuanced. Consumers don’t just look for the cheapest option to every item they buy — instead they make thoughtful, nuanced choices about their purchases. Brands that align their pricing strategies with consumer priorities and preferences are the ones who win.
So during a global cost of living crisis, like the one we’re facing today, it’s critical for brands to make sure they understand how consumer behavior is evolving and how their pricing strategies should reflect those changes.
In this blog, we’ll walk through a few of the main ways we’ve seen consumer behavior shift when facing a cost of living crisis and how brands can stay on top of these shifts.
One way consumers manage their budgets is by making "whole wallet adjustments." This means cutting back on spending in some categories to allow for increased or maintained spending in others.
In a recent Zappi study this month of 300 adults in the UK, we found that 9 in 10 UK adults have stopped buying or reduced spending on some products in the past three months so that they can continue to purchase other items. The categories they’re cutting back the most are meals out, consumer electronics, entertainment and supermarket drinks.
Brands that understand price elasticity by category can successfully raise prices in areas that consumers prioritize — and avoid raising prices where consumers are likely to be more sensitive. For example, a consumer may be willing to spend more on a high-quality coffee, but may choose to cut back on luxury snacks to stay within their budget.
Brands that offer differentiated products with clear value propositions will be better positioned to maintain their pricing power and consumer loyalty in this environment.
Another approach consumers take is to spread spending over more frequent buying occasions. In a cost of living crisis, consumers are not always well positioned to buy ahead or in bulk, opting to make purchases only when the items are needed instead.
For this type of shopping, small or convenience-sized packaging is more attractive.
By offering smaller, more frequent buying options, brands can capture incremental sales and provide more affordable choices for consumers.
When it comes to saving money within a category, private labels are not the only acceptable option for consumers. In fact, some private label brands are seeing the largest price increases right now. An analysis by UK consumer publication Daily Mail has shown that in the UK, some supermarket private label products have shown the biggest annual price rises. In particular, some cereal and cheese own-brand products doubled in price in the last 12 months!
Some consumers may look to trade down within brands and explore other product lines offered by their favorite brands. Value offerings from preferred brands can keep consumers within the brand architecture.
Brands that offer different price points within their product lines will be better positioned to capture sales across different consumer segments.
So what does this all mean for your own pricing strategies? It means there is no single pricing strategy to adopt in times like these — there are a number of different factors to consider.
To get it right, you have to conduct consumer research, specifically pricing research. It’s the best way to make sure you’re responding appropriately to this cost of living crisis.
Pricing research is the process of gathering and analyzing data to better understand how consumers perceive prices and how they respond to changes in pricing.
The goal of pricing research is to determine consumers’ willingness to pay and the optimal price points that will maximize revenue and market share for a product or service.
When a price increases, some consumers will decide not to buy the product. You want to make sure the price increase results in higher revenue even if the overall units sold decreases.
There are various methods for pricing research, but to pick a method you need to know whether you are looking to discover the right price for your product or if you’re looking to confirm a price you already have in mind.
Price discovery research helps you explore pricing options when you don’t already have a specific price in mind, such as genuinely ‘new’ innovations where there isn’t a price expectation already set by the marketplace. The most common methods for this include Gabor Granger and the Van Westendorp method (check out the Market Research Society’s glossary for good descriptions of these techniques).
Price confirmation research helps you validate or optimize a price you already have in mind, such as when you’re pricing line extensions or conducting annual pricing reviews.
As a consumer insights platform, Zappi can help with your pricing research. Zappi’s pricing solution offers different method options to choose from to help brands define and refine their pricing. It’s built on a platform that gives you fast, actionable insights with tried and tested research methods to help you create products people love.
If you’re feeling the pressure to increase prices today, do your research with consumers to make sure you find the most acceptable way to do it. Reach out to learn more about how Zappi Optimize Price can help you define and refine your product pricing strategies.