Research Consortium: Price Rollbacks Better Than Discounts
After a huge run-up
over the past year, commodity prices are back down again. But vendors unwisely
have been more inclined to deal off higher list prices or offer more trade
funding rather than to actually lower prices to retailers. That’s the view
of a new consortium of researchers led by Dechert-Hampe and Strategic Marketing
The resulting high
shelf prices in turn have driven a 10 percent to 15 percent jump in price
elasticity, as consumers shut their wallets if they think prices are too
are battling with vendors for lower prices and more promotion, while they
ratchet up private label in nearly every category. Dan Graham, vice president
of consulting services for Dechert-Hampe, believes manufacturers and retailers
must partner to pass along everyday price decreases as the emerging pricing
and promotional strategies are weakening the major national brands.
on deep discounting is an inefficient mechanism for winning and retaining
customers," said Mr. Graham.
manufacturer and retailer is playing a game of chicken – even as
it becomes obvious that everyday price rollbacks represent the last best
hope of winning back consumers," added Ben Ball, senior vice president,
Dechert-Hampe. "However, manufacturers understand that a list price
decrease is unlikely to get passed through to the consumer, so their preferred
strategy is to maintain the current high base prices and offer value by
dealing back through deep discounts. The issue with this particular
hi-lo strategy is that consumers quickly learn that full list prices are
artificially high and that they have the opportunity to buy comparable
brands or private label items with at a discount."
Mr. Graham listed a
few of key questions for manufacturers and retailers to address the new
is my brand’s new price elasticity and promotional response? How will this
change as economic conditions change?
is the new consumption equilibrium as a result of the loss of access to
my brand/store impacted by the loss of credit or is this dynamic actually
helping me by inducing my consumer to buy our products because of their
retailers partner with manufacturers to address consumer need for value?
"Price and promotional
responses are increasing as a result of consumers’ need for value," said
Hoss Tabrizi, managing director of Strategic Marketing Sciences. "However,
the marketing community should understand that these spikes may well be
driven by their own pricing and promotional tactics that induce value purchasing."
Discussion Questions: What are the pros
and cons of instituting everyday price rollbacks across retail over discounting?
What are the challenges in implementing price rollbacks?
commentary] Dechert-Hampe and Strategic Marketing Sciences, in conjunction
with three other analytic and consulting firms, are launching a major research
initiative aimed at measuring future consumer behavior and developing specific
strategies that can be used efficiently and effectively by manufacturers
and retailers. The group’s website is www.emergingconsumerconsortium.com.
- Predictive Consumer Behavior Initiative – 2009
Emerging Consumer Consortium
How to market both now and after the economy recovers – Food
and Beverage Packaging