The post-pandemic world has been one of high inflation and extremely high commodity prices, which has forced organisations to increase prices between 15% to 25%. However, were these exponential price hikes justified? According to Boston Consulting Group’s (BCG) MD & senior partner (global leader, marketing, sales and pricing practice), Jean-Manuel Izaret (JMI), a blanket increase in pricing was uncalled for. An expert in pricing, JMI, along with Nimisha Jain, India people chair and APAC leader at BCG, in an interview with Fortune India discuss pricing strategies, innovation and the importance of having a multi-channel presence for brands.
Excerpts:
On whether exponential price hikes were actually needed in the post-pandemic world
JMI: The inflation burst post COVID, governments trying to subsidise and support people, and the rise in oil prices due to the Russia-Ukraine war created changes in demand and costs. As a result, companies had to adjust their prices, but some of them have done it in a way which is too simplistic – which is pushing pricing up. The pricing policy of most global companies is not decentralised. They don’t adapt to the situation of every single market. It is very easy for a company with headquarters in Europe or the US to push prices at the same level across countries. That’s how you get the 15%-25% price increase. The cost may not have gone up by 15% in India, therefore it should have been less in India. There are different cost structures, different situations within India and also different levels of demand for products.
Brands having blanket behaviour about pricing haven't done well globally. Companies with headquarters in the US tend to push prices up in the US less than they do in Europe because they don’t get feedback from consumers in Europe. Similarly, European companies tend to push prices up in the US, more and say the worker will be able to pay. There is no doubt that inflation is a huge concern and is the centre of elections in most countries, but it is important for multinationals to be granular enough in how they are organised and how they set pricing policy. Their inability to be granular builds opportunities for local players and local champions to gain market share.
How granular pricing gives regional brands an edge
Nimisha: Regional Indian brands are very successful. They are able to adapt to local tastes and preferences and manage cost structures better, providing greater value to the consumer. I emphasise ‘value,’ not ‘pricing,’ because the Indian consumer is happy to pay a slight premium for a superior value. It’s about maximising value, not minimising price. You get your supply chain to go much deeper.
Prices hikes need to be justified
Nimisha: One has to take a deaveraged view in India, as there are different income segments, city tiers, geographies, and, of course, categories. People who are affluent (₹10 lakh and above household income) already make up about 15%-18% of the population, and this segment is growing at 2x the rate of the rest of the country. These consumers are looking at premiumising and spending more. They don’t want to spend more on the same things, they want something superior. Over there, being able to increase prices for a superior offering is what companies should do. There are other pockets where there may be specific opportunities when you can give additional value to the consumers, even at the mid or lower-end where they are able to pay more for that. But at the same time when you try to keep charging more for the same or you want to maintain the price but you start removing things and cutting, that’s when the real problem comes. If your company falls into the trap of saying, ‘I need to maintain a price-point, therefore, I am keeping or taking away or I am going to maintain what I am giving but I will keep increasing prices without giving anything extra,’ it won’t be accepted. If you provide something more, people are willing to pay. One has to get the right balance and do it in a deaveraged manner.
Innovation is key
JMI: Brands need to continuously innovate and come up with new products. The needs of consumers continue to evolve therefore the segments need to evolve too. Second, you need to offer more choices. As you offer more choices, these choices will provide different trade-offs between different values and price. Therefore, good management of your product offering is to continuously innovate and then prune things that don’t work so that you can come up with new products. The shelf is fixed, but you need to continuously have new products and try different things, what doesn’t work you take it out. Where the brand does the opposite - which is I have what I have and I want to push the prices or it’s the same product and my innovation is taking things out, so price is going to be constant, that’s not true innovation. That’s not producing more choice, so the brand gets punished. People who innovate win.
Being multi-channel
JMI: In 2020-21, suddenly you had a lot of companies which said we need to have e-commerce and build a direct relationship with customers. That worked well till 2022, but as people moved to a normal way of life then stores became more important. Brands which kept in touch with the store and store experiences have succeeded more.
Nimisha: D2C brands in India are not losing out; they have moderated. D2C in certain categories are doing quite well, but it didn’t work in all categories. It has done well in beauty. D2C after reaching a certain size and scale and after that going physical is also a challenge. If you look at consumer behaviour, the reality is that most consumers want an offline experience. They want a multi-channel experience, so brands need to be available on both the channels.
