Brand resilience under the current coronavirus pandemic.
The coronavirus pandemic has affected us all, both personally and professionally. You know how your situation has changed, and there is no point in this article to repeat what we already know.
What we do in my company is to generate demand curves; using a method we’ve developed, based on price-specific market research, we can accurately predict sales volume at different prices for a product or a service. This prediction is then correlated with various attributes of a said product or service. What this means is that we can tell our clients which of these attributes drives higher sales volume and higher revenue than other attributes. Characteristics can include product or service features, sales channels, marketing messages, and brand.
Earlier this year, early February, before the coronavirus pandemic began, we generated demand curves for several brands that market and sell major kitchen appliances. We could assess which brands generate a higher sales volume than other brands, and especially which brand or brands that drive higher sales volume at higher, more profitable prices. Those brands has pricing power
The coronavirus pandemic clearly has affected what consumers can pay in general, and precisely what they are willing to pay for kitchen appliances, among other products they could purchase. To assess how much this has changed, we decided to redo the measurement from the end of early February on March 23 and 24 to accurately determine how different brands are affected, as the coronavirus pandemic continues to spread around the world. The result was a surprise in that it showed us how consumers with varying preferences of brands reacted differently to the current situation.
In the images below, you will see the differences clearly demonstrated.
But first, let me explain how to read these graphs. You will see the price on the x-axis and demand on the y-axis. The lines indicates the predicted sales volume at different prices. You will see that the lines has a crest that shows the price at which the seller will enjoy the highest sales volume. As lower prices are considered, to the left of the peak, the price itself sets an expectation of poor product quality in the minds of the buyers, and the lower the price, the larger the number of potential buyers who will not buy because they think the price is too low. On the other side of the crest, as higher prices are considered, the higher the price, the larger the number of potential buyers will not buy because they say the price of the product is too expensive.
The chart also indicates “Price Walls,” these are psychological price points that generate a substantial change in sales volume.
Figure 1 is the baseline; all the respondents who are buyers of this particular major kitchen appliance. The red line is demand in early February, the yellow line demand on March 24 and 25 What we can see is that sales overall for this kind of kitchen applience will drop by about 20–30% at prices between $1,000 and $1,500 and that there is a new significant price wall at $1,500. Above $2,000, sales will decrease by about 50%. The new price wall must lead to action; products priced just above $1,500 and the existing price wall at $2,000 shall be reduced to below the price walls, as can be seen in Figure 2. This will minimize the reduction in sales volume while still maintaining profitablity.
Figure 3 shows demand among those buyers who prefer Brand 1. We can see that demand has shifted; the peak in demand used to be at $1,200 and is now reduced to $800. This means that this brand has an opportunity to sell large quantities of relatively low-priced products, and that promotions should focus on those low-priced products.
Figure 4 shows the demand for buyers who prefer Brand 2. Here we can see that projected sales volume at all prices will go down. As opposed to Brand 1, this brand does not have a fallback position and will just see a large drop in sales.
Finally, Figure 5 shows what will happen to sales volume for those who prefer Brand 3. Demand is reduced at low prices, and between $2,100 and $3,000 but increased above $4,000. The overall sales volume will not be reduced nearly as much as for the other brands tested. This brand has pricing power and will be able to weather out the coronavirus pandemic much better than other brands and will therefore emerge as the market leader.
What we have shown here is that brand matters and that knowing how consumers’ willingness to pay for a product, during this time of rapid change in the marketplace can drive short term tactical advantages as well as strategic advantages to the company who possess the information. Tactical benefits may include careful repricing of certain products to maintain a profitable sales volume while the price of other products may not be altered. Strategic benefits may include an understanding of what drives consumers to one brand vs another brand and to use such knowledge to increase competitiveness or make changes in the product mix.
Per Sjöfors
The Price Whisperer™
Founder
Sjöfors & Partners Inc
www.sjofors.com
Pricing has always been an interest area for Per. As a serial entrepreneur, running companies in Europe and the US, he did pricing experiences. Some of these worked spectacularly well, some did not work at all. As a result, Per founded Atenga (now Sjöfors & Partners) out of his frustration that what business schools teach about pricing is too abstract, too academic for a business executive to act on. Likewise with books about pricing. Consequently, he set out to make pricing practical and actionable. Pricing for business people. Since then, he has been at the forefront as thought leader in everything pricing and he is a sought-after speaker for a variety of conferences and business circuits.
Per appear regularly on business radio shows and gets quoted regularly in the financial press, including Forbes, Fortune Magazine, Inc., IndustryWeek, Business Insider and the Financial Times.
About Us: Sjöfors & Partners has developed a unique method for data-driven pricing based on price-specific market research, that generate precise measurements of customers’ willingness to pay or buy for a product or service. Armed with this knowledge, companies can focus their sales, marketing and product development efforts towards the market segment with the highest willingness to buy at the highest prices. The measurement also allows Sjöfors & Partners’ clients to accurately predict the results of different prices, taking the uncertainty out of pricing decisions.
