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The best pricing strategies to retain consumer loyalty

30 May 2023

Amidst the uncertainty of inflation and rising costs, a pricing strategy that factors in a degree of elasticity is key to retaining a loyal customer base – as well as keeping track of your competitors’ prices, according to Nielsen IQ.

That’s the key conclusion of research by consumer packaged goods (CPG) market research firm Nielsen IQ, which details a series of different pricing strategies that are applicable to inflation-sensitive products such as food and agricultural goods.

The best pricing strategies to retain consumer loyalty

First determine your product’s elasticity

According to the article’s authors, price elasticity measures how a price change affects the purchase of a product. The more elastic a product is, the more likely customers will find alternatives when prices rise.

Conversely, the more inelastic a product, the less likely shoppers are to purchase alternatives when prices rise.

“If you’re the new guy on the block, and need to know your elasticity, first understand your category elasticity,” the article says.

“Then, if you have not changed the price of your product and don’t have that data, you could measure a close competitor’s elasticity. Otherwise, determining elasticity and optimal pricing is a process of trial and error.”

Formulating a pricing strategy in the face of rising prices

Neilsen IQ details the key points to consider in formulating a pricing strategy in preparation for a series of scenarios, where competitors increase their prices.

These include a plan of action if competitors increase their prices first; if the competitor hesitates to make the first move; if they follow suit with price increases, or if the competitor prices even lower.

“In the scenario that your product’s elasticity allows for a higher increase than your competition, consider carefully opting to go for your product’s maximum,” the article suggests.

Credit: © AdobeStock/jovannig© AdobeStock/jovannig

“If matching your competitor’s pricing affects your revenue stream enough to cover rising costs in time, that would be the favourable approach.”

The article also suggests sticking to a product’s scoring if a competitor has increased their price points beyond your product’s elasticity measure.

“In this case, you give your competitor’s customers a new advantage in choosing your product and you avoid losing the market share you worked hard to gain,” the authors add.

Good value for money

The issue is particularly pertinent to food manufacturers worldwide, who have had to contend with rising prices of raw materials, energy costs, and poor harvests.

To compensate, many businesses have passed on these costs to consumers, in the knowledge that they may seek out cheaper alternatives.

The study shows that consumers worldwide clearly focus on affordability in the high inflation climate with 95% of Brazilians saying that all brands, whether large or small, are more likely to be considered for purchase if they were proven to be “good value for money.”

Credit: © AdobeStock/Praewphan© AdobeStock/Praewphan

The same proved to be a high priority for respondents in Mexico (96%), South Africa (97%), Australia (95%), Indonesia (97%), China (92%), South Korea (89%), and India (92%).

Affordability is not the only factor

But the study also reveals that affordability alone is not necessarily the main concern for all consumers with the brand quality compared to competitors along with meeting specific dietary or health needs is a priority concern.

This is true in Saudi Arabia (88%), the UAE (90%), China (94%), and South Korea (90%). Similarly, consumers in Brazil focus on a product meeting specific dietary or health needs (94%).

“Brand loyalty is at an all-time low, and shoppers will go the extra mile to find the product that works best for them,” said the article’s authors of the study

“Here lies an opportunity to have a new look at what a portfolio and individual products can offer more — in short, a chance to innovate.”

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