Pricing in a recession: it's not just about the money

Discounting is tempting during recessions but it creates downward pressure on margins; in The WARC Guide, Fiona McAnena advises that setting a pricing strategy shouldn’t be only about cash.

This month, The WARC Guide looks at marketing in the COVID-19 recession, including the tricky subject of pricing, which, for many brands, may mean discounting in an attempt to keep customers buying, or, as the current crisis has demonstrated, exploiting shortages to raise prices. (Subscribers can read The WARC Guide to marketing in the COVID-19 recession in full here.)

Writing in The WARC Guide, McAnena, who runs marketing planning consultancy Clearhound, says fighting competitors on price to win market share of a shrinking market is not the only option, and warns that opportunistic price-gouging will be remembered

“This is a time to keep your head,” she says: “Price is where a brand says, this is what I’m worth, and a buyer says, I agree… or not.”

For fast moving consumer goods (FMCG) and mass market brands, this is not usually a negotiation. DTC brands, however, may have more room for manoeuvre, she suggests: “It’s easier to justify price, and to segment customers and treat them differently, but that comes with risks.

“In pursuit of revenue, discounting can be tempting, or even inadvertent. Even in good times, sales incentives, market pressures and wily customers can all create downward pressures on margins.”

The buyer side of the equation shifts in a recession and it may be natural to think prices must fall. “Make sure you’re in control of it,” McAnena urges. “First set your strategy. Then decide how to implement it.”

With this in mind, she offers four factors to consider:

• category

• brand

• segmentation

• timescale

In every case, she says, the key question is: how do you create value for your customers?

“Rethink what creates value, and whether that has changed over time, or because of the current climate. This could be for some customers, or for all of them.”

The WARC Guide is a compilation of fresh new research and expert guidance with WARC’s editorial teams in New York, London, Singapore and Shanghai pulling in the best new thinking globally. It also showcases the best on WARC – case studies, best practice and data sourced from across the platform.

Sourced from WARC