Facing inflation: leveraging data science to optimize price and promotion strategy

Having reached double digits, inflation is reaching records not seen since the 1980s and breaking a cycle of many years that resulted in price stability. How can brands use data science to build a sustainable, successful business while avoiding bribing the market with discounts?

In the previous article in our two-article series discussing inflation to brands’ price and promotion strategies, we covered the impacts of inflation and the risks that come with altering price and promotion strategies. In this article, we will further explore how brands can use data science to thrive during inflation without sacrificing their brand identity through discounts and different positioning regarding pricing.

Having reached double digits, inflation is reaching records not seen since the 1980s — before the Internet era! — and breaking a cycle of many years that resulted in price stability. How can brands use data science to build a sustainable, successful business while avoiding bribing the market with discounts?

In the face of inflation, knowledge is power

Collecting the right data is part of many marketers’ daily tasks. But with unprecedented inflation rates, collecting the right data becomes more and more challenging. To ensure that your marketing team is evaluating the true incrementality of past promotions, we suggest you ask yourself the four following questions:

• What is your price elasticity?
• What is your price sensitivity?
• Is your competitor analysis up to date?
• Do you serve different customer segments with different offers?

The pricing team does not necessarily sync with teams in charge of promotions, commercial activities, or retailer relations. This prevents your organization from accessing the right data and making strategic decisions about inflation. Mastering all aspects of your marketing mix can help you understand the pricing strategy holistically. It means knowing what level of price elasticity is possible for your consumer and brand image, understanding which of your promotions are effective, and making short/long term tradeoffs.

When it comes to price sensitivity, you first need to find out whether your product is still a priority for your target audience during times of inflation. The product itself is not the only factor that affects the potential price range; industry constraints should also be taken into consideration. In times of inflation, you can’t win on all fronts. Would you rather protect your sales volume, revenue or profit? Different primary strategic objectives will lead to different levels of price sensitivity and marketing strategies.

In the meantime, be aware of possible misperceptions from your competitive environment! To correctly identify potential threats to sales numbers, you need to add new competitive data to your marketing mix and use Marketing Mix Modeling (MMM) to understand your competitive positioning. Threats to sales numbers may come from your existing competitors but also new entrants or players in different categories (like luxury vs. premium brands).

Lastly, understanding your end consumer is the key. In today’s world, organizations rely heavily on first-hand and second-hand data to know more about their consumers. Some consumers only buy during promotion; some are ready to pay full price. MMM helps you use data science to study the impacts of different pricing and promotion strategies on different segments. The goal is to find the right balance or reasonable trade-offs between the different types of customers you want to focus on while supporting a long-term commercial strategy.

Find granularity with what-if scenarios

The more detail the better. Organizations need to distill big blocky marketing activity as well as their marketing mix in order to understand which part of the activity is performing or is likely to perform. Among millions of options such as different percentages of price increase, competitors’ moves or changes in categories, data science solutions help brands test different possibilities to eventually find the winning scenario.

Build real pricing power

Pricing power is not just about controlling the number on the price tag. Building real pricing power means calculating the price elasticity of your product and playing with different scenarios while taking current margin, competitive environment, potential price range, etc, into consideration.

What is the best pricing strategy for your brand? Would you risk losing a part of your market share if you don’t offer any discounts compared to more aggressive competitors? At Ekimetrics, our specific models allow you to bring together a specific product line, the category portfolio and the competition to generate forecasts. You can further use these simulations to refine and prepare strategic price plans for the following year and initiate negotiations with distributors.

Define the best promotion strategy

The MMM what-if scenario allows you to analyze what kinds of promotions and mechanisms you can put in place to strategically manage your promotional actions. The objective may be to offer virtual bundles or focus on loyalty programs, to find the most efficient distributor among several partners or to identify the best time of year to run promotions and cultivate satisfying performance.

With concrete analytical approaches, your organization can focus its efforts on the quest for the right price-promotion mechanism in a given economic situation, brand strategy and market expectations. It means maintaining attractive prices without degrading the brand value.

Conclusion

In times of inflation, market share is not the only concern; focusing on customers is equally vital. Brands must reinforce their promises to customers, meaning that not only should they ensure a top-of-mind position, but they should also support customers during challenging times.

Organizations need to find ways to limit price increases to preserve purchasing power and carefully assess which essential products should be excluded from price increases. Successfully striking this delicate balance can help avoid jeopardizing the brand and retain loyal consumers. This is precisely where data science comes to the rescue.

Learn more about how to use data science to steer informed and fine-tuned price-promotion strategies

In our white paper, Surviving Inflation, we delve into these two aspects with supporting numbers and findings. We also share examples from our clients, the challenges they face, the concerns they have regarding their pricing and promotion strategies, and most importantly, the unique value of MMM in each situation.

• Contact Ekimetrics’ data experts!
• Download the dedicated white paper: Surviving Inflation