How have brands successfully navigated similar challenges of price increases and cheaper private label competitors (especially in a downbeat consumer confidence landscape) to keep growing? and Is building/super-charging Trust through our marketing efforts effective in growing penetration? Let us know if there is something else we should be considering.

J.D.
21 March 2025

In this macroenvironment are you seeing any of the rules for elasticity impact change (i.e., is the +15% changing to +10%, as private label is improving quality?) and is this what your upcoming pricing experiments will look at? If so, when do you expect those to be published?

No, we don’t see price elasticity changing fundamentally. The body of work on brand price elasticity seems to have produced fairly consistent results over a long time (that has included periods of low/high inflation). One thing that does seem to impact price elasticity is the price gap, so the old idea, that if there were 3 brands priced at $2.00, $3.00, $4.00 then say, a 10% price change for the middle one still left an appreciable gap between it and the others ….. but if they are priced at $2.00, $2.50 and $3.00 then a price change by the middle one is much ‘bigger’ in the context of their relative prices. So as private labels get better and perhaps starts pricing closer to manufacturer brands then the cross price effect of private label/new brands becomes larger (in theory).

Yes, we’ve done data collection on our first pricing experiment, it turned out to be a lot more difficult to get it done than we anticipated but we’re looking into this. We mainly want to see if the overall elasticity level is about ‘as expected’ and then hopefully start to see some more details after that.  But I think it will unfortunately take some time to get it to a point where we could share/release.

J.D.
21 March 2025

Given the growing consumer focus on value and the rise of competitive, high-quality retailer brands, we’ve been working on a framework to remove barriers and enhance consideration of branded products. Do you have any additional insights in these areas that could be helpful?

Value is best described as the perceived quality/features offered for the price. An inexpensive brand is not necessarily seen as good value if consumers perceive it to be lowish quality (a seemingly obvious point but worth laying that out first).

There are two broad factors to consider. First are pre-purchase factors – consumer’s impression of the packaging in-store; and second is post-purchase evaluation (I liked it, it was good). Once the consumer has purchased, post-purchase evaluation and ongoing price are more important factors.

How can marketers influence consumer perceptions that a brand offers good value – other than the actual price charged?

A key and easily forgotten factor is that consumers must notice the brand in the first place, to form favourable value-related perceptions of it. Remember, that perusal times in front of a category are brief, consumers don’t look at every brand; lots of brands are ‘as if invisible’ so simple advertising (building relevant memory / familiarity / noticeability) is itself a building block of perceived value.

Quality cues are obviously also potential drivers of perceived value (in wine, for example, medals do help a brand sell at its price point); but the precise cues that will work for a particular brand or category will vary. For example, imagery showing artisanal crafting of food products can work, assuming it is consistent with the broader brand story; origin (sometimes local works better than far-away and sometimes the opposite!), or a provenance story can certainly potentially work, but again, consumers need to be educated /primed to link this to the brand via advertising and to notice this in-store.

J.D.
21 January 2025

Do you have any general research on pricing? Do you have research on how big gap between Private Label and brands can/should be and how can one get light buyers into the category with lower prices?

Firstly, what we’re doing currently: we’ve been planning a big study to update our pricing experiments work. We’re going to be doing price experiments to estimate price elasticity and the factors that influence it in CPG categories, — including potato crisps. Results should be written up by mid next year.

Price gap to PL’s. Yes, this is a good question. There isn’t a specific gap to aim for because it depends a lot on the category and country. But a general rule is, if private labels are bigger or they are faster-growing, then you want a narrower price gap. Second is quality – if PL’s are quite bad, then obviously a bigger price gap but if they are close to parity on quality you can’t really get away with a big gap for long.  We suggest to monitor price gap to PLs annually, to make sure it’s not widening too much (seems to go that way more than narrowing).  Some analysis of your store scan data may show that when the gap is wider, the PLs tend to grow more quickly.

Lower prices / category expansion. Another good question! So, research on price elasticity shows brands have a price elasticity of around -2.5. And categories have a price elasticity that is about 0.2 on average, but potato crisps (the only salty snacks category we have this data on) is less price elastic, at about 0.10. That means we’d expect demand to not drop off too much if potato crisps increase in price relative to other categories. I suspect the data on which this is based has shown more increases for the category than decreases for the category, but a lowish price elasticity means that demand would not be expected to increase that much from lower prices – like a 5% price reduction would mean an an-average category volume increase of half of one percent – not much! If there is a way to increase category demand it is likely via bringing in more very light / on category buyers in, and in a pricing sense this would be more likely to be accomplished by very inexpensive small packs to make category entry very easy / inexpensive.  But of course, other marketing factors such as mental &  physical availability would play a part.

