4 strategies to help brands grow against the trend

The global COVID-19 pandemic has been spreading for two or three years. Faced with the dual pressures of product supply chain issues and brand sustainable development, coupled with severe inflation and the continued rise in energy and raw material prices, brand owners are under attack from both sides.

In this case, how should brand owners plan for future growth? How can we use price leverage more intelligently and freely to ensure brand survival and activate future growth? Will price promotions definitely increase brand profit margins? This article comprehensively analyzes four pricing guidelines to help brand owners successfully survive the economic recession, accumulate strength in the crisis, and create business opportunities.

Key points

1. Basic reference for positioning the main product of the non-balanced crisis perception brand

2. Purchasing decisions guided by the evolutionary principle of status symbol vs. product function satisfaction

3. Crisis ≠ consumption stop The psychological and moral motivations behind consumption

4. The principle of fairness: the winning rule of brand product price leverage

In times of change and turmoil, as the cost of living continues to soar, how brands price their products becomes a crucial decision.

Should we offer price cuts to encourage users to continue consuming, allowing costs to continue to approach the bottom line but retaining a long-term loyal customer base? Or should you raise product prices and increase profit margins at the huge risk of losing customers? We may be able to find the answer by conducting a two-sided analysis of the brand's historical value and the value currently required by users.

1. The impact of the imbalanced crisis on the brand's main product positioning

The user or potential user groups of a brand are different from each other, so users' perception of the crisis effects is also uneven. Last month, the Joseph Rowntree Foundation said most households around the world faced bill increases of 40-70% from this year, but there would be wide variations.

Energy bills account for about 6% of the average middle-income household income, but account for 18% of low-income households. For single parents or couples without children, that figure rises to 25%. Among this group, low-income one-person households have spent 54% of their total household expenses on gas and electricity since March.

Therefore, pricing becomes an important operating lever. Brand owners must clearly know the 'lowest price' of their products. The so-called lowest price is the highest price that consumers are willing to pay for a product, or the lowest price that a brand owner can accept, as writer William Poundstone explained in his 2010 book "Priceless: The Myth of Value."

This also means that advertisers understand how much consumers are willing to pay for brand products during economic contraction. Is your brand a must-have brand that users need to consume continuously? Or is it a luxury product? Once you reach a consensus on this point, you’ll determine whether your brand is on the user’s must-have list or on the fringe.

2. Purchasing decisions guided by the evolutionary principle of status symbol vs. product function satisfaction

For consumers, what each brand can provide is somewhere between a status symbol and product functional satisfaction. Evolutionary psychologist Geoffrey Miller wrote in his book Spent: All purchasing decisions are based on evolutionary principles.

That is to say, there are basically two types of products. One type of product demonstrates the ideal qualities we want, and when others see that we have them, it will instantly give us a sense of identity. The second category of products appeals to our pleasurable senses, creating or continuing a sense of satisfaction even if others don’t know we own them.

Essentially, does your customer base buy your brand or service to please themselves or to please others? Is the product purchased a status symbol or does it have more of a functional application? If the brand is more in the commodity market, the brand owner must be clear about what higher prices can bring to customers?

In times of economic depression, people will not be fooled by the so-called benefits imagined by marketing departments. How do users feel about the brand’s products or services?

Business growth may be achieved, but only if there are real customer benefits, i.e. customers can actually perceive the difference. For example, when your brand of paper towels is compared with the strongest competitor’s products, users can clearly feel that they are getting good value for money.

Alternatively, if your brand is more focused on identity fulfillment, there are two options. First, make full use of the brand influence and product scarcity to raise prices. Like Veblen products, price increases will stimulate demand.

If a brand does fall into this category, then advertisers should understand that lowering prices may only stimulate demand initially, but this is only a short-term measure. A higher price means people need to keep buying your product or service to get the desired sense of status.

If you are lucky enough to have such a Veblen good, you also need to understand the elasticity of demand - at what price point your product transcends its symbolic value.

Continuous and rigorous testing of the market, preferably regionally, will help you understand the demand elasticity of your product, whether it is status- or function-focused.

