Revenue is essentially the sum of consumers’ decision processes. Consumers are human beings, and our behaviour is easily altered by the context in which we make decisions. Therefore, consumer decision behaviour should be the focal point for pricing and revenue management strategies during this global crisis.
Consumers have experienced unprecedented disruptions, and adjusting to the aftermath of the public health and economic crisis will not be easy. Companies, too, must adapt during this profound adjustment period.
1. Dive deeper into consumer segments to uncover changing dynamics
NRM (Net Revenue Management) is often based on averages and totals, but those don’t reflect the diversity of consumer experiences in the midst of COVID. For example, cutting prices to reflect reduced spending power would be a mistake since plenty of shoppers would have purchased anyway.
It’s crucial to understand the changing dynamics within consumer segments and adapt strategically for specific target groups.
2. Use your portfolio to manage revenue
A post-COVID recession will result in decreased market demand and spending power. Rather than only changing prices, companies should adapt offerings to meet the needs of consumers who are spending more prudently. One option is to create affordable, alternative SKUs (Stock Keeping Unit) or brands, but this must be done with attention to NRM, value, cost, and price constraints.
On the other hand, some consumers will still be able to afford their usual brands/products. Here, the goal is to strengthen their habits. Add value to justify pricing or even command a higher premium based on need.
3. Evolve your pricing research approach for more agility
Amid change, old standards may not apply. Agile research methods will deliver more accurate insights. Targeted primary research helps to track changes in consumer perception about brand, product, pricing, and promotions.
It is also worth considering that the insights you gained three months ago (or more) could well be out-of-date, so there is great value in repeating research exercises to reflect the new context.
While a data-driven approach is key to successful pricing and revenue management strategies, a wide set of data sources is essential. Sales data, brand trackers, marketing mix models, expert views, and consumer insights on price elasticity (e.g. pricing research like conjoint studies) are important pieces of the puzzle. However, to ensure the most accurate predictions, analytical rigour must be applied when combining different data sources. The research techniques themselves affect the results and can impact the overall success of your NRM strategy.
4. Accept that there are areas you won’t be able to get full visibility
Rather than trying to get a complete understanding of your entire category and consumer groups, focus on having enough information and evolve your plans over time. First, get enough information – new or existing – to inform your strategies, then regularly reassess the assumptions you have had to make. Work out which data sources you need to fill in gaps – again, this could become clearer over time – to help you predict coming trends.
5. Focus on the future to reinforce positive habits and disrupt unfavourable ones
It’s important not to extrapolate too much from the past as this may not be reliable. Instead, carefully consider which parts of consumer behaviour have changed and which of those changes are permanent. Focus on understanding what “the new normal” will look like. Leverage changing dynamics to strengthen your position for the future.
Lead in the new normal with products and services that are more relevant and that resonate differently in the new context. Your goal is to manage positive new habits (e.g. buying online), disrupts those that are not favourable (e.g. ditching private label brands) and encourage repeat buying in the new context (e.g. choosing healthier options).
6. Don’t damage long-term revenue potential with frequent price reductions
Net price is a key component of revenue generation. While rebates and price promotions can be used to boost sales, in an unstable market, promotions may be less effective. Use pricing strategies wisely: frequent reductions and buying market share can damage long-term value, price perception and revenue potential.
Price is an important influencer for consumers, so use it. But even in a recession, it’s better to compete on value or the value-price ratio. Use pricing conscientiously to influence the decision and realize net revenue goals.
Though you may need to buckle up for a bumpy ride, gaining and acting on robust insights will enable better revenue decisions. As you adapt your NRM strategy, strive to address changing priorities without damaging long-term brand loyalty and perception.
