Times are tough. Does that mean you should start cutting prices?
The UK’s unemployment rate is at its highest in two years. Consumer confidence is at its lowest since 2008. The Office for Budget Responsibility’s most pessimistic forecast for 2021 is that there could be four million people looking for work. Others will have working hours cut and many won’t see a Christmas bonus this year.
As you might expect the big supermarkets are cutting prices. At times like this people have less money, so surely the way to keep people spending with you is to lower prices right?
But the problem with price promotions is that that generally, they aren’t profitable, and lowering prices in themselves may not win you new customers.
If, like most of the supermarkets, low prices is key to what you offer your customers then you will probably need to focus more on promotions to stay competitive. Or, if your brand is new to the market, or you are selling an impulsive, indulgent product like chocolate that people can actually consume more of then a price promotion might be the right thing. Otherwise you will probably just be rewarding people who would have bought anyway or encouraging people to stock up.
But lower prices are what people want. Right?
Well, that’s what your people will tell you. YouGov data shows that 70% of mainstream shoppers say they look for the lowest prices when they go shopping. Even 65% of people who shop at Waitrose, M&S, Booths and Ocado say they look for low prices. Is price the real reason someone chooses to buy food at M&S?
What about looking at things another way?
The possibility of four million people being out of work is devastating. Whatever the actual number there will be more people struggling financially; food banks are seeing high demand. Most people though will still have a job.
Thankfully most of us will have about the same amount of money coming in for the next 12 months as we did last year. The difference is that the future now feels uncertain. So, because people behave illogically and make decisions based on feelings, not on analysing statistics, our reaction is to hold on to our money just in case.
The real problem for brands during a recession isn’t that everyone has less money, it’s that they don’t have the confidence to spend it.
To win new customers, whether you lower prices or not, you must make them feel that it’s OK to spend their money.
People want to feel they are getting value for money: “That the decision to buy was a sensible one”. So rather than people becoming more price sensitive, we need to think about them being more value sensitive.
So, if you want to Punch Above Your Weight and thrive in a recession you need to understand how people really decide if something offers good value or not.
As with all human decisions it comes down to context. What people experience before, during or after a purchase influences whether they perceive a brand as providing good value.
There are lots of ways you can influence your customers’ context and so their perception of value. Changing which other brands your customers will judge your price against. Using precise rather than round prices. Revealing the effort that has gone into to producing your product. Or perhaps introducing a more expensive product to your range in order to sell more of an existing item. Even changing how people pay for your product has an impact on value perception.
For example, if your brand’s products cost a few hundred pounds or more, how is the price expressed? As the full amount? Or the cost per month, week or even per use? Breaking the price down to a smaller amount increases people’s perception of value, and we’re not really inclined to add the cost back up to the total.
If you can’t change the context around your price to increase value perception, instead of lowering prices, you could remove the risk for your customers. During the last recession Hyundai gained market share and increased revenue by allowing customers in the USA who lost their jobs to return their cars.
Marketing is about providing something that your customers’ value. To win during a recession you need to give them more value than ever before.
We’d love to work with you to unlock the value in your brand. Feel free to get in touch with us to find out how we can help.