To a large extent retailers have been sharing the burden with suppliers in the last two years, but we have been seeing grocery retailers such as Coles, reviewing the way it deals with requests for price rises.  Retail partners are starting to come to the negotiating table with more rigid stances regarding price. Creating positive outcomes will be increasingly tricky unless suppliers can work with their channel partners and bring robust consumer behaviour models to the discussion.

This means that price increases will need evidence-based justification. Showing the impact of price changes for the total category and the effect on the channel partner means a greater opportunity for true price partnership. Trying to force through a price increase without this evidence will result in a conflict that may leave both parties unhappy with the outcome.

As shoppers become more price sensitive, the role of online channels and the ability to use comparison sites will also be heightened. This requires understanding how different consumers are affected by price and how it affects channel behaviour. Retailer perceptions of value across their categories will be a crucial driver of both foot and web traffic and impact pricing dynamics, requiring the development of channel-specific models. Creating an aggregate market model, where all channels are equal, could lead to missed opportunities or a miscalculation of buying patterns.

This ultimately makes the ability to influence pricing more directly through the D2C channel an attractive proposition. However, understanding the implications across the channel mix and consumer targeting will be needed encouraging businesses to think beyond pricing as inflation bites. It will also mean that providers utilising different strategies in their D2C model (e.g. bulk purchase) vs retail channel can move volume to higher margin channels or attract different sorts of buyers. This requires a more sophisticated channel view than most manufacturers or service providers have employed but provides another potential strategy for navigating the difficulties ahead.

Retailers must determine how they communicate value and price in-store and online and ensure they capture traffic. This entails determining those products/categories that act as pricing signposts and create perceptions of value and a halo factor on overall price perception. Consumers will examine added extras such as rewards schemes to see if they deliver real value. Added extras and services that can’t deliver on the price/value equation will be dropped or switched out for those that deliver real benefit to either the hip pocket or what matters to shoppers.

Service providers will see increasing amounts of price comparisons online as shoppers search for the best deals. Communicating price and value as quickly as possible to the consumer will be vital. The ability to create menu-style services in online channels, where consumers pay only for what they are likely to use or value, will be increasingly common, requiring companies to provide more tailoring to win business.

Channel will be an area that successful companies use to the best effect in these inflationary times. It can be a remedy for controlling pricing and allow for differing targets and needs.

Written by, Todd Eldridge
Director of Advanced Analytics