3. The psychological and moral motivations behind crisis ≠ consumption stop

Over the past thousands of years, we have continuously strengthened our desire to consume and convey information through consumption. We will continue to find ways to demonstrate psychological and moral behavior to others, and no crisis will stop this.

Based on brand and business development, what you need to think deeply about is: how your mainstream customer groups start to act and what the broader market situation is like.

The following questions can be used as reference:

1. Are people more thrifty, as they were during the initial lockdown?

2. Where does the user’s free income go? And where does the reduced income go?

3. What specific changes have occurred in users’ search traffic for your brand in the past three to six months?
These questions will provide brand owners with a series of indicators to help them understand whether the way and path of product entry into the market needs to be changed and upgraded, as well as how to consider raising product prices and how to release price adjustment information.

To quote William Poundstone in his book Priceless: When people get used to a certain level of wealth or income, they will respond to expected changes in it.

For example, you would expect your wealthy uncle to give you £1,000 as a wedding present because he gives £1,000 gifts to all his nephews. But he only gave you a gift worth £25, and you immediately felt like you had lost £975 rather than gained £25.

If your brand is luxury, then the price increase is relative – you charge more because it’s tough right now for everyone, and so is business. However, if your product is just an ordinary functional commodity category with many similar competing products, the brand owner needs a particularly convincing reason for the price increase.

4. The winning rule of the price lever of the brand product of the principle of fairness

This is the most important principle about pricing. First, let’s take a look at the Vimes Boot Index, an index to measure poverty based on the character Sam Vimes in the book Men At Arms.

Let's explain it briefly:

Rich people are rich because they work hard to control their spending.

Taking boots as an example, Vimes made $38 a month plus subsidies, but a pair of really good leather boots cost $50. If you buy affordable boots, you can wear them for a season or two, but the leather will crack after that, and it will cost $10 to repair.

Vimes always bought such boots, and when the soles were worn out severely, he could even judge the road conditions by feel alone with his eyes closed.

But a good pair of leather boots will last for many years. A user who can afford $50 buys a good pair of leather boots that he can wear comfortably for the next ten years. During the same period of time, people who can only afford cheap leather boots will spend hundreds of dollars on boots, but the product experience will always be terrible.

Deep down, users know that prices must and will rise, but they cannot accept the increase at certain times.

By analyzing and researching brand users, brand owners can begin to understand the meaning of fairness and the amount users are willing to pay for the brand's products and services. If the brand's products can be like Veblen Good, or if there are more products that meet the needs and are both high-quality and low-priced, then the brand may truly achieve growth.

Takeaways
When brand pricing is in crisis, advertisers should be fully aware of the following four important principles:

① People’s perception of the impact of the crisis is uneven: this perception depends on the customers they serve and the products they sell. Some brands may take more drastic action than others.

② For users, what each brand can bring is between a symbol of status and product satisfaction: brands are not naturally equal, and some brands are selling a symbol of status, so the impact of price increases on users is very small and can be basically ignored. For other brands, the products are functional, so even a small price increase can have a significant impact on product margins.

③ No crisis will stop consumers from consuming. Sensitive brand owners will focus on changes in user consumption behavior to guide brand behavior in reverse from the terminal.

④ Transparency principle – In an age with such advanced information, users can easily discover the reasons behind a brand’s price increase, and some users may even sympathize with the inevitable price increase. However, if the price increase is not warned, is unauthorized, or is purely a speculative profit-making behavior, users are likely to be disgusted, especially when competing companies do not raise prices at the same time.

Through objective and rational pricing strategies, brands can not only ensure brand survival and activate future growth, but also convey a softer and warmer side to consumers.

In the years when the epidemic raged, global businesses have been struggling forward amid numerous difficulties, and ordinary consumers have felt the pressure of economic recession deeply. Using pricing strategies in a more inclusive and empathetic manner should not only be a temporary measure for brand owners in difficult times, but also a long-term strategy that should be paid attention to and considered in the brand's future strategy.