Even the most consumer-focused marketers will be tempted, or pushed, to get people to pay more for less this year. Pricing will be a major issue, as cost increases caused by the weak pound feed through. How should marketers express the voice of the consumer inside the business in the face of this pressure? Being consumer-focused doesn’t mean defending low prices at all costs. The key thing is, whatever approach you take, brand champions must ensure there’s no long term damage. That means getting credit for honesty, and keeping the essential nature of your brand and product.

There are three options to protect margins.

  1. Make it smaller. But don’t expect to get away with it. Recent casualties: Mr Kipling and Toblerone. It’s easier with categories like cereals, crisps, dry petfood, where the contents aren’t counted, and don’t have to fit the pack precisely. Someone always spots it though, and it never goes down well. I suspect the Toblerone move is driven by extreme pragmatism – downsizing the product without changing the pack dimensions, which would affect packaging, production lines, maybe distribution. The trouble is that it has changed the consumer experience for the worse. The internal voices of operations and finance seem to have trumped the voice of the consumer, creating not just a value problem but a change of product experience. Mr Kipling’s taking some media flack, but the chocolate slices are the same, just one less in the pack, as stated on the box. Sometimes the hidden price increase is a sensible option that minimises other costs. Be open about it. You won’t be alone this year, but if feels like a con if you don’t front it up.
  1. Make it cheaper. Adjust recipes and formulas, put pressure on suppliers, find cheaper suppliers or cheaper ingredients. Sophisticated businesses do this anyway, so more gains are not easy to find. The more you know what really delivers the brand experience, the better chance of saving money without delivering less than the brand promises. Be careful of unintended consequences – for example, replacing a good quality food ingredient with something that makes the product less healthy, in consumers’ eyes. Or the salami-slicing effect of changing the product little by little over time. Eventually it just won’t be as good as it used to be. Remember the Pizza Express “shrinking pizza” controversy of 2002? It was never fully resolved, but at least the pizzas got bigger; appetite, if not curiosity, was satisfied.
  1. Put the price up. This is going to happen a lot this year. Unilever got pushed back on Marmite by Tesco, who saw an opportunity to act as a consumer champion – but you can bet Tesco wasn’t sharing the pain of increased costs. Short term revenue may suffer, especially if competitors don’t follow. But it is honest, and people will understand why it’s happening. It has the virtue of maintaining both brand and product integrity, and won’t damage trust.

There is a fourth option, which is to suck it up. Don’t mess with the product or the price. Protect the consumer experience and value for money, not your margins. It’s not an option for everyone. Absorbing higher costs will hit the business in its pocket. But if competitors are messing about with an eye on the short term, as above, your brand could be the winner, in volume in the near term and loyalty in the longer term. Companies with a portfolio may hedge their bets with a range of responses across different brands. It’s a real test of short term vs long term orientation.

What about businesses where the pricing is not transparent – services, such as insurance, or anything subscription-based? The temptation there is to try to hold the line, and give in with secret discounts only to customers who threaten to leave. We all know this goes on – motor insurance, roadside rescue and pay TV services are notorious for it. It’s good for short term revenue, but can cause harm when it gets out. It also changes the customer interaction from a potential relationship to a game of cat and mouse. It’s an option, but don’t talk about loyalty or brand love.

Brands are supposed to help people make choices. If your brand takes advantage of the customers who trust it, or if it requires a lot of customer effort to get a fair deal, it may be time to think again. You have options. Just check you’re not messing up the customer experience through an inferior product or undermining their trust.

People scoffed when ticket inspectors on the train became revenue protection officers. But it’s honest. As you make difficult calls this year, make sure you’re still a brand manager and not just a revenue protection officer.

Thought leadership | January 2017