NEW YEAR, NEW PRICES?
Three lessons behavioural science can teach brands rising prices in 2023
At the end of 2022, I attended the Women in Ecommerce UK Christmas bash and the pleasure of discussing the latest industry trends, and their implications, with an incredible group of women.
One key stat debated stood out for me: 91 percent of UK retailers say that the need to pass on price hikes provides a significant risk to their business.
I’ve heard something similar only a few weeks before. In eConsultancy Live’s recent ‘Marketing and the cost-of-living crisis’ roundtable, a number of brand representatives highlighted that while they had held off from increasing their prices in 2022, the cost of doing business has risen to the extent that they had no choice but do so in the New Year.
I’m not surprised that marketers are nervous. With Britons experiencing the worst squeeze on incomes in a generation, Citizens Advice has said its 250 local offices have experienced record demand for support this year. It doesn’t feel like there are many more increases households can take.
There are plenty of examples of how not to raise prices. In 2015, for example, US-based Turing Pharmaceuticals sparked outrage by raising the price of Daraprim by more than 5,000 percent – turning the company’s CEO, Martin Shkreli, into “the most hated man in America”. Those who needed Daraprim felt exploited and Shkreli eventually resigned.
While I’m not suggesting brands rising prices are looking to be exploitative – it is evident that for many, this is the only course of action that will allow their businesses to survive – there are still reputational risks.
So how can brands communicate price increases sensitively? Zac Posada-Baynham, Head of Behavioural Science, explained to me that it’s not just the price itself that matters, but how it feels.
Here are three key psychological insights Zac highlights that brands can utilise to make their rises feel just that little bit more palatable:
1. REMOVE UNCERTAINTY
Remember the last time you waited on a freezing platform with no idea whether your ‘delayed’ train would arrive in two minutes or two hours? Not knowing is painful.
As behaviour change guru Rory Sutherland notes, the real innovation made by Uber was not technological, but psychological. By tracking drivers visually on the map, the anxiety of waiting was removed.
Likewise, as economic uncertainty increases, brands should consider how they can provide price certainty – whether that’s by setting timelines for increases, confirming fixed rates, or providing tools to help shoppers keep within budget.
2. TRANSPARENCY INCREASES TRUST
As individuals we are quick to find reasonable justifications for our own behaviour, but we don’t give others, especially brands, the same leniency. If I raise prices, it’s to cover my energy bills. But if a brand rises prices, it’s to profit off my misfortune.
This ‘attribution bias’ is strongest when people perceive brands to have more internal control over price rises, and ‘fairness’ backlash is strongest from those strongest from those most dependent on the product (think Daraprim).
So don’t let your loyal communities fill in the blanks. Be upfront. It’s not “price adjustments”, it’s “price increases”. In other words, call a spade a spade.
3. CREATE NEW SOURCES OF VALUE
People don’t judge prices in isolation, but in comparison to a particular choice set.
Nespresso capsules are expensive relative to instant coffee, but cheap when compared with artisan barista coffee made at your local coffee house. A huge box of popcorn looks much more reasonable when placed next to an even bigger box for 50p more. ‘Own-brand’ labels feel more discounted.
When changing the price, consider strengthening the psychological value of your product. Provide new product ‘bundles’ or experiences, support social causes, and help your buyers create more meaning. After all, ‘Châteaux’ your (now even dearer) Christmas red originates, quite literally improves the taste.
Taking the decision to raise prices is never easy. However, considering these three elements when doing so will provide opportunities to distinguish your brand from its competitors and drive long-term loyalty.
How do you outrun the inflationary bear this Christmas? Don’t run faster than the brand next to you. Run smarter.