Jun 14, 2022
How many valuable customers is your business at risk of losing if inflation forces you to pass cost increases on to them? Rising costs of goods and other inputs (e.g., logistics services), combined with the ongoing global pandemic, labor shortages, supply chain issues and demand spikes, are causing a rapid spark of inflation. For consumer goods broadly, inflation recently jumped by over 8%, the biggest increase in decades. Before automatically passing input cost increases on to your consumers/customers – and risk losing them – understand what they really value most from your offers. Understanding demand to find new ways to increase the perceived value of your offers, will help you win more of their spend, especially if inflation forces your competition to raise prices.
One of the best ways to understand what your consumers/customers value most is to conduct quantitative trade-off research with them. This can be used to simulate real world shopping scenarios among consumers and purchase decisions across B2B customers. In short, you can pinpoint the product benefits, features and brand promises that are most compelling to each segment of your customer base and at what price points. In addition, you can identify what trade-offs consumers/customers are – and are not – willing to make. Will consumers buy larger sizes to save on the cost per ounce purchased? Will customers accept slower product fulfillment times for better performance? What benefits are valued most by attractive customer segments?
In our experience, there are four ways deeper consumer/customer demand insights can be leveraged to win more share of your customer’s business amid rapidly rising inflation.
1 — Increase perceived value by offering more of your “good stuff” with little to no added cost
The first key is finding ways to give more without spending more. By way of example: faced with a price increase that would put them at a disadvantage versus competing cookie brands, Oreos doubled down on its famous crème filling to increase the perceived value of the cookies. By adding more filling in its Double-Stuff Oreos, the company was able to increase perceived value while also raising prices above the cost of adding more filling. The result was happier consumers and a jump in sales and profits for the Oreo brand.
In another example, for a paper plate maker, we found that what consumers universally sought was a paper plate that mimicked a “real” plate in terms of benefits provided but was still disposable. Essentially, a paper plate strong enough to hold a heavy meal like steak and potatoes, thick enough so greasy foods would not soak through, and durable enough not to fall apart when eating something wet like spaghetti. At the time, the only way the client could deliver these benefits was to add more paper to each plate, making them thicker and stronger, but also much more expensive than consumers were willing to pay.
Our solution was to add a new coating to the plates that made them stronger, more rigid and soak-proof. The new coating had the added benefit of a distinctive shine that made them stand out on the store shelf which helped provide the “reason to believe” the plates delivered superior performance. With this solution, our client reduced the amount of paper in the product, saving significant costs. However, they also increased perceived value so much that they were able to charge a price premium for this new offer.
2 — Reduce/eliminate features that add little or no value
Another approach is taking a sharp lens to the things that may add cost but are not perceived to be high value to consumers/customers. These are simple places to cut back to keep prices in line with consumer expectations. One of our office products clients had added features to their products that they thought would add meaningful benefits for consumers. In fact, consumers hardly noticed them, they did not add any value and they never factored into the consumer’s purchase decision. Eliminating those features generated savings that were used to fund new signage and marketing at point of sale, especially at office super stores. This messaging reinforced what did matter to consumers which helped our client increase sales and pricing power.
3 — Identify new value drivers
The age-old goal is to find new ways to add value to your offers. Some opportunities may be latent/emerging demand among consumers, but you’d be surprised how many are right in front of you when you scrutinize current processes. An orange juice brand found a way to tap into a waste stream to increase perceptions of being “fresh, homemade” juice that allowed it to charge a significant price premium. For years, this brand was squeezing juice to bottle while selling the resulting orange pulp as hog feed for next to nothing. On a tour of the plant, a new marketer saw that the plant workers stirred some of the pulp back into the juice they would drink while the rest of the pulp was sold off. When asked why they put the pulp back in, the workers said it made the juice seem more like fresh, home squeezed orange juice. Consumer research confirmed that there was a large market for a juice that was closer to homemade and that consumers would pay a premium for it. Quantitative trade-off research can help you identify new and valuable benefits that will excite consumers, but getting a fresh, outsider perspective on your business process can also help surface these ideas.
A commercial printer we worked with was in a turnaround situation in part because their older presses made them one of the higher cost producers in the industry. While their quality was best in the industry, recent entrants had invested in new presses that were lower cost while producing acceptable quality. For years our client played the traditional game of trying to fill its printing presses by taking volume even when those jobs were unprofitable. As we understood what was most valuable to their customers, we realized there was a large segment of their customer base that wanted to outsource the entire process of printing their promotional pieces and product catalogs. What’s more, these customers would pay to outsource the process and gain expertise from consultants. Our client quickly created an outsourcing and consulting offer that was not tied to their own printing presses. The margins were much higher than the margins on the actual printing, especially given the over capacity in the industry. As one of the largest and oldest players in virtually every aspect of commercial printing, our client was uniquely positioned for success in outsourcing and consulting in ways that their competitors could not match.
4 — Right size for greater value
In 2007 Coca-Cola introduced its new “mini” 7.5-ounce cans into its portfolio of carbonated beverages alongside their traditional 12-ounce cans. Consumers responded positively, allowing the new mini can format to grow much faster than traditional, larger packages. At the same time, the new mini cans were much more profitable for Coca-Cola for two reasons. First, the smaller 7.5-ounce cans sold at about a +42% price premium per ounce. Second, the packaging was less expensive for Coca-Cola to produce and distribute and those savings went right to the bottom line. Despite the hefty premium per ounce, consumers viewed the mini cans as a great value and a better alternative to traditional 12-ounce servings of soda, both of which helped drive its significant growth over traditional packaging. Clearly, had Coca-Cola been trying to fight inflation, selling the smaller mini cans at the same price as its 12-ounce cans by foregoing the +42% price premium would still have been very attractive given the savings on packaging and distribution while generating the same price per ounce of product.
While you can’t control inflation, you can manage the “value equation” that determines perceived value for your offers. Recall that value is a function of total benefits divided by the price paid. Fortunately, benefits include three major levers to work with. First, there are the rational benefits of your offer – how well does it work, fit, taste or otherwise perform the “job” it was purchased for? As the name implies, rational benefits are typically measurable, at least on some level. Next, there are the emotive benefits of your offer – how does it make the user feel? These are typically subjective reactions that could include happiness, satisfaction, excitement or any other emotions the product elicits. Finally, social benefits are the benefits related to what others think of those who purchase or consume a given product. Does owning/buying/consuming that product make others think more favorably of the user, or otherwise distinguish the user in positive ways?
Ultimately, understanding the value equation for your offer in detail and by customer segment can provide a roadmap for optimizing perceptions of value, combatting inflation and driving growth.
Jason Green [email protected]
Lindsey Leikhim [email protected]