Podcast Summary

Charles Nixon and Kiran Kapur of the Cambridge Marketing College discussed the challenges and opportunities for marketers amidst the difficult UK economic climate, characterised by high inflation and potential tax increases. The conversation centered on the critical need for more sophisticated and creative pricing strategies, moving beyond outdated "cost-plus" models. They emphasized the importance of storytelling to justify price changes, the role of innovation in product offerings and packaging, and the strategic use of pricing to signal quality and brand position. The discussion also touched upon the emerging impact of AI on service-based pricing and the necessity for businesses to be proactive and experimental rather than passive in the face of economic headwinds.

 

Key Points

  • The current UK economic situation, with rising inflation and costs, demanded that marketers become more savvy and creative with their pricing strategies.
  • "Cost-plus" pricing was identified as an untenable and unimaginative approach in the current climate.
  • Pricing was described as a psychologically powerful tool that marketers often underutilise, capable of indicating quality and market position to consumers.
  • Communicating the story behind price increases (e.g., rising raw material costs) was crucial for maintaining consumer trust and understanding.
  • Innovation in packaging, product bundling, and creating new, lower-priced product tiers (as seen with Walmart and McDonald's) was highlighted as an effective strategy.
  • The introduction of AI in services, such as legal drafting, presented a new pricing challenge, requiring careful communication to justify fees when automated tools are used.
  • The speakers concluded that in a challenging market, the worst thing a company could do was nothing; continuous trial and error were essential to find what works.

 

Podcast Transcript

Transcripts are auto-generated.

 

Charles Nixon (00:04):
Hello and welcome to Opinionated marketers with myself, Charles Nixon and Kiran Kapur of the Cambridge Marketing College. Today we're talking economics, the never ending, especially summer story of the woes of the British economy and therefore of British consumers. Today there were some interesting announcements adding to the cumulation of data going through the week. So we now have more discussions about how the government is going to raise more tax, which undoubtedly it's going to have to do, whether or not it's going to charge people for living in their homes more on the basis of cancel taxes. Government borrowing went down just a little bit, but probably not a trend. So we look forward with bated breath, I think is probably the term to the cChancellor's Budget in the autumn. In the meantime, inflation continues to go up in the UK - food inflation significantly so - widening the gap with our major competitors in Europe and elsewhere.

(01:08):
So what does this mean for marketers? Well, I think it means essentially speaking that we have to get a more savvy with the way in which we pass on prices and costs. We have to start thinking about new ways of defraying costs within the company and assessing what it is that we need to receive in terms of making a good return on our assets. I think this is one of the elements where we have talked in the past about pricing, shrink inflation, inflation, et cetera, but now we probably need to return to the subject. Kiran, it's a bit doom and gloom unfortunately with a grey warning. But any thoughts from your side?

Kiran Kapur (01:48):
I think pricing is one of those areas of marketing. It's a bit of a sort of Cinderella concept, isn't it? We don't really want to talk about it. Most marketers don't find pricing very exciting. Actually. I think you and I do. I always find when I'm teaching pricing, I tend to find it gets very exciting because we do, I mean in a very classical way, we use pricing to indicate quality. We use pricing to indicate where we are positioned in the marketplace. Consumers use pricing as that sort of shortcut to working out what type of product it is, or that sometimes you can price too cheap. On the other hand, Shein and Temu show us that actually for certain things you can't price cheap enough in a way. So there are lots and lots of exciting things and psychological things that go on in pricing. And I do think marketers sometimes just go, oh yeah, I leave pricing to the product people instead of really getting involved in why it is so important.

Charles Nixon (02:40):
I couldn't agree more. I think it needs creativity, it needs imagination. The element which is still prevalent in most companies is cost plus pricing or dear, our prices have gone up because our costs went up. It is no longer really tenable. You have to think clearly about how you might put prices into different perspectives. Costs undoubtedly go up from the raw materials perspective, things such as like cocoa prices because of climate change going up, cost of delivery for fuel prices going up, cost of energy going up, and therefore cost of packaging. So the question therefore starts to be, well, do you need the same levels of packaging? And standard one of course has been shrink deflation, but are there different innovative ways in which you can package or repackage your products? Are there ways in which you can decide that it needs to be bought in conjunction with something else and offers can be placed that way?

