Consumer Packaged Goods (CPG) companies drove revenue through price increases, but this came at the cost of falling volumes. By pushing prices closer to the perceived value, they eliminated the "consumer surplus"—the extra value a customer feels they get. This made private label alternatives more attractive and damaged long-term brand relevance.
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To convince a CEO of a brand's value, ask one simple question: 'Do we have pricing power?' This metric—the ability to raise prices at or above inflation without losing demand—cuts through marketing jargon. It is the most direct, tangible indicator of brand health that resonates with finance-focused leadership.
For luxury brands, raising prices is a strategic tool to enhance brand perception. Unlike mass-market goods where high prices deter buyers, in luxury, price hikes increase desirability and signal exclusivity. This reinforces the brand's elite status and makes it more coveted.
Pricing power allows a brand to raise prices without losing customers, effectively fighting the economic principle that demand falls as price rises. This is achieved by creating a brand perception so strong that consumers believe there is no viable substitute.
When a new KFC premium product wasn't selling, they doubled the price instead of discounting it. This aligned the price with consumer expectations for a premium item, signaling quality and causing sales to soar. Low prices can imply low quality for high-end goods.
Instead of setting prices at launch and letting them erode, Novonesis implemented a discipline of having annual conversations about the value their products deliver. This shifted pricing from a 1-2% annual erosion to a 1-2% revenue growth contributor.
Maximizing profits in a crisis, such as a hardware store hiking shovel prices during a blizzard, ignores the powerful economic force of fairness. While rational by traditional models, such actions cause public outrage that can inflict far more long-term brand damage than the short-term profits are worth.
When pressured to hit quarterly targets with promotions, use a simple filter: 'Does this action increase the long-term desirability of my full-price product?' This framework helps balance immediate revenue needs with the crucial goal of protecting and building brand equity, preventing a downward spiral of discounting.
While intended to drive sales, frequent discounting damages brand perception by training consumers to see the brand as low-value. This creates a "deselection barrier" where they won't consider it at full price, eroding long-term brand equity for short-term gains.
Facing an 80% stock decline, premium salad chain Sweetgreen introduced a $10 value meal. This move is a significant strategic pivot, indicating that even brands catering to affluent customers must now compete on price. It suggests a broader trend of consumers cutting back on discretionary spending, even for perceived healthy options.
AI analyzes sales, operations, and media data to identify price elasticity across product bands. Brands can then increase prices on premium items where consumers are less sensitive, while keeping prices flat on essentials, thus protecting margins without alienating the entire customer base.
