The escalating costs of energy, food and transport pushed UK inflation to 9% in April – its highest level for more than 40 years, largely due to the price increases of gas, electricity and fuel. Consumers are facing unprecedented price increases and millions of lower-income families have real concerns about their living standards as they bear the brunt of the cost-of-living crisis.

Most companies will need to raise their prices due to increased costs. Only this week the Office of National Statistics (ONS) revealed that many FMCG low-cost food items such as pasta, crisps and bread, have risen at a much faster rate than for general inflation in the year to April. 

How pricing strategies and associated price messaging are executed will likely determine whether brands are able to increase perceived empathy or erode brand trust and loyalty. 

As prices increase and consumer purchasing power decreases, consumers must re-evaluate the perceived value that they obtain from their purchases. For example, as the costs of essentials like food and energy increase, these items take priority over purely emotional purchases. Purchase questions therefore shift from, “What do I want?” to “What do I need?” or “What can I afford?”.

During this consumer transition, it’s important to remember the following:

Perceived Value = Brand + Offering Quality + Price

As consumers become more value conscious in this era of rising prices, brand and offer quality become increasingly important. Typically, to maintain perceived value, a rise in price must be accompanied with either a rise in offer quality or brand value, or both. It is true that, for some products, raising the price without changing quality can lead to an increase in perceived value, and even provide some brand lift; however, this is a rare phenomenon which is unlikely to occur when all companies are raising their prices.

To maintain high perceived value and remain on the list of essential purchases in consumers’ minds, brands will not only need to maintain quality, but also maintain or even lift their brand value. This is where strong brands have an edge, as consumers are more likely to be forgiving of brands they love. This is also an area where conscious brands have an opportunity to gain ground.

If your business is forced to raise prices due to rising costs, there are three important ways that will allow you to do this more strategically without eroding brand value.

1.       Knowledge of price elasticities – Not just for the category but for your individual brand

Most brands will be able to accurately calculate month to month how much they will need to raise prices to meet revenue targets and other business objectives. However, those calculations need to be tied to what the market will support, today. Though highly desirable brands will likely be able to handle price increases better than other brands, the price premium a brand can demand is likely to be smaller during an era of high inflation when consumers are re-prioritising their purchases. The consumer decision may switch from deciding to buy a premium brand versus a discount brand, to buying a discount brand versus not purchasing anything from that category. Understanding individual price elasticities in a high inflation environment will be critical to maintaining market share and optimising pricing strategies

2.       Know your customers – Which segments will accept price changes, and why?

It is important to know your customers and why they are buying your products and services, and how higher prices may impact this. Some segments of shoppers will tolerate price increases better than others. For example, the high-end shoppers of luxury brands are typically the most insulated from price shocks, and shoppers with a strong emotional attachment to a brand may be more drawn to it during times of uncertainty as a means of maintaining a sense of normalcy. However, in the first case consumers may be purchasing status, and peace of mind in the second – both of which can be difficult to accurately price

3.     Communicate effectively about the price changes – Be open with consumers about the reasons for price increases

Most consumers are aware that the previous two years have been difficult for everyone across the globe. Moreover, most acknowledge that rising transportation costs and labour shortages are likely contributing somewhat to rising prices which they will not hold brands accountable for. Just as consumers want to support companies they perceive are making the world better, they will be more likely to support companies they believe are trying to minimise the impact of rising global prices rather than contributing to them. Communicating that “we are in this together”, or that you hope that the price increases are only temporary, can go a long way to building a sense of empathy and trust.