How to build an effective
pricing and promotion strategy in 2023
Prices are top of mind for consumers and CPG brands in 2023 — persistent inflation is straining consumers’ wallets and driving rapid changes to their shopping behaviors.
In our latest webinar, our friends at NIQ Byzzer shared how emerging brands can use market data and price elasticities as the building blocks for more effective pricing and promotion strategies in this challenging market.
Here are a few key takeaways:
Research the landscape
Effective pricing strategies start with an understanding of the consumers’ environment. While 2022 began with a welcome downward trend in fuel costs, we’re still contending with rising energy costs, high interest rates, and most worrying, sky-high grocery prices — all of which contribute to growing price sensitivity.
While the US isn’t technically in a recession, NIQ research found that 59% of Americans think they are currently living in one, and 49% expect to be in a recession for the next 12 months. Most alarmingly, 29% report only having enough money for food, shelter, and other basics.
As a result, they’re changing their behaviors, from stocking up on promotional items and cheaper private label options to frequenting discount retailers. Retailers themselves are working to absorb some of the sticker shock with a stronger focus on promotional strategies, dynamic pricing strategies, private label sales, and more.
Understand price elasticity
As consumers change behaviors in response to rising prices, it’s critical to understand how price changes impact volume sales for your products and category. Price elasticity figures help you quantify this relationship.
There are 2 types of price elasticity:
- Regular price elasticity: The change in base sales as a result of a permanent shelf price change
- Promotional price elasticity: The lift in sales as a result of a short-term decrease in the price.
Price elasticities are represented by negative numbers that show the inverse relationship between price and volume. Or, in simple terms: as price goes up, volume goes down.
Determine your pricing power
Here are some general guidelines for determining if your product is inelastic or highly elastic, and how that corresponds to your pricing power:
- Low/Inelastic (0 to –1): You have the highest pricing power but should careful not to price too opportunistically
- Moderate (-1 to –1.75): Your price increases tend to be profitable, but expect to lose an appreciable amount of volume
- High (-1.75 to –2.5): Be cautious when increasing price because significant volume loss will occur
- Very Highly Elastic (-2.5 and above): Substantial volume loss when increasing price — decreasing price might be an option
In practice, this means if your item with a low elasticity of -0.75 had a price change of 10%, your volume would decline by 7.5%. On the opposite end of the spectrum, highly elastic products will lose volume to even minor price increases.
Answer three critical questions to win with pricing and promotion actions
To use this pricing and promotion guidance to increase your market share, you’ll next need to execute against three areas:
- Where to play: How do you create an effective channel strategy? How should your pricing strategy change by retailer (everyday low price approach, promo price, etc.)?
- How to win: What promotional forms and discount offers are most effective? What depth and frequency of promotion will maximize their effectiveness?
- How to invest: How can you increase the profit pool through an effective price and promotion strategy? How does your price compare to the rest of the market, and how can you target competitors that are at risk?
How Byzzer can help
As a member of Startup CPG’s community, you can sign up for a free subscription to NIQ’s Byzzer, a platform making business intelligence accessible to small businesses. Byzzer can help you answer the questions above, and provide a weekly email alert with pricing actions you can take to grow your brand.
NielsenIQ Byzzer acts like your own personal team of data analysts. Instead of providing an ocean of data to wade through, this platform tells you what the data means and provides clear recommendations for the best course of action. Byzzer is designed to help you evolve into a national brand by offering powerful insights, an easy-to-use interface, and affordable subscriptions designed for small businesses.
Attending Expo West? Visit Byzzer in person at Booth #475, or at the Startup CPG Alley Rally on Thursday, March 9th!