Here are some links to various pricing works:

Do we need to discount to reach the deal-prone buyer?

https://sponsors.marketingscience.info/reports/we-still-all-like-a-good-deal-do-brands-need-to-discount-in-order-to-reach-the-deal-prone-segment/

Recession pricing

https://sponsors.marketingscience.info/reports/recession-2020-what-can-we-expect-from-consumers-revisiting-the-2008-09-global-financial-crisis/

Yours and competitor’s pricing

https://sponsors.marketingscience.info/reports/how-your-competitors-prices-affects-how-consumers-react-to-your-price-changes/

JD

21 November 2024

We are witnessing shoppers trading out of the middle price-tiers of a consumable category. Both higher and lower priced (equivalized) offerings are growing while the middle is flat to declining ($’s/Units). I would like to determine what would be all the casual factors to consider beyond consumers defining value by lowest price versus more features/benefits. Are there any case studies or content that exists currently that might touch on this subject?

We have noticed this kind of pattern in various bits and pieces of data over the years and other CPG marketers have mentioned something similar happening in their markets.There isn’t a consolidated piece of content or report on it, however, we think it could be due to a few different factors.

One is that store brands, which are typically cheaper than national brands, continue to steadily gain share. So, that is squeezing the price tiers above. As well as that, high inflation / higher prices overall could plausibly induce a little bit of trading down, shoppers looking for cheaper options be it store brand or cheaper national brands. But then at the other end of the scale, we see trends towards premium-isation – some consumers (less affected by inflation, their incomes are solid) are willing to try higher-quality goods, different tastes or features. Manufacturers are wanting to get average price per oz. up and so are introducing really good new variants that are attractive to buyers.

So these factors are collectively pushing a bit more sales into the lower price tier as well as the premium tier. Not to say it’s happening in every category but these factors seem plausible.

J.D
15 Oct 2024

What factors, besides price matching, should we rely on to drive growth of a store? What should we focus on in our communications?

Price and Store Choice

Price will influence store choice/spending, and likely even more so in the current economic climate. However, you are correct that it’s not the only important factor that needs to be considered and communicated.

Prior research investigating store choice in a brick-and-mortar context has also identified convenience and product assortment (size of range + composition) as key drivers. Convenience, in particular, has even been found to be more important than price in some studies. This is likely in line with your observation that if there isn’t much difference between retailers in price, then other factors such as convenience play a larger role. Price may be a hygiene factor, rather than driving growth.

In the brick-and-mortar context, convenience includes aspects such as store distance from home and ease of getting a car park. This will be different online, but could possibly have convenience related to aspects like ease of use of website/app and delivery speed.

It is also important to remember that a lot of shopper behavior is habitual, with shoppers aiming to minimize effort and energy, along with the prices they pay. Consumers willingly trade-off between price, convenience, and assortment options all the time. This is why convenience stores with small ranges can be successful with higher prices, even though they compete against hypermarkets with lower prices (often in inconvenient locations).

The relative importance of different factors leading to store choice will vary between shoppers, and even for the same shopper over time. This is why focusing communications on only one element (i.e., price) can be limiting.

Mental Availability Best Practice

For best practice more broadly, I’ll draw your attention to the concept of Mental Availability. This is the brand’s propensity to be thought of in buying situations.

Mental Availability explains fundamental patterns in buyer behaviour and brand performance. Most successful advertising works by nudging this Mental Availability rather than persuading consumers’ opinions or perceptions about the brand.

Mental Availability requires both breadth (how many) and strength (how strong) of the links in consumers’ minds between the brand and Category Entry Points (CEPs) (i.e., cues leading consumers enter the category). To grow, brands must build wider and fresher networks of CEPs in consumers’ minds.

Only focusing marketing communications on building and refreshing one category entry point (e.g., ‘for when I’m seeking low prices’) potentially misses all other CEPs that may lead people to enter the category (e.g., ‘for a small fill-in trip’, ‘for when I’m looking for higher quality products’, ‘for when I need grocery items quickly’, etc.).

It is recommended that different executions employ different CEPs over time to build the depth and breadth of associations needed for Mental Availability. We recently released a study on this topic that further emphasises the need for wider and fresher networks rather than trying to ‘own’ a CEP.
Report 124: Category Entry Points, To Own or not to Own: Is that the question?

