Reality Check: Consider your media mix if you want to drive pricing power

Back in January, we kicked off our first ‘Reality Check’ column with a quote from Les Binet reminding marketers that everything they do needs to be rooted in hard economics and business sense.

You may be thinking that goes without saying? But the harsh reality is, it’s just the kind of back to basics advice that many marketers need to hear.

The marketing discipline’s crisis of confidence about talking the language of the boardroom shows no signs of abating. And yet, as Marketing Week’s Language of Effectiveness survey showed, less than a fifth of marketers think that business fundamentals like ‘growing profit margin through price’ is part of their job.

Binet is at the forefront of a growing movement to get the most neglected of the 4Ps back where it belongs on the marketing agenda. But that is only part of the battle. Marketing may need to be rooted in hard economics. But that doesn’t mean that marketers should be thinking like economists. They should instead be thinking like behavioural economists.

Or, as Rory Sutherland puts, it: “To economists price is a number. To consumers it is a feeling.”

The pain of price

In the boardroom, price is a number, a hard economic lever for driving profitable growth. In the real world, price is a (largely negative) psychological experience. Behavioural research shows that price is framed as a loss. Neuro research shows that when people think about price it activates the insular cortex – the part of the brain that deals with emotional processing, empathy and the processing of pain.

The science on the ‘pain of price’ highlights the huge gap that exists between the basic motivations of the boardroom (profit) and the basic motivations (e.g. pleasure, loss aversion) of the people our industry calls ‘consumers’.

You need purpose and pricing power, not one or the otherNow, more than ever, the boardroom needs marketers to help them bridge this gap. The current economic climate finds brands facing a great conundrum: costs are rising and businesses need to defend profits and raise prices, but consumer confidence is low and demand is very fragile. Brands and marketers who have a holistic understanding of the psychology of price stand the best chance of solving this puzzle.

However, at the moment, this seems a long way off. If marketers think about price at all, it is typically as a ‘rational’, short term tactic focused on discounting and a race to the bottom of the funnel. Marketers continued neglect of price stems from the same tendency to zero sum thinking and spurious dichotomies (brand v performance, rational v emotional etc.) that are manifest across the marketing playbook.

Towards a holistic understanding of price

There are encouraging signs that a more holistic way of thinking is beginning to gain traction. Recent industry papers and award winning case studies from the IPA demonstrate a clear impact for advertising in improving price perceptions and reducing price elasticity. It is clear from this that price is, for want of a better term, a ‘full funnel’ effect operating to broadly build future demand and more narrowly activate current demand.

And yet, some big gaps remain. One of the most prominent being that, to date, the story has been focused almost exclusively on the role of creative in changing price perceptions. Furthermore, when marketers hear phrases like ‘pain of price’, they immediately default to a narrow story of positive emotions in advertising. However, the science of evolution tells us that the fundamental drivers of human behaviour defy the dichotomous classifications favoured by marketers (e.g. rational vs. emotional).

When we understand the science behind the ‘pain of price’, this leads to a more holistic understanding of how marketing can drive price elasticity.

At Everyday People we spend a lot of time thinking about the signalling power of media. Our latest research with Digital Cinema Media (DCM) shows that if marketers don’t build media into their price elasticity equation they are missing a trick.

Media signalling drives price perceptions

Our previous research papers on media signalling for Thinkbox, EssenceMediacom and DCM have demonstrated the psychological power of media and the role of channel choice alone in implicitly communicating important and consequential information about a brand. Media channels are strongly differentiated in their ability to signal brand fitness and quality, and our cross category data shows that these brand signals are highly correlated with market share.

Our newly published research for DCM explores the relationship between media signals and price. We added a widely used price perception model to the experimental design we developed in previous studies. Our design uses a fictional brand, and demographically matched media scenarios to control/isolate the signalling power of nine media channels.

The Van Westendorp Price Sensitivity Meter provides a measure of “psychological price”, with price framed as a quality indicator (n.b. from an evolutionary perspective, it doesn’t matter whether quality is rational or emotional – it just is, and people know it when they see it, and there are infinite ways to communicate it). As such it ties brand price perceptions directly to the fitness/quality signalling metrics, and enables us to calculate the optimal price for the brand in each media scenario.

Across both categories we tested (mobile network brand and laundry detergent brand), our cinema cells were willing to pay significantly more for the products than those in the other media channel cells.

This tells us that not all channels are created equally, and media mix has a clear role to play in influencing price perceptions and therefore, long and short term profitability. It’s time for marketers to understand the role media plays in a more holistic approach to driving business outcomes.