Pricing and Promotion in 2021: Six Steps to Success in Q4
Perfecting your pricing and promotions this peak season will be crucial to your annual sales results. There’s no question that the pandemic has...
**Pricing and promotion
in 2021:** Six steps to success in Q4
the price is right
This peak season shoppers will seek to save as they spend
Understand what’s impacting pricing and how you should respond
Perfecting your pricing and promotions this peak season will be crucial to your annual sales results. There’s no question that the pandemic has disrupted market and consumer behavior and both need to be considered when taking pricing and discounting decisions this year.
Pricing and promotion in 2021
Six steps to success in Q4
In global technical consumer goods (TCG) markets we’ve reported on a sales surge since the start of the pandemic, and this demand shows no signs of abating.
However, in the current environment of rising prices and economic uncertainty, many consumers in all markets will be thinking about cost and value as we approach this year’s peak weeks.
Of course, it’s not news that shoppers love a bargain. Our FutureBuy research shows that saving money through the best prices or deals is top of mind for four in 10 (42%) online shoppers and two in 10 (24%) in-store shoppers. But add to the mix supply shortages and pressure on prices, job losses and anticipated increasing inflation, and the need for some shoppers to save as they spend is understandable.
Of course, not all consumers are in the same situation – many have saved money during the lockdowns.
It’s important to look at different shopper segments when planning your pricing strategy.
Whether it’s during Singles’ Day, Black Friday, Cyber Monday, Christmas or the post-holiday sales, the last months of the year and the start of Q1 is the most important sales period for the technology and durables markets.
Many consumers will be ready to grab a deal in Q4. Make sure you follow our six steps to success this peak season to have the maximum chance of being their brand, product, or retailer of choice.
That’s why last year’s peak season of November 2020 to January 2021 delivered the highest share of revenue for global TCG markets for five years at a significant 30.4% of revenue.
**Step 1:** Perfect pricing in the coronavirus era
The crisis reversed the need for mass market pricing drops
Price inflation caused by high demand is impacting all sectors
Three factors combined to drive up average retail sales price (ASP) in the first four months of 2021: strong demand, an increase in the cost of raw materials and supply challenges. ASP increased 20% globally in the TCG market between April 2020 and April 2021.
Contrary to past trends, the increases in ASP are not only driven by trading up to 'premium', we also see price increases in mass market products in all categories.
Ines Haaga, Global Strategic Insights
As the chart shows, the upward trend in average selling prices (ASP) can be seen across the TCG market and in all major product categories. Looking at April 2021 data, prices in Consumer Electronics rose 32% globally compared to the same time last year. IT increased 19%. Telecom remained flat although previously the category experienced prices. In February 2021, for example, ASP peaked with a plus of 29%.
Three factors are inflating average selling price: strong demand, the increase in sales of premium products, and the growing cost of raw materials. The pandemic disrupted previously familiar pricing trends. For instance, in TCG mass markets, we are accustomed to seeing falling prices, but during the last few months prices have risen for products including 60” LCD TVs, webcams printers (inkjet, multifunction) and 27’’ monitors.
On the one hand these price increases are caused by ongoing demand for IT infrastructure. After having satisfied their immediate needs for home-bound activities, consumers invested in improving their environment and equipment better for working, learning, and entertaining at homeMany upgraded to faster internet and infrastructure and prepared for video conferencing and printing needs.
On the other hand, and in addition to unusually high demand, the exploding costs of commodities, increases in shipping costs and chip shortages have impacted prices of IT categories.
The factors driving price increases are here to stay. It will be absolutely key to success in the peak season to monitor pricing changes in near real-time across the sector to make sure you get your prices right.
**Step 2:** Choose less aggressive promotions
Find the ideal balance in your marketing activity
Where is discounting heading this peak season?
The stellar performance of Q4 2020 shows that when supply is limited and demand remains high, retailers do not need to get into a promotion-led bidding war to attract customers.