S.D. and E.R.
22 May 2024

Do you have any evidence-based recommendation for the best possible phasing for a price increase?
If we are to go into quite aggressive pricing, what makes more sense – do it all at once, aggressive first and then smooth it out, or slow first and then be more aggressive? Purpose is obviously to mitigate the volume impact. I appreciate that it depends on how competition will play too.

The options are basically, ‘go hard’ initially with a full price rise; or phase and use two smaller price increases, say, several months apart.

Bear in mind, most buyers are light/infrequent, so a lot of them won’t notice the first (small) increase, because they are not buying the category between the first and second increase – assuming the second one happens 3-6 months after the first – most buyers will only notice the cumulative effect of both increases (when they eventually enter the market).

There is an argument that small price increases aren’t very noticeable to consumers, (referred to as ‘threshold of tolerance effects’) and so there is some logic that two smaller price increases might not be noticed. However, this assumes that everyone buys at the same rate, whereas most buyers won’t notice either a small initial increase, but probably would notice the cumulative effect of the first and second increase. But then, small price increases still pose the problem that the goal of recovering lost margin from cost rises is not accomplished.

One needs to factor in the possible pain of negotiating two price increases with retailer partners compared to one – this favours the single large price increase (or possibly, negotiate one for now and one for 3-6 months time).

A market leader is in a better position to do the price rise all at once, because smaller competitors (also under cost pressure) will look to the leaders to go first, so they can follow. This favours a single, larger price increase. If competitors have increased already, then this definitely favours a single large increase; whereas if competitors are reluctant to increase, this suggests the lower-risk, phased approach.

One thing to consider is to try to avoid passing the prices of top-selling competitors (if for example you have a top seller that is presently under the price of a big competitor, try to avoid going from under its price to above its price, we found this was a major factor in reduced sales from price rise). This in particular may be the role of phased increases: to avoid passing top-seller competitor’s prices.

J.D.
14 May 2024

How to determine the price ceiling for our product?

When it comes to understanding responses to price changes, we don’t have category-specific benchmarks. However, we do have some generalisable patterns that have been observed across different categories and studies.

First, for brand characteristics, we see:

• Larger price elasticities for smaller market share brands.
• Larger price elasticities for brands in categories that are considered more ‘storable’ (as opposed to ‘perishable’).

Then, we also see that the price changes for a brand to be dependent upon the competitive context (i.e., prices of other brands available). The largest effects we see are when a brand passes the price of a competitor brands, especially large market leaders. This means that a small price increase then moves the product to become more expensive that key competitors may lead to larger volume losses than a larger price increase that maintains the overall price position within the market. Depending on competing brands/prices available, the ‘ceiling’ for the product may differ across retailers and regions.

Accordingly, we will also likely see differences between categories based upon overall price dispersion between brands (e.g., do brands have similar prices or are these quite spread out between price tiers). That is, if brands have relatively similar prices within the yellow fats category, you may see more switching between brands in accordance with price increases. This is because any price change will likely have a greater impact on the price ranks within the competitive context.

More details around price changes and competitive context can be found in the following report:
Report 91: How your competitors’ prices affect how consumers react to your price changes.

S.D.
1 March 2024

Can we price a multipack higher in terms of price/kg than a multi-serve pack?

There is likely to be some level of price-based competition between multipack and multi-serve packs. However, the degree to which you can charge different price/kg for multipack and multi-serve packs will again be category and context dependent. 

Key considerations will be norms for the category and competitor prices. For example, is it normal for competitors to have their multipacks priced below multi-serve packs. The extent of price-based competition between pack formats may also depend on the degree to which the packs are purchased by the same types of buyers across similar category entry points. 

S.D.
14 November 2023

How to approach entering a new price pack architecture (PPA) white space?

There should be a clear strategic reason when launching a product into a new price pack architecture (PPA) white space. For example, is it to attract new types of buyers, expand category coverage of category entry points, or enter new distribution channels?

When planning to enter a new PPA white space you should also look for learnings from other countries around the world and similar competitor categories. Is there evidence from other markets or categories of the this type of PPA being successful for your strategic intent? Or lessons that could be learnt from when it has not been successful?

Any new PPA launches will need sustained investment to build the Mental and Physical Availability of the new product(s). The buyers that will first notice and buy new products will likely be the heavier brand and category buyers. Success of new products will entail reaching beyond these buyers. 

S.D.
14 November 2023