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A Research Perspective on Pricing
A recent article in the New York Times referred to “tariff anxiety” as a potential factor in the global business slowdown. (NYT, 6/19/19). Walmart's Retail Link now incorporates a "cost change scenario" that enables vendors to input higher prices based on increasing tariff costs (Bloomburg,6/12/19).
But what do tariffs mean to your company? How will they affect demand for your products? Only time will tell, but we offer the following perspectives from the standpoint of consumer research on pricing:
1. Most consumers don’t know what things cost unless they’ve recently purchased them. Therefore:
a. If consumers haven’t purchased your category lately (meaning it is a low incidence of purchase category), an increased price is not likely to shock consumers as much as you may fear.
b. If consumers purchase your category on a regular basis, they are going to notice price changes and they may rebel against them by postponing or slowing purchases, shifting to alternative, lower-priced sources or just not buying.
Thus the potential impact on your company varies from little for low incidence purchases to a lot for frequent purchases with available alternatives.
2. Consumers research products and they talk to each other about their purchases through social media, but usually the focus of research and conversation is features, benefits and quality rather than price. Therefore:
a. Consumers can’t go back in time to research price 6 months ago, so they don’t have a way to see how much prices have risen.
b. Focusing on the features, benefits and satisfaction levels of your products will tend to distract consumers from price rather than focus on it.
3. Rising tides do tend to lift all boats. Therefore your business should be okay unless…
a. Your category is very expensive because an expensive purchase is often a postpone-able purchase.
b. Your category is unbalanced price –wise. Not everyone has to raise prices. Some players may choose to tough it out, holding prices and sacrificing profit in order to gain market share.
c. You compete with players who own their factories – either domestically or overseas. They may be unaffected by tariffs or have wider margins that can better take a hit.
Thus, by our count, we’ve described three situations in which tariffs may not hurt your business and four that may hurt your business. We’ve deliberately not discussed retailer roles in dealing with tariff-related price increases because we assume that retailers will act uniformly with regard to pricing from all affected players, an assumption, to be sure.
We believe the solution to tariff-related challenges is to always strive to be better. That means being consumer-focused and investing in all aspects of your efforts, from maintaining product quality to ensuring service quality to investing in innovative new products that delight consumers and engaging consumers in ways which are in sync with their lifestyles. The only way out of any mess is to go forward and to do so boldly. We have always acted this way as a company and we celebrate our clients who do the same. And remember, we’re here to help! Call or email at any time.