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Perspectives

Consumer pricing strategies to overcome blind spots

Capture true value with these pricing strategies

Rising costs. Changing behavior. New competitive dynamics. How do you achieve growth in this complex environment? Effective consumer pricing strategies are vital to retail and consumer products companies managing growth, but several “blind spots” can get in the way. Overcome these blind spots to drive top-line growth and adapt to consumer demands.

Today's changing consumer

Consumer behavior, price sensitivity, and perceptions of value have shifted both dramatically and unevenly over the past two years. Today’s consumers continue to adjust their spending habits to reflect new behaviors and preferences, many of which emerged over the past 24 months. These new trends require a reevaluation of consumer pricing strategies and market positioning—not only now but also as a continuous capability, given the highly dynamic macroeconomic, political, public health, and labor market environment. A few examples of the changing nature across today’s consumer include:

Overcoming blind spots in consumer pricing
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Consumers are increasing investments in their health, with 77% saying they intend to spend more to stay healthy.

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Consumers are reevaluating where they live and spend their money as they shift to “hybrid work.” In 2020, 82% of urban centers saw more people moving out than in, resulting in shifting demographics and a different mix of desired goods and services in departure and destination localities.

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The evolution of working and living situations are blurring usage occasions. As a result, electronics, furniture, appliance, toy, and hobby retailers all saw sales rise by more than 20% in Q3 2021 compared to the previous year.

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Different consumer cohorts have experienced changes (and continued uncertainty) in financial security and disposable income. From 2007–2017, income for the top 20% of Americans rose 1,305% more than the bottom 40%, and the COVID-19 pandemic has only exacerbated this trend.

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Consumers increasingly favor brands and products aligned with their values. Deloitte’s Purpose Premium study found that a price premium of up to 35% can be charged for sustainably marketed products.

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Consumers prefer engagement at an individual level and are willing to reward brands that can create such engagement. According to a recent Salesforce study, 84% of consumers say that being treated like a person, not a number, is very important to winning their business.


As these examples highlight, static assumptions about consumers may no longer hold true. Retail and consumer products companies with the ability to continuously refine their assumptions—and adapt their pricing, promotion, and market strategies to meet evolving consumer value perceptions—will be better positioned to capture top-line growth in the coming years.

Consumer pricing 'blind spots'

As retail and consumer-focused companies seek to adapt pricing strategies to the evolving consumer behaviors mentioned above, they are often hampered by three critical blind spots. These barriers limit the ability to be highly responsive, which is necessary in the current retail environment, and ultimately limit the full growth potential achievable through targeted pricing and promotion actions.
 

Figure 1. details outlined below

A clearer vision: Consumer pricing strategies to overcome blind spots

Consumer companies preparing to engage and win with today’s evolving consumers can capture the full value of pricing and promotions by addressing these three major blind spots. In doing so, they also have an opportunity to create a consumer-centric pricing capability focused on creating a holistic view of the consumer, evaluating willingness to pay with precision, and targeting at the localized and personalized level.

Conclusion

Consumer demand patterns have fundamentally shifted over the past 24 months—and will continue to evolve at an increasing pace. Consumers, now more than ever, are shifting spend to reflect heightened demand for a new mix of products, changing locations of consumption, diverging incomes, and abilities to pay—alongside preferences for brands aligning to their values and a desire for engagement on the individual level. Leading consumer-focused organizations who can identify these shifts and adjust their pricing strategies in response are well positioned to capture significant top-line value in the coming years. Organizations looking to capture such growth can develop the above core capabilities. When properly developed, we believe these capabilities provide an opportunity to create 2% to 5% of top-line growth while establishing the ability to adapt and respond to ongoing evolutions of consumer demand.

Acknowlegdements

Graham Burke
Consultant, Deloitte Consulting LLP
graburke@deloitte.com

Joel Sher
Analyst, Deloitte Consulting LLP
joesher@deloitte.com

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