The effects of the Asian recession are predicted to linger long after this initial hit. Pre-COVID levels of GDP are not expected to rebound until late 2021. Amidst the uncertainty, you may be wondering:
Should I conduct pricing or portfolio research now? Can I rely on study results in this rapidly evolving market?
Today the challenge lies in balancing pressing tactical decisions and long-term strategic ones. To inform all these decisions, assumptions are being made about if, and when, consumer behaviour will return to pre-COVID norms. These assumptions could be based on pre-COVID insights (experience), but especially now, old assumptions need to be reverified by multiple data sources where possible.
Strive for data-driven decision-making
Run ‘what’ if and competitive scenarios and overlay these with as many data sources as possible. A wide dataset, such as sales data, brand trackers, marketing mix models, expert views, and consumer insights, will help you make the best pricing and portfolio decisions.
Emerging from the initial shock of COVID-19, consumer purchasing habits have been disrupted, be it temporarily or permanently. Sales data alone is also less reliable for forecasting models, thanks to activities such as hoarding and disrupted shopping frequencies. More than ever, we operate outside of known parameters and thus face more uncertainty.
Under normal circumstances, trended sales data combined with information on promo pressure can give robust indications of what to expect when making changes in store or online. Even when going outside of known parameters, we can supplement data with research among shoppers to understand how they would react to triggers such as an innovation, new promotions, or new prices.
3 tips for making pricing decisions for the ‘new normal’
Below are recommendations for how you can tackle pricing decisions now:
- Collect information from a variety of ‘experts’
Different external, secondary sources can inform the pricing scenarios you are considering. Publications from consultancy houses, trade organisations, and industry experts are good starting points.
- Zoom in on unexplained model variations
Determine which variations in your models you can explain and dig deeper into unexplained variations. Consider reaching out to your shoppers directly to get a better understanding, whether qualitatively or quantitatively. You can keep it as simple as doing interviews with a few customers or set up more extensive research.
- Keep feeding your scenarios with data
Before COVID-19, one could safely base decisions on sales data supplemented with a single piece of pricing research to fill in the knowledge gaps. But as consumer preferences continue to shift, the shelf life of old pricing research is changing. Consumption rates and ‘willingness to pay’ for certain products and services can change from one day to the next depending on lockdown restrictions, travel bans, news, and economic conditions.
While it may be tempting to completely avoid investing in primary research right now, new research can reveal valuable and critical insights that are useful in the current environment. For example, the combination of increased home-bound consumption and widespread economic insecurity has big implications for manufacturers (e.g. offering the right SKUs, pack sizes to fit changing needs).
Key takeaway for pricing and insights professionals
Sound research and data are critical to inform pricing decisions in the short and long term, especially in times of disruption. Now, more than ever, brands that are maintaining a competitive edge have adopted an agile approach to pricing research. They recognise that relying on a robust pricing model with a validity of perhaps less than three months is not sustainable. Instead, they have shifted their insights strategy to keep a finger on the pulse of consumer behaviour now and in the coming months.
On this last point, it seems a tough decision to warrant investment in pricing or portfolio research. Results from a pricing re-run of 8 large CPG pricing studies in December within the US and Europe give us confidence that outcomes are consistent. We learned that consumer preferences and purchase behaviours remained similar from the end of 2019 to March and April of this year. Although our research for this particular study shows that COVID-19 had minimal impact, it doesn’t mean the same results will occur for a different product or brand.
By comparing the same conjoint analysis during COVID-19, and in three and nine months’ time, these businesses will be able to track any changes and adapt their pricing strategy in a dynamic and uncertain market. This effective and efficient approach will also better equip them for tough retailer negotiations during the recession, because “retailers are likely to want to reevaluate their category vision and assortment” (McKinsey, April 2020).
Just as we have personally adapted to the disrupted life with and beyond COVID-19, our answers to these pricing questions will determine our business direction in the next crucial years.