Should brands raise prices in the wake of sterling’s volatility and how should this be communicated to consumers?

Posted on 13/10/2016 · Posted in Palm PR

The headlines have recently become dominated by a dispute between Unilever and Tesco, which has seen dozens of household brands, like Marmite and Pot Noodle, removed from the retailer’s online shop.

Unilever, the UK’s biggest food and drink grocery manufacturer, wants to increase the price at which it sells its products to Tesco to mitigate the higher costs it has faced by the falling value in the pound.

However, this issue extends beyond these two mega-brands and indeed beyond the grocery market in general. It is about who should bear the burden of higher costs because of sterling’s weakness (and indeed any external factors that put pressures on prices). Should it be the manufacturer, the retailer or the consumer?

The BBC has reported that a “grocer insider” has said this issue is being used by Unilever as a “smokescreen” to raise prices. However, even products made in the UK will most likely face the pressures of currency instability because they may use ‘ingredients’, equipment or expertise that has to be bought from overseas. This means a huge number of British businesses will be affected.

If a price rise affecting consumers is unaffordable, how should brands communicate this to the public to retain sales?

Firstly, if this increase seems inevitable in the future, then brands should put their communications strategy on an offensive footing. The best route to maintain custom in the face of rising prices is to build brand loyalty. Businesses should start this work immediately, strengthening the emotive connection between the brand and consumer, improving packaging and heavily promoting reasons for purchase beyond cost, for example usage occasions, product USPs and securing third party endorsements from influencers, like celebrities.

If a brand increases its sales price, then it needs to be wary of competition from own-brand and independent businesses. They may be offering an inferior product in the same category, which can retail for less because it has a cheaper production process, maybe because it includes a lower concentration of an expensive ‘ingredient’.

Building brand loyalty is obviously a way to counter this, but a more dramatic solution may be to release diffusion lines that sell at a lower costs and so can more effectively compete with cheaper rivals. This may mean producing an inferior product from the core range, but with the right branding, this could mean reaching new consumers and opening the door to retailers not already in the business’ distribution network.

If the price rise is to be well received by consumers, building understanding with the public will be crucial. Social media is a powerful forum for this as a brand can have total control of the narrative on its own accounts. Video content can be used to explain complex scenarios with talking heads from Founders a powerful way to build trust.

Nonetheless, all brands must be extremely sensitive on the subject of Brexit. Firstly, a huge proportion of the population voted to leave the EU and will not be receptive to hearing that they are to blame for inflation. Secondly, the wider economy must learn lessons from the energy industry. If a price rise is due to a temporary scenario, then consumers will expect prices to fall when the situation normalises. This may take years to happen, in which time there could have been different cost increases that make it impossible to reduce the sales price. This is an argument that consumers won’t be receptive to.

The best approach will be to keep an open dialogue with the middlemen – those that sell the product direct to consumers. They will be as reluctant as brands to avoid prices, so a solution could be reached.

Brands should also avoid knee jerk decisions. Sterling’s volatility is largely down to whether the UK will have a ‘soft’ or ‘hard’ Brexit, i.e. whether access to the Single Market will be retained. This questionmay be shortly resolved as MPs are soon to debate how negotiations will proceed with the EU. There is a possibility that the situation normalises in the near future.