If there’s one thing consumers hate, it’s getting sucker-punched with a price increase. Armed with social media, the mouthiest consumers wield power as never before. Netflix's Qwikster disaster may be old news, but any stroll through the Internet will find plenty of consumer revolutions simmering on the Facebook stove, with people peeved about banking fees, checked-baggage policies and sneaky cell phone charges.
But Jean-Manuel Izaret, a partner with Boston Consulting Group’s San Francisco office, says smart marketers can raise prices when they need to, as long as they’re careful. He tells Marketing Daily how it’s done:
Q: So as you studied the power of these consumer pushbacks, what surprised you most?
A: We didn’t expect to see that such a very small number of customers who push back could have such a big impact. Social media is like an echo chamber. Suddenly you have a campaign that can be orchestrated very quickly. We were all fascinated by the Arab Spring, and the surprise to us was to see how quickly that same phenomenon translated into the consumer space.
Q: How long can consumers stay activist? It’s very tiring.
A: If someone keeps it up for just two or three months, it’s enough for other consumers to take the flag up. And it doesn’t take many people to have an impact on a brand. Just as you might have only a few consumers writing reviews and posting stuff, from the content perspective, you probably only need one in a million consumers to be activist to get things rolling.
Q: What about people pushing back against entire industries? Telephone companies and landlines, for example. Cable companies. Cell phones with contracts.
A: I expect that will continue. This is particularly true for any media. We saw it with music and Napster 15 years ago, next news organizations, and now cable companies. As technology changes, new industries are disrupting the old ones and changing the pricing model.
Cell phone companies lock customers into a long-term contract with a subsidized phone, and that equilibrium has been in place for a long time. People come to resent that. So newer companies can come in with a different proposition, spending less to acquire new customers, and not asking for long-term contracts. It’s a cycle.
Q: Can companies raise prices without creating a backlash?
A: Yes. Many of the Fortune 500 companies have been very sophisticated in how they respond. Offering choices in a range of values is one of the most important levers. As long as you maintain some choices and the lower options are always available, you can get people to buy higher-priced, higher-value options.
You can also offer more nuanced price change, and emphasize fairness. Consumers tend to push back less when pricing changes are needed to address a business problem considered important to consumers, such as keeping local branches open or making large investments to improve safety.
Q: Are there different rules for luxury brands?
A: Yes. Lowering prices could destroy part of the brand’s equity. The highest end of the luxury segment is characterized by reverse elasticity. When you increase the price for a luxury good, you actually make that brand more desirable. But for most mainstream consumer products, raising prices will cause a drop-off in volume, and that eroding market share needs to be calculated over both the near and long term.