With furlough schemes, redundancies and widespread working from home, 2020 has thrown up a number of challenges for consumers. With many changing their purchasing patterns as a result, brands and retailers are facing a tough challenge of their own: pricing.
Choosing what price to charge for a product or service is one of the most basic elements of commerce, and mistakes can make or break a business model. Many brands have had to work fast to adapt to new consumer priorities, while keeping a watchful eye on their own long-term brand values.
John Lewis, for example, is in the process of refreshing its ‘Never Knowingly Undersold’ price promise, which has been a fixture for the brand since 1925. Chairman Sharon White has described the positioning as “really appropriate for the time”, but in need of modernisation. A review of the retail group’s purpose, including analysis of its entire pricing structure, is in progress.
Speaking in September, White said the brand was reviewing how it “stands for great value for money and fairness” while keeping up its quality standards.
Pricing is a key element of the process. “We have a piece of work looking at our entry price levels and our pricing hierarchies. It’s a combination of these, what the brand stands for and the price positioning that will be delivering the message about where we are from a value for money perspective,” said White. “We are looking holistically at what the John Lewis brand stands for.”
Meanwhile, Next has seen an opportunity to move prices up. It has noted a “flourishing of creativity” to come out of home working, which will result in the brand becoming “slightly more adventurous” in the styles it adopts while pushing its price architecture “towards the upper end” over the coming months.
There have been changes for supermarket shoppers too. Tesco has extended its ‘Aldi Price Match’ scheme to more products as it looks to tackle the consistent growth of the discounters, and has introduced hefty discounts for members of its Clubcard loyalty scheme. The retailer has unveiled price cuts of up to 50% on brands such as Birds Eye and McCain.
Tesco has also created a next generation loyalty scheme in the shape of Clubcard Plus. The subscription service costs £7.99 per month and gives members 10% off two big monthly shops, as well as constant 10% discounts on some Tesco own-brand ranges, double data on Tesco Mobile plans, and a Tesco Bank credit card.
For some brands discounting can be a very addictive drug.
Dean Lavender, Clean Liquor Company
Other brands are experimenting with new ways of providing better value. Pret A Manger launched YourPret Barista, a coffee subscription service offering members up to five drinks a day for a monthly fee of £20. The brand, which has suffered from the massive drop in high street footfall, saw 16,500 people sign up to the service on its first day.
So is a widespread re-evaluation of pricing strategies set to be one of the long-lasting impacts of coronavirus? It has certainly moved it up the agenda of many board meetings.
Re-evaluating pricing strategies
Clean Liquor Company head of marketing Dean Lavender suggests of all the elements of the marketing mix, price is arguably the most important.
“But in marketing circles, and the marketing press, it probably gets the least amount of coverage,” he says. “There’s lots about communications, social media and influencers, but ultimately price is a lever, and it’s the most important thing from a positioning point of view.”
So important is price that Lavender believes marketers should be far more involved in setting it. While marketers who join an established brand may have little influence over price, those on new launches can have more input, he says. That can help to avoid price disparities, such as premium products being discounted heavily in one channel but not others, which damages long-term value perceptions.
“You are in the fortunate position where you can have a say in what is charged for a brand, or in setting a recommended retail price. And there are a lot of considerations to take into account. What you are charging, and what your competitor set is charging, says a lot about your brand,” he says.
“That’s why it is important marketing is leading, driving, or certainly very much involved in that conversation.”
Naturally, short-term price cuts can be appealing as a way to drive trial of a product among new customers, or to tempt shoppers to switch from a rival. The temptation to discount is particularly strong during times of crisis when consumers cut back on spend. But once it has been reduced it can be hard to edge price back up again, cautions Lavender.
“For some brands discounting can be a very addictive drug,” he says. “You see the enormous sales uplift you get from it.”
But consumers can become heavily attached to a memorable price point and be hard to nudge above it, he warns.
Lavender also says the transient nature of marketing careers can cause problems.
“A brand manager, marketing manager or marketing director on any given brand is probably only there for a couple of years. So they want to do what they can to make sure sales grow,” he says. “But when you are investing in a brand for the long term, those discounts are taking value out every time.”
Alternatives to discounting
The dangers of discounting are well known, with most marketers able to tell war stories of brands that cut their prices too far and too often.
“As value is once again becoming extremely important to customers, brands will have to adopt clever tactics to ensure customers get what they want without considerably lowering the overall brand value long term,” says consumer psychologist Kate Nightingale, founder of Style Psychology.
“Rather than cutting prices, I would advise creating product bundles and limited offers on frequently bought products, as well as investing in points- and rewards-based programmes. However, make sure to not only focus on price. Human need for safety and belonging have been considerably jeopardised, hence customers will be motivated by brands that deliver really well on both of them on top of having good value.”
Brands that had a clear value positioning in the past may be seeing a natural benefit now. Michelle D’vaz-Plant, head of marketing for London Designer Outlet (LDO), worked for a number of retailers in previous roles and says pricing strategy was invariably at the core of the marketing department’s role.
She says LDO is benefitting now from consistent marketing around its value proposition. “We are always marketing the fact we are up to 70% off,” she says. “That gives us a really good platform to build anything else on top of.”
At a time when shoppers are counting their pennies, a centre with a promise of value – and with open air common spaces and queuing areas – is in a good position to attract shoppers over the next few days and when lockdown eases again. Crucially, LDO is not finding these shoppers cutting back on their spend. But they are making substantial changes to what they are buying.
“We’ve seen a real shift, but we’ve not seen people spending less, says D’vaz-Plant, adding that both basket values and the number of items per basket have increased. Home and entertainment products, and more comfort-oriented fashion items, have been big winners.
The centre, located in Wembley Park, has also seen consumers trading up, investing in quality brands and products in a search for value and sustainability. D’vaz-Plant points out that slow footfall in many high street stores has meant more choice in outlet stores, meaning “really relevant and very on-point stock” is on offer.
Having a consistent pricing message has allowed LDO to use strategies other than pricing messages during the Covid-19 pandemic. It has launched the LDO Edit, highlighting time-limited, deep-discount special offers and allowing customers to reserve the products ahead of their visit to the centre.
We’ve seen a real shift, but we’ve not seen people spending less.
Michelle D’vaz-Plant, London Designer Outlet
The range of pricing responses from brands has shown that agile thinking and creativity are in plentiful supply during the Covid crisis, much needed as the relationship between brands and consumers is shifting.
For FMCG brands, the pace of change can make the growth of direct-to-consumer (DTC) channels even more appealing, says Lavender. From a pricing point of view, this can protect them from supermarket pressure to discount, and let brands experiment with price and value-added benefits at a more convenient pace.
But perhaps the most tangible legacy could be a willingness to speak about pricing as a marketing tool more openly. The classic four Ps of marketing – product, price, place and promotion – may be familiar, but they don’t necessarily get equal billing in most marketing departments.
“If I were to carve up my entire career and the amount of time I have spent listening to or discussing each of the four P, price would probably be one of the smallest parts,” says Lavender. “It’s a bit crazy really.”