Feb 23, 2022
3 Reasons to Make Pricing Research Part of Your Post-Pandemic Growth Strategy
As spring approaches the global economy finally has justification to look forward to a post-pandemic world. Consensus expectations are that the rest of 2022 and beyond will be a boom time based on high levels of cash reserves, gradual reduction in supply issues and pent-up consumer desire to get back to enjoying life. After two years of constraint and insularity and inflation, 2022 looks like the year of the Great Reset. For adroit businesses this represents the perfect time to assess the upper price point that consumers are willing to pay.
Here are three reasons why your enterprise should now utilize the latest in pricing research survey methods to maximize long term profits:
- Price points often fluctuate during a pandemic as consumer behaviours change (i.e. remote work) and macro issues such as inflation and supply, impact the decision matrix. Nothing impacts the bottom line more than a price increase…not higher sales, not cutting unit costs. According to a survey by McKinsey Consulting just a 3% price increase will on average boost the bottom line of a business by 24%. Think about that for a minute. Let’s say you sell a product for $45 and pricing research suggests unit volume will hold just as well at $49 (i.e. we call this a “price plateau”; that span on the X/Y unit volume, price axis, when unit volume holds steady in the face of higher unit prices ). That 9% price increase will grow net operating profit before tax by over 70%. Here is an example; your net operating margin (gross revenue minus cost of goods plus operating expenses) for your $45 product is 10%. By raising the price to $49 you have now increased your new operating margin (i.e. also known as Earnings Before Interest and Tax or EBIT) to over 17% due to the fact that virtually all of the new revenue generated by a price increase falls directly to the bottom line.
The best pricing research provides much more insight than determining the optimal price point customers are willing to pay. Above we talked about the importance of identifying unique price plateaus for your brand. Equally important is identifying the precise points for dastardly sharp volume abysses called “Price Walls”. Price walls are sharp cliffs where even the slightest price change can incur a 5–10% drop off in unit volume. Think of a price at $21 versus $20.
2. We don’t know the full reasoning behind price walls but we believe customers have a set price in their mind for what constitutes a reasonable value (i.e. we define value as quality divided by price) for an item and when that price point is breached, value oriented customers especially go in another direction. Obviously, a lot has changed in two years of Covid but now’s a great time to find out where the price walls are lurking for your brand and where the price plateaus are extending.
3. In a time of reset the biggest mistake is not selling too high but leaving significant sums on the table so to speak. Since a higher price suggests high quality and vice versa it’s prudent to explore the upper limits and deploy promotional discounts now and then if needed. But even this level of trial and error is no longer necessary with the significant technological advances in pricing research that have reduced costs and turnaround by as much as 80%. Additionally, the incorporation of AI in the science has significantly enhanced interpolation and in-field transferability of findings. Pricing research has become a prudent and pragmatic exercise for every brand champion especially in a dynamic period of change as the Great Reset.
Robert Tinterov
CEO Atenga Insights
