What to do in times of increasing price sensitivity? Prof. Dr. Martin Fassnacht, Director of the Chair of Strategy and Marketing at WHU - Otto Beisheim School of Management, presented his ideas on this topic during a lecture on "Herausforderndes makroökonomisches Umfeld: Was ist zu tun?"("Challenging macroeconomic environment: what to do?") The lecture was held as part of the German Fruit and Vegetable Congress in Düsseldorf. As an "all-rounder" for the retail sector, Fassnacht is familiar with many different topics.
Prof. Dr. Martin Fassnacht at the German Fruit and Vegetable Congress 2023
According to him, in order to be able to increase profits, it is important to adhere to four operational-strategic phases - namely strategy, analysis, decision and implementation - in order to be able to generate pricing that is appropriate for the product. "Pricing is often driven too much by actions. In the decision phase, costs as well as competition have to be considered, with customer benefit as the most important parameter. Furthermore, price management should also be seen as a dynamic process."
'The bundle generates higher profits'
Apart from that, he says, it is advantageous to offer products such as fruit and vegetables in bundles as well. He uses McDonald's Happy Meal as an example, where the four products included cost a total of €9.46 as individual products, but only €4.99 as a bundle. "Nevertheless, the bundle generates higher profits. McDonald's alone makes 50 percent of its profits through these bundles." However, he said, it is important not to sell only attractive products, as profit batches would be lower. Price, he said, depends not only on the social and/or economic situation at the time, but especially on customer perception.
"You would actually have to increase your prices because we have too low food prices in Germany." To ensure that, he said, it is the job of managers to make the customer experience as profitable as possible. "Your own view as a manager is completely irrelevant at the beginning. After all, they need to understand their customers first." Fassnacht therefore names "customer value" as the top priority, which would also depend on four factors that he determines as benefit categories: a functional, emotional, symbolic and social/ethical performance component. He also understands this as part of the pricing dynamic. Customers' willingness to pay is also based, not least, on "how a product is perceived."
The FESS approach
Functional, he says, is a product that provides optimal performance, longevity and covers all important applications. A product is emotional if it evokes positive feelings. Symbolic is a product that enjoys a high status and also serves as a marker of belonging, for example, while the social-ethical components are covered by topics such as sustainability. "If you compare all models of iPhone 15 with all models of iPhone 14, it shows that the 14 generation is even more expensive. This is partly because Apple no longer manages to add more across all components. There are no real new innovations anymore. Emotionally, iPhones are highly charged anyway, because Apple is also a strong brand."
He basically names "brand awareness" as another important factor. For example, he says, brands such as Coca Cola or Schwarzkopf have managed to build a reputation in their respective market segments, benefiting both from independent sub-brands and from an actively-strategically managed private label portfolio that can bind customers to the brand in the long term. Despite that, the number of brands with which customers have regular relationships is declining, Fassnacht said. "Especially in the digital world, emotionality and the symbolic component can work well. What I find lacking in general is proactive communication to consumers regarding their insecurities. Retailers don't present themselves as partners. If you can manage to address the uncertainty, people want to be addressed. Think as a partner, too."
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