First step in adapting pricing strategy
In order for brands to implement strategies for their products and business initiatives, it’s essential to determine the right price positioning. The most effective approach during periods of change is to have set price and promotion strategies in place, since pricing is vital for rapid revenue recovery.
As consumers continue to be focused on managing their own household budgets, a brand’s pricing strategy will have a significant impact on how customers choose between products and services as they evaluate promotional options.
For brands to capture optimal growth from their price and promotion strategy, it’s important to consider a more scientific perspective, evaluating and analyzing price and promotional studies that measure the impact of demand from price changes.
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4 quadrants of price positioning and promotion tactics
It’s important to take customer demand into consideration during go-to-market planning since understanding the correlation between price and promotion (as seen in the below graphic) helps in determining product strategy.
When a product demonstrates high promotional price elasticity but low regular price elasticity (top left), it means that consumers react more to the changes in promotional price than they do to changes in the regular price. In this situation, brands can increase the regular price without losing too much volume.
The same is true for the data presented in the bottom right of the graphic, which shows high regular price elasticity but low promotional price elasticity. Here, consumers perceive promotions more than changes in the base price.
The top right of the graphic depicts that consumers are very responsive to changes in regular and promotional price, meaning brands should invest in base price and promotional depth to drive volume. Since consumers don’t perceive the changes in regular or promotional price, increasing base price and changing the frequency of promotions are the best steps that can be taken.
Strategic approach to the pricing game
Based on this data, it’s all about knowing how to manage the investment by focusing on base price or promotional depth/frequency. NielsenIQ uses data-driven reporting to support the assertion that the best pricing strategy maximizes a brand’s profit and revenue.
Although the pandemic has changed consumer behaviors, price elasticities in general are not changing and trends vary by categories. Businesses should not let pricing myths create a bias in their decision-making. By implementing a strategic approach at the very beginning of product planning, brands can maximize their revenue with the new rules of the pricing game.