Are price freezes and pledges worthwhile in inflationary climates?

Discussion
Sources: oldnavy.gap.com; Aldi
Apr 21, 2022

In a response to inflation concerns, Old Navy has instituted a “Price ON-Lock” initiative that will pause price increases on kids’ basics apparel through the back-to-school selling season. For its part, Aldi has pledged to be the local low-price leader.

The moves come as the rate of U.S. inflation leaped to 40-year high of 8.5 percent in March.

“Our customers, and parents in particular, are feeling the pressures of inflation and we want to assure them that they can outfit their children for summer and back-to-school with our everyday kids fashion essentials at a guaranteed price and value,” Andres Dorronsoro, Old Navy’s SVP and head of merchandising, said in a statement attained by Today.

The program applies to Old Navy’s broad “Everyday Magic” essentials range and will be valid through the end of September. The “Everyday Magic” kids’ section features $5 tees, $10 shorts and $8 activewear tops and bottoms.

KMPG last year found that average spend per student for back-to-school would reach $268, compared to $247 in 2020, in part attributed to inflation. Inflationary pressures have intensified over the last year due to rising logistics, raw material, labor and energy costs.

Grocery prices have been particularly impacted, rising 7.9 percent higher year-over-year as of February 2022, according to the Consumer Price Index’s most recent data.

On April 12, Aldi U.S. CEO Jason Hart penned a “Price Promise” letter to consumers pledging to keep prices low.

“Saving you money is what we do best,” he wrote. “And in times like these, I’m incredibly proud to underscore this commitment to you: no matter what happens in the world around us, Aldi will always be the low-price leader in every community we serve.”

Mr. Hart concluded, ”Whether you’re feeling the pinch at the gas pump or on your home energy bills, you can count on ALDI as a bright spot in your weekly budget.”

A survey of Americans from CNBC and Acorns Invest taken in late March found 75 percent worried that higher prices will force them to rethink their financial choices in the coming months and 48 percent thinking about rising prices all the time.

DISCUSSION QUESTIONS: Which do you think will resonate more with customers: Old Navy’s price freeze or Aldi’s low-price pledge? Should other retailers embrace similar approaches or is there other messaging around inflation that is more effective?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Communication around pricing should be tied to the overall value proposition of the retailer."
"It’s a great message to consumers around price. That said, it shouldn’t force consumers to make quality tradeoffs with the low price items being lower quality."
"Although messaging is important, it ultimately comes down to actions."

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17 Comments on "Are price freezes and pledges worthwhile in inflationary climates?"


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Mark Ryski
BrainTrust

It’s hard to say which will be more effective, but making a strong pricing statement is smart. Inflation is at historic rates, and retailers are being proactive in trying to address this with their customers. We’re not dealing with “run-of-the-mill” inflation, we’re dealing with truly historic inflation. Countless retailers are initiating inflation-related pricing programs to keep shoppers buying. With no end in sight, and consumer sentiment already at disturbingly low levels, this story line is far from over.

Jeff Sward
BrainTrust

I don’t see much distinction between the two statements. Here are two low price leaders pledging to continue to be low price leaders. What was a competitive advantage is now an even bigger competitive advantage. And they are smart to shout that near and far. Both retailers have low price leadership as the cornerstone of their brand promise. And now is the perfect time to press that advantage.

Brian Delp
BrainTrust
2 months 9 days ago

Long term these retailers will gain credibility from their current customers, but I don’t see of these driving incremental business. It may just reduce cost comparisons from competition. A stronger strategy to lean into would be offering expanded payment methods and initiatives like buy now pay later.

David Spear
BrainTrust

The merits of both Aldi’s and Old Navy’s pricing strategies are noteworthy, and both should successfully resonate with their target audiences. Unfortunately, market dynamics are not improving and I see a bumpy road ahead, which means retailers will have to consider a wide range of pricing/promo options to influence their shopper base.

Bob Amster
BrainTrust

Why not both? They each attempt to mitigate the rising cost to consumers due to inflation. If they can figure out how to offer it and maintain profitability, I expect that both will work.

Ken Wyker
Guest

Both messages will resonate with customers because they are not simply price messages. They are message of empathy that demonstrate an understanding of the stress and concerns their customers are feeling. This is powerful marketing that connects with customers on an emotional level.

Gene Detroyer
BrainTrust

Aldi’s claim is meaningful. It reminds the shopper what Aldi is all about. I suspect Aldi’s “low price leader” will be strong with consumers and be consistent with Aldi’s historical margins.

