The only way isn’t up

”At contemporary players such as Grind Coffee, with a portfolio that spans monthly subscriptions and coffee bundles via its D2C platform, as well as speciality ground coffee and ready-to-drink offerings sold in supermarkets, this occasion-led model has long informed its pricing strategy,” says B2B director Annie Mitchell. “We know that each coffee category delivers on a different drinking occasion or purpose,” she explains.

“For example, instant coffee is about practicality, but ready-to-drink is all about the drinker. We also know there’s a different cost expectation for a coffee one receives in a cafe, which has been handcrafted by a trained barista on high-grade equipment, versus what you will pay to make it yourself at home,” she notes. ”There’s also a difference in customer types between someone who grinds their own coffee beans at home for an espresso versus someone using a pod machine or someone who buys it ready-to-drink. We try to create value in each category that best delivers for the customer and brew type,” she adds.

At one dairy brand, meanwhile, the decision to add a food-to-go variant of its core product “in a packaging format that was more convenient, easy-to-use and had more emotional cues around quality prompted a boost in purchase intent and in consumers’ willingness to pay 60%-70% more,” says Bill Harte, founder of innovation consultants Creating Possibilities and former commercial project manager at Diageo.

”When costs bite, this more strategic, occasion-led portfolio leaves brands with far more options when it comes to unlocking growth via pricing,” says Dewan. They may opt to keep prices on their core range stable, for example, but offset that via more premium SKUs. “It’s all about how you deliver that differentiation so that when cost increases come in, you’ve got this portfolio of premium products to help you manage any profit dilution on your core.”

A more dynamic pricing model also equips brands with the type of macro view they need heading into tough negotiations with retail customers.

“Too often, brands adopt an overly narrow cost-led view when asking buyers to push prices up,” believes Harte. “Financers say, ‘you need to grow profit by 20%, our costs have gone up by 10% and so we need to get more margin’, and sales will be given a target,” he says.

But that way of thinking misses the mark with retail teams. “While brands are product-focused, retailers are focused on category growth,” says Dewan. “They’re focused on making it more affordable for shoppers to come in and buy as much as they can.”

A more effective strategy, Dewan says, is ‘value stories’ – an insight-led plan for pricing across a range that demonstrates an understanding of price elasticity across different occasions and formats, and how these can be used to unlock growth across the category.

This rings true with Ben Daniels, managing director at confectionery brand Ritter Sport, which, faced with the volatility in cocoa prices, decided to roll out price increases in both 2023 and 2024. “We invest very significantly in category insight, and it would not be possible to work effectively with our trade partners were that not to be the case, especially with such significant inflation in the market,” he says. “Just like the rest of the market, we had to raise prices as increases were so acute, but that was done with very clear, very open communication with our trade partners focused on delivering incremental category value to them.”

As part of their own efforts to better pin pricing to the consumer-pulse, retailers are already poised to use their own customer data to move towards ever more personalised, dynamic prices in the future.

Not only are an increasing number of electronic shelf labels (ESLs) appearing on shelves, designed to adapt to price, weather and local events but the loyalty apps are being used to unlock rich insights on individual shopper buying behaviours, creating opportunities to tailor pricing to micro-segments. Brands that lead with a more differentiated, data-driven approach to their own pricing architecture will be in far better position to act as complementary partners in that process.