This piece was sparked by discussions around the difficulties brands are facing today as consumers grapple with the effects of the recession and the biggest squeeze on living standards since the financial crash in 2007-2008, due to significant increases in the cost of essentials such as food and gas & electricity and a drop in average disposable income as salaries lag behind inflation.
I'm going to pick up on the issue of pricing which Les Binet (@BinetLes) spoke about amongst other topics recently at the IPA (@TheIPA ) as part of a two part presentation about how brands can thrive in a recession . His talk was then summarized into an article for Marketing week(@MarketingWeekEd ) 2ndDec which I read this weekend.
Much has been written about how amongst the 4p's pricing in particular has been both undervalued and neglected by marketers in recent years , aided and abetted in part by a sustained period of cheap money , low inflation and growth/ recovery from the financial crisis of 2007. Others have also written about this , suggesting a lack of financial nous amongst today's marketers which has also contributed to declining influence of CMOs in the boardroom (when was it ever otherwise though ? )
My take on this is as always based on my experience in branded packaged goods with primarily a retailer driven route to market.
As with so much in the world of marketing marketers often have little direct control over things we are held to own, be it brand image or indeed pricing... here's why:
The term Pricing Power is contentious in my opinion not least because in a number of countries the ability to directly address with the retailer let alone dictate or move the price the consumer pays for your brand is now illegal . Unless you therefore sell direct to the consumer the brand owner often has little or no direct ability to control consumer price. So the phrase pricing power might be said in many ways to apply more to the brand :retailer relationship than the brand's one with the consumer.
As ever the more powerful*the market position the brand has the more influence it can have on consumer prices and the more it can sustain a premium which increases profitability for both brand owner and retailer alike. It's also worth at this point saying hello to promotions . Promotions (price based) are to pricing and profitability what Loki is to Thor...very few brands exist in a market where they can afford to not promote their brand with the retailer. I was lucky enough to work on one , it was extremely profitable; but the retailers wanted activity and investment, something I come back to later.
Somewhat perversely the presence of inflation after many years of negligible inflation has also made it easier for stronger brands in particular to raise prices and in some cases when coupled with supply chain efficiencies actually improve margin.
Retailers will negotiate against a total annual cash revenue and margin based p&l, looking at both revenue, profit and income , comprising both non promotional and promotional sales plus the renting out of paid promotional display space ,as well as the income from store media ;other quarterly or year end bonus payments will also be added into the mix, based on meeting targets from an agreed joint business plan.
The retailers will be looking for annual market share gains from their competitors, the strength of the promotional programme as well as annual increases in both money and percentages, but they will also stubbornly resist attempts from brands to increase prices and consequently the price the consumer pays.
Occasionally there are public falling outs between retailer and brand owners about price, usually a retailer refusing to accept price increases ,leading to temporary punishment delistings ; generally normal business is resumed within a year or two but it is costly to both parties , moreso typically to the brand owner in kiss and make up concessions.
The promotional programme plays an important role with the retailer as it is seen as a direct investment in the joint business,a sign of commitment, as opposed to marketing nonsense which is just money spaffed up the wall on media for example.
Controlling let alone manipulating consumer prices is an indirect process, where in my experience in food brands the brand owner is more focused on managing average revenue and profit across the year than the difference in consumer price point between different brands,which is not something any consumer would ever do...Conversely we have created a climate where frequent promotions are used to distort natural market rhythm, sometimes by the retailer sometimes by brands to bring forward purchases. Whilst this hurts competitors temporarily it tends to have limits , be it consumers running out of space to store their promotional swag, or brand owner profit dilution because yes, price promotions dilute profit and don't build brand equity , and can furthermore dilute quality or luxury perceptions of the promoting brand.
In summary building a strong brand be it unique or dominant is the best way to successfully leverage pricing for profitability.
Do let me know what is different in your industry or country, or what I've got wrong.
Find me on Twitter @Runsforcoffee1 ; or on Mastodon : @Runsforcoffee@ohai.social
No comments:
Post a Comment
Mastodon