Noticing and Optionality as Defense Against Price Increases

A truism about prices and consumer products companies:

If a company can raise prices... it will.

Companies are always on the lookout for circumstances where they can raise prices. And they especially like circumstances where the consumer:

a) doesn't notice, or
b) doesn't have a choice.

Doesn't notice
When I say "the consumer doesn't notice" what do I mean? I'll explain with a hypothetical price-hiking tactic. Consider your basic Kraft brand salad dressing at $2.49 for a 16-ounce jar. Kraft decides to roll out a new, "upmarket" brand extension (for example, an "organic" or "natural" salad dressing) at a price point as much as 30-50% higher than the regular product. They market this product aggressively, paying for prominent shelf locations, signs, special displays, and so on, as Kraft attempts to position this salad dressing as a high end product.

Now, this creates a subtle "pricing umbrella"--for Kraft's regular brand, but for all other brands too. Even the store brand! Each of these brands now have room to raise their prices at least another 10-15%, to a point where they are still comfortably cheaper than the high-end brand.

Yet to a non-noticing, non-attentive consumer, all these products seeeeem less expensive, even though they're not. Voila! A price hike that consumers don't really even see. Because we notice relative differences much more easily than absolute differences, a new high-end or aspirational product can improve pricing dynamics for the entire product category. This is how pricing umbrellas work. And it goes without saying that consumers who "don't notice" don't even realize they're being fooled.

Doesn't have a choice
Let's move on to the second case: where consumers can't do anything about a price hike, even if they do notice. So, for the sake of argument, let's say (for some bizarre reason) you have undying brand loyalty to Kraft brand salad dressing. You simply refuse to buy anything else.

Well, you're pretty much screwed. And it's because of your "loyalty" to a brand that doesn't care about you, that doesn't even know you exist, and that sees you as a mere mark for future price hikes. You're stuck. You have to eat any increase in prices.

You can maybe hold off on buying until you see an attractive sale price (see last week's post for more on this), but you don't know when or to what extent the company actually will discount, if at all. At the end of the day, you're gonna eat a price hike. This is why brand loyalty is toxic to consumers.

Of course, I'm using salad dressing as an example in this post for reasons of rhetoric (and metaphor, as we'll soon see). After all, a flexible, empowered, open-minded reader who hears the words "Kraft salad dressing" and "price hike" in the same sentence will instantly begin reeling off solutions, substitutions and alternatives. To most readers here at Casual Kitchen the idea of buying salad dressing at all, much less a branded salad dressing (and much, much, much less an overpriced upmarket "aspirational" salad dressing) would be a ridiculous, even vaguely pathetic act. Especially in light of how easy it is to make inexpensive (and far more healthy) salad dressings at home.

Therefore, any reader here should easily be able to arrive at multiple solutions to subvert any price hike anywhere in this entire genre of products.

Okay. Salad dressing is easy. With other products it can be more difficult. Obviously. But the point is to try and think of any product, regardless of what it is, as if it were "salad dressing" in order to help your brain generate alternatives.

Really, it doesn't matter whether it's salad dressing, airline tickets, cars, houses or ...yachts. You want to make it so that all providers of all products have to compete--on multiple, multiple levels--in order to win your business.

And yeah, I know: one one level, salad dressing doesn't really matter. Nobody changes their standard of living by beating price hikes in the salad dressing aisle. But you will change your standard of living if you can employ these concepts in other life domains and with other, much bigger-ticket items.

If there are competing products in the same store, great. If not, make them them compete "temporally" by holding off on your buying until you see a truly attractive sale price. Invoke competition from other retailers, from online retailers, and so on.

Finally, when all else fails, make them compete with a truly out of the box solution. (Examples: make the product yourself at home, use the "don't want it" heuristic, find a truly original substitutive solution, etc.) Force these guys to compete for your business on multiple, multiple levels, and you will reclaim most of your power and resist any pricing games they play.

Remember: if you don't have options you are toast. You'll be beholden to some retailer or some company and all their sneaky, creepy pricing tactics.



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