Upload
incite
View
73
Download
0
Tags:
Embed Size (px)
Citation preview
The Price is Right
When thinking about researching price, it’s important to understand the category in which your brand plays. Sounds obvious doesn’t it? But different categories not only have very different pricing dynamics but also very different consumer motivations and behaviours. These make some categories very ‘price elastic’ (small variations in price lead to large variations in demand) and other categories much less price elastic (brands can increase price with little impact on demand).
Where are different categories on our pricing map?
We have identified two key determinants of price sensitivity:
1. Brand differentiation. If brand propositions are very similar, consumers are happy to substitute one with another purely based on price. There is less willingness to do this if brand propositions are very different
2. Ease of being able to switch between brands. There may be functional barriers to switching between brands, for example changing a utility supplier takes effort or you may be tied into a particular smartphone ‘ecosystem’. There can also be emotional barriers to switching, such as if you trust a particular brand of infant pain killers because you have used them since your child was small
Differentiation between brandsEasy to substitute Difficult to substitute
No barriers
Easy
Hard
Low High
Elastic
InelasticSubstantial barriers
Own label meat Lager
Toilet paper
Salty snacksLaundry
Basic phone
Spirits
(grocery) Luxury brands
Executive carsFamily cars
Home Wi-Fi/ TV
Smartphones
Lottery ticketsChild
analgesics Newspapers
Insurance
Bank current accounts /Insurance
Utilities (gas, electricity)
Ease of switching
Soft drinks
We can identify four category pricing typologies in which consumer motivations and behaviours vary markedly
The four types of typology:Price and Promotion Prompted – this is classic FMCG territory where brand engagement is low and consumers will happily substitute brands if the price or promotion is right. Typically there are high repertoire, high frequency staple categories where price is highly visible at point of purchase
Disengaged Inertia – often low interest, infrequently purchased but essential categories, where brand offers are similar, pricing is not transparent (think gas and electricity tariffs…) and switching requires effort. Aggregators play in this space as they enable price comparison and lower the barriers to switching
Desirable Premium – here brand desirability reduces price sensitivity and choice may be limited or exclusive. Purchasing is discretionary and irregular. In some cases higher price actually helps define quality and prestige
Emotional Captivity – the consumer may feel obligated to stay with certain brands because they are tied in emotionally and/or there is little alternative available…buying lottery tickets with regular numbers or long-term devotees of a newspaper or those with a magazine subscription. Price visibility can be low.
Differentiation between brands
Easy
Hard
Low High
Ease of switching
Price and Promotion Prompted
“All about the deal”
Low engagement
Lots of choice
Disengaged Inertia
“Can’t be bothered”
Very low engagement
Complex/obscure choices
Desirable Premium
“Got to have it”
High engagement/ trend and socially driven
Emotional Captivity
“Can’t do without it”
Trust and security
Personal connection
Easy to substitute Difficult to substitute
No barriers
Substantial barriers
Behavioural biases over-index in different typologies
These typologies link to behavioural biases: Price and Promotion Prompted – obviously incentive is key (“what’s in it for me?”) and these categories typically display strong price framing and anchoring (so brand x sits in the frozen fixture where prices are easy to compare to brand y)
Disengaged Inertia – the effort required to change a service may discourage switching and the consumer may worry about whether they can manage the process (“will all my direct debits move if I change bank account?”)
Desirable Premium – consumers are affected by social acceptability (“it’s the ‘must have’ accessory this summer!”) and by the context of seeing the brand (“it’s a car driven by a celebrity I like”)
Emotional Captivity – the concern about what is being given up can outweigh the negative of a price increase (“but I will lose all my apps if I switch from my iPhone to a Samsung!”)
In both the last two typologies the emotional response (Affect bias) plays a substantial role, for example “I like shoes and when I’m buying them I’m less bothered by price than when buying groceries.”
Differentiation between brands
Easy
Hard
Low High
Ease of switching
Price and Promotion Prompted
Incentive
Disengaged Inertia
Self Efficacy
Desirable Premium
Social norms
Emotional Captivity
Loss aversion
Human behaviour
Cul
tura
lIn
fluen
ce
s
Environmental
Cues
Making ToolsPersonal Decision-
Framing
Anchoring
Effort
Default
Messenger
Aff
ect
Easy to substitute Difficult to substitute
No barriers
Substantial barriers
Growing brand value and reducing price sensitivity
Reducing price sensitivity will generally grow brand value. Increasing equity and distinctiveness pushes a brand to the right. Building an emotional connection can increase your ‘stickiness’ with customers, pushing the brand down the map. Often low engagement brands with relatively undifferentiated products spend a lot to build their brand equity so people have an emotional connection. Aggregators want to take the same brands in low engagement categories (like current bank accounts, credit cards, insurance) and force price comparison and make the switching easier.
At Incite we use this category pricing model to make our research more powerful.
By understanding the consumer motivations and behavioural biases we can provide an accurate picture of the role that price plays in your category and predict how your brand will respond to price changes.
If you are interested in finding out more, please contact Jules Berry on +44 (0)20 7438 4982 or e-mail [email protected]
Differentiation between brands
Easy
Hard
Low High
Ease of switching
Price and Promotion Prompted
Disengaged Inertia
Desirable Premium
Emotional Captivity
Increase brand equity/increase distinctiveness
Increase emotional connection
Aggregators want to disrupt barriers
Easy to substitute Difficult to substitute
No barriers
Substantial barriers