(03:39):
We are back to some of the standard issues of the old bogof [buy one get one free] or sales promotion techniques, but I do see that there is a lack of imagination on the retail shelves these days. And I think there definitely needs to be some experimentation here. The economic situation for the UK is not particularly brilliant. It may well change over the autumn, but as it stands at the moment, we have to think from a marketer's perspective, what do we want from pricing? And you're absolutely right, quality and branding are important issues here and therefore I think some companies need to actually step up to the market and actually put their prices up and claim that they are the market leader or whatever it happens to be for that particular product. And I think branding therefore becomes the other issue.

Kiran Kapur (04:28):
I agree. And the other thing is just to explain the story behind why you were doing something. If your prices have had to go up because cocoa prices have gone up, then say, so I mean a consumer can understand that if I've gone back to buy my normal chocolate and my normal brand has suddenly got more expensive, if I don't understand, I mean I may look along the shelf and go, oh, hang on, everybody else's prices have gone up. Or I may not realise that because if all I ever see is my particular brand, I may not really be aware of where it fits into other marketplaces, other competitor products until I'm forced to do so because my brand has suddenly got more expensive. So I think yes, you do have to explain to consumers, you do have to, we talk about storytelling a lot in marketing. You do have to story tell, you have to explain.

Charles Nixon (05:11):
I think you're absolutely right. The point being that most consumers are reasonably savvy about the way in which the world works economically these days. It's not a case of they don't understand what goes on. So they do understand that companies need to make profits. They do get rather irate if they think they're making super profits, but generally speaking, people will accept that there needs to be a reasonable margin because they need to see that their fellow human beings are employed at a reasonable rate and everybody wants a reasonable salary. So telling a story is a good one. It isn't just a case of saying, oh, well we've ethically sourced, it's a case that we actually pay a reasonable salary, we pay our suppliers. Well, there are examples of this in the retailing world and they should be followed I think by others. The element I think that isn't necessarily being taken is the innovation.

(06:09):
And I do think that there are some interesting ways. There was a report this week that Walmart is doing well by constantly innovating and bringing out lower priced products, whereas Target, its rival, is not. And the similar aspect was I think last week, that McDonald's is doing well by going for the upper market but had failed to maintain its relationship with the lower income marketplace and therefore has introduced a new cheaper price point for a new range of products. And I think we need to do something similar in many areas isn't necessarily the same. I look at the fact that a very mundane thing in one respect is that butter is now in a variety of sizes, but more or less the same price dependent on the high-end brands that you might be looking at. The element is what has happened to the impact of sales for those high-end brands? They do not seem to have suffered that much.

Kiran Kapur (07:11):
I think the one area we haven't discussed is services marketing. And this is where I find things are very interesting. I had a very interesting discussion with a colleague yesterday and we were talking about the introduction of AI, which is one thing we haven't talked about, which makes a nice change. And we were talking about, she was talking about the legal companies that starting to use AI to do some of the basic drafting, get the basic drafting done by the AI rather than using a human being, which is what they would previously have done. What happens when your consumer suddenly goes, 'hang on a second, I am paying huge lawyers fees and you are using a machine to do this. I can do that.' And so you do have to innovation absolutely, but be very, very careful. Again, you need to tell the story about that. It's okay, we're using AI just to do the basics, but our experts will be viewing your documentation. It's going to be a very important message.

Charles Nixon (08:02):
That's a very interesting point. We haven't talked about AI and perhaps to some degree it was almost psychological. Oh God, not another thing. Let's talk about something other than AI, but you've opened Pandora's box, so let's think about it. I have not yet seen anybody apply AI to a household budget. So I have a household budget of x, I have two adults and two children. Tell me how I constructed a notional meal by shopping at Tesco's. It'd be interesting to see whether or not it could assist, because that would be doing something for the general public, which might be an interesting way of using new technology. Yes. But otherwise, the issue about whether it happens to be paying for the use of an AI tool has obviously if it's doing it well, been programmed, which is a large amount of R and D that went into it would be the same argument that you would have for paying a high price for pharmaceuticals, which have had large amounts of R and D gone into it. So an interesting and contentious issue to perhaps end upon,

Kiran Kapur (09:16):
But it all comes back down to communicating to your customers. It all comes back down to explaining what's going on. And as you said, it's all about innovation. It's about grabbing prices, looking at innovation and saying, right, what can we do in the current marketplace as opposed to what I am seeing with a few companies where they're just going, oh, we dunno what to do. Well, the worst thing you can do is not do something, innovate, try new things, look for things. But one of your maxims has always been the worst thing you can do is not to do something.

Charles Nixon (09:47):
Correct. Absolutely. Keep trying. Even if you call it trial and error by making mistakes, you know what won't work. So you can gradually narrow it down to what will work.