Knowledge Bank Blog, Pricing & Promotions

Average Price

Are you giving shoppers reasons to pay more, not less?

How many of you have heard of Takeru Kobayashi?

He is Japanese, born in 1978, is 5ft 8 in tall and weighs 128lb’s (just over 9 stone).  There is not much of him, but he is a legendary competitive eater.

Competitive eating is about consuming as much of a particular food as possible in an allocated time.  Kobayashi has 8 different world records.  He is probably most famous for his performance in Nathan’s Coney Island Hot Dog Eating Contest.  In his first appearance on July 4 2001 he ate 50 hot dogs in 12 minutes – doubling the previous record of 25.

He then went on to break this record a number of times, getting up to 69 in the 2011 competition.  This record stood as the highest ever eaten until Joey Chestnut ate 70 in the 2016 competition.

For those of you wanting to know how he does it, he splits the frankfurter in half, dips the buns in water, then stuffs both parts in his mouth. He then deploys a body wiggle, referred to as the ‘Kobayashi shake’ to force food down his oesophagus and allow it to settle more compactly in his stomach. Too much information, perhaps?

So, why are we talking about this?  Well, whether it is competitive eating or the times that Olympic & Paralympic cyclists are achieving on the track, humans are reaching higher.  Achieving more than we’ve achieved before.

But, our industry is different.  In many cases we are actually going lower.  In many categories average price is going down.  Now, some of this will be due to price deflation, which is typically out of our control.  Some of it is due to the continued growth of Discounters and the price pressure in the wider market that results.

However, there are some things that are in our control, that are contributing to falling average prices.  Whether it is the amount and depth of promotions, ranging that is prioritising cheaper products or innovation that is not resetting prices.

In a low growth environment, as a minimum you need to be protecting average price.  But you really want to be driving it up.  And for some categories or sub categories where penetration or frequency is high, it is likely to be your key way to grow.

So, what are some of the things we can do to protect or drive up average price?

Deliver innovation that commands a price premium.  There is a lot of time, effort and spend that goes into innovation that doesn’t command a price premium.  That is a lot of resource to try to change shopper behaviour for no category reward.   Yes, you might be able to steal some share, but that doesn’t help the category in the long run.  And in some cases, innovation simply moves money around within a brand.

For an example of a category that is driving average price up, look at coffee and the growth of pods.  Each pod consumption occasion is worth about 30p compared to an instant coffee occasion that is worth about 2-3p.  About 10x the value per occasion.  If you go to a coffee shop, then it is often another 10x value.

The majority of innovation should command a price premium.  If not, why should you or the retailer bother?

Protect Price Hierarchies.  There are 3 key elements to this.  First, is clarity to the shopper at shelf.  Is it clear to them which products are available at which price points?  If not, they might as well buy what they normally buy or what is on deal.  Second, is protecting the price differential between tiers.  Promotions have massively blurred the lines.  Premium products can be bought at standard prices in many categories.  Third, is about having the right choice for shoppers across price tiers, not having lots of different products sitting on top of each other at the lower or middle end of the market.

A good example is the beer category.  Yes, there are still a lot of mainstream brands, still a lot of promotions, but premium, world and craft beers are all helping to give the shopper a clearer choice.  Driving up average price paid.

Added Value Promotional Activities.  This means moving away from promotions that focus purely on a price discount and incentivising shoppers in a different way.  Promotional activities that link more strongly to your brand.  Things that you can do, that your competitors can’t do.  At the moment, if you run a third off this week, your competitor can do the same next week.  And they could go even lower.

This means a mindset shift in how we think about promotions.  It sounds crazy, but promotional activities that encourage a shopper to buy your brand at full price.  And buy it again next time at full price.   Coke personalised bottles was about the brand not about a discount.

To drive category growth we need to give shoppers good reasons to pay more.  Not reasons to pay less.   In a world that is generally going higher, we don’t want to be the ones going lower.

Now, who fancies a hot dog (or 50…)?

On a separate note, we wanted to let you know that….

We’re expanding!!

We are lucky enough to have been pretty busy over the last year.  So, we have finally taken the plunge and got more hands on deck.   We are really pleased to announce that Naomi Geffen has joined Insight Traction.

Naomi worked at Unilever for the last 12 years across the Ice Cream and Personal Care categories and Brand Marketing, Shopper Marketing and Customer Development functions – UK and Global.  A pretty good breadth of experience.

Naomi is going to be helping us in 3 areas in which we are doing an increasing amount of work – category strategy, channel strategy and shopper marketing.  We have got quite a lot of new thinking in these areas that Naomi will be helping us develop.

Naomi shares our passion for all things shopper & retailer and for keeping things simple.  So, if you like us, you will definitely like her.  And if you don’t like us…

If you’d like to catch up on any of the work we have been doing, think we can help you on anything, or would like to meet Naomi in person, then please call or email one of us.

Thank you for your continued support.

Best wishes,

Neil, Jeremy, Amy and Naomi