SBR 45: WHAT WILL NEXT WEEK’S BUDGET MEAN FOR MARKETERS?

Marketers are already facing significant challenges due to inflation, rising global costs, and increasing demand for sustainability.  And it’s not likely to get any easier in the near future. Not only are we expecting an “austerity” budget if the noises coming from Downing Street are to be believed, geopolitical tensions, particularly the ongoing wars in the Middle East & Ukraine, have driven up oil prices and disrupted supply chains, and further intensified cost pressures on brands. Against this economic backdrop, marketers need to find ways to balance pricing and profitability, while ensuring they don’t alienate consumers.

Adapting to Rising Costs and Inflation

Whilst inflation has stabilised from recent eye watering levels, there is still a cost of living crisis squeezing household budgets and global events driving up production costs.  So, marketers need to understand pricing strategies and messaging to maintain consumer demand.

So, what can FMCG marketers do now to get ahead of the game? Here are a few provocations from behind the Big Black Door:

1. Review Your Pricing Strategy:  As costs rise, brands cannot always pass these on to consumers. Tiered pricing, varying your pack sizes (also known as Price Pack Architecture), added value promotions or bundle deals can help maintain affordability. Highlighting long-term value, such as durability, reduced wastage multipurpose use, helps justify the cost.  Example:  Cravendale – longer lasting milk. A simple reason why shoppers pay almost double for that brand vs private label, standard milk. But in reality, it’s not a benefit many households I know really need….

2. Shifting Consumer Behaviour: Consumers are prioritising essentials, but non-essential (small luxury) products can still thrive if positioned as investments. Marketers can emphasize long-term cost savings or efficiency benefits, reframing premium products as smart choices. It’s known as the Lipstick Effect - people like to give themselves a little treat, but may hold off buying bigger ticket items. That’s good news for premium FMCG brands.

3. Affordability Messaging: Brands could clearly communicate value rather than price. Highlight product benefits like longer lifespan, energy efficiency, or cost-per-use savings, giving consumers confidence in their purchases.  Example: pence per serve for your corn flakes, or pence per cycle for dishwasher tablets.

4. Loyalty Programs and Retention: Retaining existing customers is more cost-effective during difficult economic times. Reward programs that offer discounts or perks for sustainable choices can keep customers engaged and foster long-term brand loyalty.  The classic example of this is the O2 rewards scheme – designed to reduce churn, but actually grew the brand through penetration gains (Source: How Not to Plan, by Peter Field and Sarah Carter - a fantastic book)

Understanding Your Pricing in a Volatile Economy

All good marketing starts with a deep understanding of your target audience. So, do you know how your product’s price point is perceived by your consumers?

I mean really know - backed up with data, not guesswork. The Van Westendorp Price Sensitivity Model helps marketers find the optimal price point by assessing consumer perceptions of value. It determines the price range where consumers still see value without feeling overcharged, which is critical as brands face rising costs. Testing price elasticity through this model ensures that brands can adjust pricing without losing customers. Let me know if you want help setting one of those up.

Will Consumers Pay More for a Sustainable Product? 

Sustainability is a hygiene factor, but with rising pressure on household purse strings, the question is whether consumers will pay a premium for eco-friendly products?  While consumers claim to prefer sustainable brands, in my experience price trumps it, especially in times of economic uncertainty.  Consider what the main driver of purchase in your category is (the Category Entry Point) and see if you can align your sustainability messages to that.

Buckle up marketers.

Marketers have a tough year or so ahead - navigating rising CoGs, austerity measures, inflationary pressure and sustainability demands. As always, you know where we are if you need help plotting your way through these tricky times or just need a friendly chat over a coffee.

We’ve got your back.