Bakers Journal

Features Business and Operations
Fresh trends: Winning the price war


February 18, 2009
By Michelle Brisebois

Topics

Depending on which economic guru you follow, we’re in a recession
ranging from mildly inconvenient to epically catastrophic. Much like
the Whos down in Whoville, we’ve awakened to discover that all of our
lovely “things” are missing and all that’s left is what “really
matters.”

We should resist the temptation to lower prices – and learn to appropriately raise them – in a recession

trends 

Depending on which economic guru you follow, we’re in a recession ranging from mildly inconvenient to epically catastrophic. Much like the Whos down in Whoville, we’ve awakened to discover that all of our lovely “things” are missing and all that’s left is what “really matters.”

It’s times like these that shine a spotlight on prices. “Frugal is the new black” screams one headline, while clipping coupons becomes a nice way to bond with the family on a Friday night. It’s a no-brainer, right? Times are tough so businesses need to lower their prices. The answer may not be as straightforward as that. In fact, now may be the perfect time to take prices up – if you do it strategically.

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Simply lowering prices may seem like the only option, but proceed with caution. Once a price is lowered it takes time to raise it again when the economy recovers. Make no mistake – the economy will recover and when it does you’ll be in better shape if your margins haven’t been compromised. Begin by thoroughly assessing your brand value. This understanding will give you greater control over and confidence in your pricing. If you have a convenient location or signature menu items, it stands to reason that consumers won’t automatically choose to go somewhere else just because their prices are a few cents lower.
Look at your product line. Have you filled all of the gaps? Do you have “good, better, best” options at all price points? If you have a strong staple like French bread priced competitively as well as more upscale focaccias and other artisan breads at premium prices then you’ll have a wide range of options for customers depending on the occasion. As more people decide to take “staycations,” those premium products make staying home special and you may find they’re even more popular than before. Many marketers believe that displaying a premium product next to a value product can be a stroke of merchandising genius. It’s believed that the value product makes the premium product seem more approachable while the premium product gives additional cache to the value product. It’s a kind of halo effect.

Engage in a little sleight of hand with your pricing by bundling things together. You can offer customers savings to buy two items together without singling out one product for a price reduction. It now becomes easier to pull them apart and maintain your margins when conditions change for the better. Now’s the perfect time for you to innovate and launch new products that are totally unique to the market. It’s easier to charge a price with a healthy margin when there’s nothing around to compare it to and when it’s popular. Just ask the makers of the iPhone.

Consider taking some prices up. Yes, you read that correctly; in fact, there are some who argue that recessions are the perfect time to take prices up on certain products. Here’s the rationale. If you offer a truly unique product that is somewhat premium, then chances are that a wide range of people have been buying it over the past few years while times have been good. When times are tough, the folks who bought those premium products will fall into one of two camps. Those who were living close to the economic edge, who will now need to stop buying your product because they’re so far into debt; and those who will decide that it’s something they value and the price is worth it.

When the economy recovers and the customers who stopped buying start buying again, chances are they’ll have forgotten what the price was originally and your new price will be easily accepted. Disney World recently increased ticket prices by about $4 a head. Those folks who can’t absorb that sort of price increase probably aren’t going to Disney World this year, anyway, and those who are will shrug off what amounts to less than $20 for a family of four. After all, there’s only one Disney. Given the number of people who come to the park annually, that $4 a head will definitely shore up the profit margins. There are still many package deals that offer bargain hunters a way to save on their trip.
The language you use to describe your pricing can make all the difference as well. Refer to your base commodity products as “good value” but use the phrase “smart value” to describe your more upscale offerings. Consumers prefer to think in terms of a smart value than cheapest or most expensive. Besides, who wouldn’t want to be smart? You’ll be complimenting their choice with your positioning.

Automatically dropping your prices during a recession is a little bit like running into a burning building to escape the cold. With credit increasingly difficult to obtain, healthy margins and cash flow are more important than ever before. Use leverage bundling, limited time offers and bonuses as incentives to continuously drive sales. You’ll begin the recovery from a stronger position. / BJ


Michelle Brisebois is a marketing professional with experience in the food, pharmaceutical and financial services industries. She specializes in helping companies grow their brands. Michelle can be reached by e-mail at briseboismichelle@sympatico.ca.


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