In this market environment, the retailer’s skill is to offer enough appealing and relevant deals to fulfil customers’ appetite for a bargain, but not to overdo it.
Shoppers have become accustomed to shortages, and they have shown that they are prepared to pay higher prices as they prioritize their need for certain products.
The level of promotions differs considerably between product categories. And as individual demand situations are less comparable across categories than ever before, you need to thoroughly assess the best discounting levels for each product.
Norbert Herzog, Global Strategic Insights Manager
In 2019 – a year we can describe as “normal” in terms of promotional levels – 12.7 % of all unit sales were made with a price reduction of 15% or more. The graphic below shows that in 2020 there were fewer price promotions because of the high demand for TCG products in many categories.
In 2021 we have returned to a more ‘normal’ situation but still on a lower level than pre-pandemic. Currently we are experiencing a phase of increasing prices so we expect that aggressive price promotions will increase substantially once supply challenges are mastered. Also, current promotions are being added to prices that are already higher.
Your price promotions will be most effective when you use market intelligence and sales performance data to optimize discount levels, duration, and timing. Track the monthly development to ensure you remain competitive, while at the same time protecting your margin by avoiding over-discounting.
**Step 3:** Securing supply supersedes low price aspirations
Supply is the key to unlocking customer loyalty in Q4 2021
The Supply chain
Distribution has been severely impacted by the
pandemic, and the familiar patterns of supply have changed drastically. As a result, we are not just experiencing an increase in retail prices, but distributors are also selling at higher levels to their customers.
In Q1 2021, distributors exceeded sales expectations, but by Q2 2021 that resilience was starting to show signs of slowing down.
Between weeks 13 and 22 there was a gradual decline in product availability which drove up average selling prices to retailers and resellers by 32% globally.
The downward trend in supply from the beginning of the year indicates just how severe the pandemic-related disruptions are to supply chain management.
As the chart on the next page shows, the average number, the average number of selling items at distributors dropped 9% between week 13 and week 22.
By comparing our two Market Intelligence datasets of Sales Tracking and Supply Chain, we can confirm that during H1 2021 retailers and resellers stocked up on TCG items. The share of goods supplied by distributors intensified, as retailers increased their sources to ensure full shelves. This activity guarantees that consumers have the choice they want at retail. During this coming peak season, being able to offer a good selection of products and brands will ensure retailers meet consumers expectations. Retailers know only too well that where there’s no supply, consumers will simply shop around which inevitably has a negative impact on customer loyalty.
Now is the time to plan how to mitigate for this situation so you can keep your customers satisfied.
For retailers, ensuring stock of the products people want to buy will be crucial to success in this year’s peak week season. Our analysis suggests there could be further shortages to come, and with that will come price increases too.
Ercin Coskun, Product Manager Market Intelligence: Supply Chain at GfK
Availability is pivotal to success this peak season. With the Seasonal Peak Monitor you can track how readily your own and competitor products are available online and in-store.
Request your offer now.
**Step 4:** Know when consumers will pay more for premium products
When tech is more than an investment, it’s an indulgence
Consumers splash the cash for problem-solving products
One of the reasons you need to base your decisions on hard facts is that some of the trends that we’ve observed over the past 18 months appear contradictory.
Consumers can confuse us! For instance, on the one hand, they tell us they are price sensitive, yet on the other, our sales intelligence indicates that they are paying more for premium products that help them manage pandemic living.
Retailers and manufacturers need to be aware of this apparent contradiction when planning pricing and promotions. People are willing to pay more for the good quality, longer lasting products they need to cope with the pandemic, for instance for home working and studying where better networking solutions may be required. They are also investing in better performing, smarter products to indulge themselves. During lockdowns, the only way to splash out on a treat was to choose something home-based.
It is important to indulge or pamper myself on a regular basis.
