Can marketing overcome price hikes and shrinkflation?

Procter & Gamble Co. Chief Executive Officer Jon Moeller said the maker of household goods needs to sharpen its marketing message to consumers amid worsening economic conditions.“We need to be even more deliberate on communication of the value that our brands provide consumers,” CEO Moeller said at an online P&G event on Wednesday. Ha? Simply raising prices amid inflation has the potential to hurt customer relationships.

Procter & Gamble’s fiscal third-quarter earnings and revenue topped Wall Street’s estimates as price hikes and productivity savings have helped offset some of the impact on P&G’s margins. As more consumers look for ways to reduce their shopping costs will a new marketing message really help?

I like to watch consumers shop while I’m in the market. I have observed firsthand people comparing all kinds of products from detergent to pasta. I also stay in contact with brokers who represent CPG brands to grocery chains and they are seeing a trend that scares them; reduced orders and SKU realignment.

Can marketing overcome higher prices when then the parent company is reporting higher profits and reducing product sizes? I don’t think so.

First, let me be clear; some brands have brand equity so strong they can get away with raising prices. Consumers, for example, may like a certain brand of frozen pizza and may stay with the brand because they like it and it’s still cheaper than ordering in. However, when it comes to detergent people may be willing to switch as prices get higher. As one customer said “they all clean but which one is better for the money?”.

Great marketing can do a lot for your brand but in this age of information at our fingertips, it can’t hide the fact that your brand is making a lot of money while raising prices.

It’s true that value is more than price point. Value is what the customer receives relative to the costs. Customers have a value equation in their heads. A customer-perceived value equation is based on

1) how the customer perceives the brand’s total experience (defined as functional, emotional, and social benefits) relative to

2) how the customer perceives the brand’s costs (defined as money, time, and effort). Trust plays a critical role in the customer-perceived value equation as well.

Trust acts as a multiplier when customers take mental assessments of a brand’s worth. If a brand has little or no trust, then there is little or no brand value. Earning trust today is not just one marketing message or tactic it’s transparency and openness.

McKinsey says “companies that consistently address total customer and product profitability are likely to weather inflationary cycles better than those that focus solely on cost changes, which can limit the size and frequency of their price increases. These companies typically embed a pocket-price-waterfall approach in their pricing and revenue-management strategies. This can help them to accurately assess revenue retrieved from every transaction, limit unnecessary erosion, and maintain a disciplined, value-based margin level. So equipped, companies can maintain margins proactively through inflationary cycles rather than chase the market.”

Best-in-class companies typically ground their price-increase recommendations in analytics that examine their customers’ end-to-end profitability, their willingness to pay relative to a comparable peer set, and the margin performance at a product and service level expected from the price chang

McKinsey

There are a lot of articles about increasing pricing but what they don’t take into account is that today consumers are generally angry and have a high level of mistrust. If P&G reports profits that exceed expectations how can they justify price increases to loyal customers and can marketing develop a message that will overcome that mistrust?

Consumer companies across the board have gotten very savvy about how to implement price increases without just slapping on five to 10% price increases. Some of those methods include using new packaging, selling smaller-size packs for the same price, or offering promotions that bring the price down until consumers are used to the higher sticker price. Hedging positions may also give some manufacturers, like Coke and Pepsi, more flexibility to raise their prices gradually because they won’t feel the impact of higher commodity costs for several quarters.

Ford Motor Company’s 2020 Trends Report indicates that consumers worldwide are becoming increasingly skeptical of brands. More than three-quarters of respondents from the U.S. (77%), the U.K. (79%), and Spain (79%) report this growing mistrust. On top of that, 67% of adults say that once a brand loses its trust, there’s no gaining it back. That same group most likely represents the 40% of consumers who have tried to dissuade friends and family from doing business with companies they dislike. Considering 93% of consumers prefer brands recommended by friends and family, it’s apparent that gaining consumer trust is a high priority.

Can P&G develop a marketing strategy to offset rising prices? I’m not sure, but their CMO will have his hands whole trying.

Can marketing overcome price hikes and shrinkflation?

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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