For Old Navy, I believe we are looking more at the theater than an actual aggressive pitch to help the consumer. The likelihood that Old Navy is buying inventory at inflated costs is slim. It is 90 days to Back to School, and their inventory needs are already in place.

Gary Sankary
BrainTrust

Low price retailers, and their value proposition, will absolutely resonate in this economic environment. I expect to see even more retailers message about how they’re fighting for their customers to keep prices in line. Every retailer will have their own approach and their own tailored messaging. I don’t think that one version will be better than the other. More important will be how credible their statements are with their customers. These two retailers are amplifying a strength in the market as low price leaders. When some luxury brand with logoed apparel and luggage says they are “holding down prices” I suspect most consumers will be unimpressed.

Suresh Chaganti
BrainTrust

It makes sense for retailers already positioned as value leaders. Aldi and Old Navy fall into that category. It is a way to cement their brand perception. It may not work for luxury retailers where customers do not expect such messaging.

Katie Thomas
BrainTrust

It’s a great message to consumers around price. That said, it shouldn’t force consumers to make quality tradeoffs with the low price items being lower quality. It concerns me when I see the word “basics” – hopefully that just means light design, etc.

Consumers, even in inflationary times, make tradeoffs – they don’t just trade down across the board. In fact, quality and “bang for your buck” is even more important.

Brandon Rael
BrainTrust

Any goodwill pricing freezes and incentives are a welcome development during this inflationary time. A customer-first commitment goes a long way to ensure a long-term relationship and drive loyalty during difficult economic times. We are experiencing inflationary levels that we haven’t faced in almost 40 years.

In addition, the global supply chain disruptions are wreaking havoc on car industry lead times and creating overall product availability challenges. This has resulted in increased driving costs, which ultimately impact the customer with price increases. In this situation, both Aldi and Old Navy are well known for their value and everyday low prices. A renewed commitment to this value statement will go a long way in resonating with their loyal customers during difficult times.

Rich Kizer
BrainTrust

It seems to me that “price freezes” are more temporary, while “low price pledges” have a much longer life in the consumer’s head.

Shikha Jain
BrainTrust

Communication around pricing should be tied to the overall value proposition of the retailer. In this case both Aldi and Old Navy are considered the low price/best value for money options and appeal to the cost-conscious. As the concern around inflation continues to worry consumers, they will continue to trade down into retailers that will stretch their dollars. We will continue to witness the same phenomenon across the entire retail landscape. A good example is dollar stores as they are already seeing an uptick in traffic.

Patricia Vekich Waldron
Staff

Given that Aldi and Old Navy are value-priced retailers, these aren’t new policies, simply reminders. I expect core customers to continue to shop and perhaps some others to trade down if inflation continues.

Matthew Pavich
BrainTrust

Although messaging is important, it ultimately comes down to actions. Aldi has consistently been a pricing leader in the market and their ability to provide quality products at affordable prices to consumers is why people trust them when their grocery budgets are constrained and inflation is rampant. The best retailers are listening to their consumers and not just taking price increases during this highly inflationary period — but evaluating the data carefully and strategically balancing increases on items less important to consumers while remaining competitive on the right products and doing so with surgical precision across zones and channels to gain share and profitability.

Brad Halverson
Guest

In the 2008 crisis we witnessed a variety of independent grocers increase customer messaging about “No Club Card Needed” (a reminder against the chain stores who required it for shoppers to reduce their additionally marked up prices), along with print ads touting easy to find savings in store. While this messaging didn’t look like a formal pledge with a signed CEO headshot, grocers who took the approach still found success during trying times.

Making a pledge in the sense of a brand promise is still a good idea today. In this environment, grocers have every opportunity to communicate clearly what they are doing to reduce costs and help shoppers find additional savings.

Craig Sundstrom
Guest

Aldi’s pledge works because it’s vague and consistent with their overall positioning: you can always be a low price leader (at least until someone else makes the claim). Old Navy’s is more problematic: it’s very simple and it sounds great … for now; but then what? What happens next year when they raise prices and a twitter storm rages over their “insane price increases”? The hope, I’m guessing, is that they will clean-up right now, and then slip-in increases quietly, later, when no one is looking … but that’s a gamble in a meme-dominated world.

wpDiscuz
Braintrust
"Communication around pricing should be tied to the overall value proposition of the retailer."
"It’s a great message to consumers around price. That said, it shouldn’t force consumers to make quality tradeoffs with the low price items being lower quality."
"Although messaging is important, it ultimately comes down to actions."

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