44% of global respondents agreed, GfK Consumer Life study, 2020
Thus, shoppers chose pricier features and functionality when buying products that make life easier at home, such as superior TVs, thinner notebooks, better vacuum cleaners, bigger smartphones etc.
For some consumers, being limited to the home meant they were able to save money they would otherwise have spent on going out, and this has been redirected to premium products. However, this is not the case for all, and many have seen a significant cut in their income.
Sales made during the Q4 2020 lockdowns showed us that consumers will pay more for problem-solving products. Shoppers often traded up, either because cheaper alternatives were not available, or they had disposable income and could afford to do so. It is key you understand these shopping trends and know the latest consumer preferences when planning your pricing and promotions.
Read more about this trend
**Step 5:** Adapt to changed online and offline pricing dynamics
Price points are converging across sales channels
Online prices and assortment has evolved during the pandemic
The pandemic catapulted e-Commerce to a new level globally. Online sales for TCG grew by 35% in 2020 compared to 2019. In April 2021 they accounted for 34 % of sales value.
There’s been a growth in online sales share across all product categories with IT in the lead. All geographical regions enjoyed growth in online sales share and the prices charged, with a particularly strong performance in Western Europe and China.
We have also seen this trend in regions with relatively low online sales shares to date, for instance in the Middle East/Africa, Emerging Asia, and Latin America.
GfK’s online price index shows how these prices compare to the overall TCG market levels. During lockdowns shoppers were often forced to buy everything online.
Therefore, we saw a change in the online assortment which became more extensive and comprehensive in every region.
This had also an impact on average prices in the e-Commerce channel.
In Europe average online prices increased slightly as shoppers bought into new categories and ordered premium products online. A similar development, albeit on a lower level, can be observed in China. Here it is normal for mass market products to be available at cheaper prices via e-Commerce, but analysis of the price index points to increases in the cost of items online during the lockdowns when no traditional retail option existed.
In Latin America however we saw the opposite development. In this region, online which used to be the channel for a premium assortment, began offering a bigger assortment driving down average channel prices.
The pandemic forced more people in Latin America to shop online for TCG than ever before. A new trend emerged. Whereas previously online retail had offered a premium product assortment, recently prices for both mass market and premium products have begun to converge.
Ricardo Moura, Head of Market Intelligence, GfK Brazil
In addition to the general trend towards convergence between online and offline pricing levels, we also see converging prices at a product level. This has been happening for a while but has been accelerated by the
panemic. For many products the current price difference between online and offline is the smallest it has ever been.
One example is the price index development for TVs in Western Europe.
Looking at these developments on a product-by-product basis is crucial to offering the right pricing and assortment in the most appropriate channel.
According to our 2020 FutureBuy study, for 62% of global shoppers it is important that prices are the same online and offline.
Although the pandemic forced change in the right direction, online retail prices still vary from offline prices in some product categories due to differences in the regional and local retail landscape and the assortment mix.
With shoppers disliking these channel price discrepancies so much, and the inevitable move to omnichannel, retailers need to be
mindful of the issues it can cause, and work to equalize costs across all channels.
Where did consumers buy last week? How are spikes in demand driven by promotions impacting channel choice?
Our Seasonal Peak Monitor has the answers.
Request the report now.
**Step 6:** Respond fast using the latest market intelligence
Monitor your own and your competitors’ performance and pricing
Maximizing 2021’s peak seasons is an ongoing process
In competitive sectors like TCG it is important to constantly monitor trends and performance in sales, marketing, promotions, and in your own pricing versus the competition. You need to be looking at this data very frequently to identify opportunities and spot emerging risk factors so you can act fast and with the confidence that your decisions are based on hard evidence.
Being ready to maximize 2021’s peak seasons is an ongoing process. You need to track price developments effectively. Today competitor prices move quickly throughout the year and frenetically during key promotional weeks like Singles’ Day and Black Friday.
By understanding what consumers will pay for a product and how much the competition is selling it for, you can evaluate whether your pricing is appropriate for the current market conditions. This is important in any given week but even more so in the most sales-relevant weeks of the year.
You need the topline picture and the granular details, so that you can identify and respond to market movements fast and optimize sales at the best price achievable for a product.
David Lewis, Global Vice President Market Intelligence, GfK
The relationship between sales and discounted price is only the first step to understanding the source of business. Success also depends on knowing if you have a distribution or a sales issue at retail. Only then you can determine the appropriate actions to optimize your campaign strategy. For an industry dominated by weekly sales activities, it is crucial to rely on granular analysis of performance – both past and present. Weekly performance reporting allows sales and marketing teams to maximize impact by acting fast, such as continuing a price promotion that delivers an uplift or ending one that fails to do this.
Today, Black Friday is the most important sales peak for retailers outside China. Monthly or less frequent sales data will show that November was a very strong month, but the weekly view will allow comparisons of Black Friday with Cyber Monday and enable an analysis of sales performance on channel level. You can now understand which channels and segments should be distributed during key promotional events. Use historical trend data to learn from the past – but remember, the pandemic has changed a lot so only monitoring what is happening right now will help you maximize your sales this peak season.
Pricing and promotion in 2021: **Six steps to success in Q4 **
Perfect your pricing and strong peak week sales will follow
Plan now to take on the fiercest competition yet
Sales in the TCG sector are booming, and market factors have been driving prices.
As we see no signs of these rises ending, getting your pricing right in 2021’s peak weeks will be the difference between sales success and failure. We expect this Q4 to be one of the fiercest competitions for marketers, product managers and sales executives as they work to perfect relevant, appealing promotions that will drive sales. As Black Friday and other sales initiatives grow in importance globally, it is business-critical to plan, monitor and adjust your pricing if you are to win in this battlefield.
Armed with data from GfK’s Market Intelligence: Sales Tracking and Market Intelligence: Supply Chain you can see what is selling right across the retail landscape, and for what price, which gives you the flexibility to adapt and respond to changing market and consumer trends. In this paper we have used data from these sources.
Six steps to getting your pricing strategy right
STEP 1: Perfect pricing in the coronavirus era
The pandemic has disrupted previously familiar pricing trends and there have been price rises in all categories and in all price bands, from mass market to premium. To get your pricing strategy right, make sure you are tracking changes prices in your categories and among your competitive set week-to-week.
STEP 2: Choose less aggressive promotions
When supply is limited and demand remains high, retailers do not need to get into a promotion-led bidding war to attract customers. By understanding demand trends and consumer behavior, you will be able to create enough appealing and relevant offers to fulfil your customers’ appetite for a bargain, without discounting unnecessarily.
STEP 3: Securing supply supersedes low price aspirations
Now is the time to plan how to mitigate for supply shortages so you can keep your Q4 customers satisfied. By closely monitoring how supply and demand develops for your products and how readily your own and competitor products are available online and in-store, you can stay one step ahead of the pressures on the supply chain.
STEP 4: Know when consumers will pay more for premium products
Sales made during the Q4 2020 lockdowns showed us that consumers will pay more for problem-solving products. It is key you understand these shopping trends and know the latest consumer preferences when planning your pricing and promotions.
STEP 5: Adapt to changed online and offline pricing dynamics
The growth in online sales during lockdowns drove a convergence of pricing levels with offline, and this is a definite plus for consumers. Manufacturers and retailers will want to evaluate prices on a product-by-product basis balance prices across all channels.
STEP 6: Respond fast using the latest market intelligence
Being ready to maximize 2021’s peak seasons is an ongoing process. By understanding what consumers will pay for a product and how much the competition is selling it for, you can evaluate whether your pricing is appropriate for the current market conditions and, if not, adapt fast.
Seasonal Peak Monitor 2021
will help you take the right sales, category management and pricing decisions every week this Q4.