Photo: Getty Images/Sergei Gnatiuk
Should marketing have more control over pricing?
Traditionally, chief marketing officers have oversight over promotions to get products out, but not much influence on initial pricing as products come in. Should that change, especially in inflationary times?
“Pricing decisions in organizations seldom receive input from those who design and implement interactions with customers (through advertising, websites, etc.),” wrote Marco Bertini, a marketing professor at Barcelona’s Esade–Universitat Ramon Llull, in a recent column for Harvard Business Review.
The professor cited findings from 2021’s “The CMO Survey” from Deloitte, Duke’s Fuqua School of Business and the American Marketing Association that found 78 percent of U.S. marketers at for-profit companies were responsible for promotion versus a quarter indicating marketing was responsible for pricing.
The professor argued that even if firms are more tempted to downplay pricing in inflationary times, consumers are seeking transparency and price messaging can be incorporated into brand values.
Prof. Bertini wrote, “Integrating price setting with price communication requires that organizations treat the two as interrelated outcomes of the same decision process.”
A Gartner survey of 270 U.S. consumers conducted in March found nearly 40 percent citing vendors and retailers’ focus on boosting their profits as one of the drivers behind inflationary pressures, up from 30 percent in a survey taken in November 2021.
In a column, Katya Skogen, director, research in the Gartner for Marketing Leaders practice, said that while marketing may not lead pricing strategy, chief marketing officers “must manage the brand-related fallout” from decisions to push through higher prices to customers over absorbing escalating costs.
She said, “Given the signs of increasing consumer skepticism toward brands’ justification of price increases, the way companies frame pricing may backfire if not approached carefully.”
Ms. Skogen also noted that recently quarterly analyst calls show firms embracing a “cavalier approach” in citing finding success by passing through pricing actions with comments often picked up by media outlets.
Reports on potential inflation profiteering have included comments from quarterly calls from Kroger, Tyson Foods, Dollar General, Procter & Gamble and Constellation Brands.
- Talking to Your Customers About Prices – Harvard Business Review
- The CMO Survey Topline Report August 2021 – The CMO Survey
- How Marketers Can Address Consumer Inflation Concerns – Gartner
- Corp. profiteering driving inflation, threatening most vulnerable – Louisiana Weekly
- Giant food producers are profiteering off inflation — and bragging about it too – Salon
- Major retailers accused of profiteering from rising inflation – CBS News
- The Real Inflation Problem: Corporateprofiteering – Groundwork
- Profiteering Watch: Dollar Tree and Dollar General Trumpet Huge Profits After Price Hikes – Accountable U.S.
- Profiteering Watch: General Mills’ Profits Explode By 97 Percent After Five Price Hikes – Accountable U.S.
- Profiteering Watch: Procter & Gamble Boasts “Biggest Annual Sales Increase In 16 Years” After Excessive Price Hikes – Accountable U.S.
Discussion Questions
DISCUSSION QUESTIONS Should marketing play a larger role in setting initial pricing, particularly during inflationary times? Do you think retailers have to do a better job communicating price increases to avoid taking the blame for inflation?
Poll
Loading …BrainTrust
A shared decision will have the most chance of success. Marketing, finance, supply chain, customer service and C-suite all hold a piece of puzzle and only together can they develop the right pricing for their customers.
I’m shocked that any company with a marketing department would have anybody else set prices, at least in CPG vendors. While they may get input from finance, operations, etc., marketers are responsible for the bottom line. At retailers, these functions also need to work together – margins need to be managed and marketing needs to be a part of that.
Maybe it’s a nomenclature problem, but everywhere I ever worked, merchandising was responsible for margin, and that’s what they got paid for. Marketing provides input into the calendar, of course, but they don’t get paid based on margin.
Marketing does ads and imaging. Merchandising does products and pricing. It is always so.
Could it be the difference between retailer and vendor? I’ve never seen a merchandising arm at the vendor, unless you count Cat Mgmt, which doesn’t have P&L responsibility at a vendor.
A small sample of 270 consumers saying that retailers boosting profits is one of the causes of inflation, does not make it so. Retailer margins and profits are down. Dollar General, which is mentioned in this article, is a case in point. In its latest quarter gross margin was down and operating profit tumbled by 17.9 percent. That’s far from profiteering. Given this, I am not at all convinced that pricing decisions should be driven by a desire to minimize the false perception of profiteering.
You have to look at this from both sides. Are marketeers responsible for the profitability of the company? Are they responsible for the profitability of each buying category? The answer to both of these questions is almost always no, so to give them freedom on all pricing would not make sense. In my experience of working in retailers for over 20 years, the Board set the targets and strategy and that includes the profit targets and pricing strategy, these things are not done in isolation nor should they be. Marketing have a responsibility to project the company in the right way and if they see pricing is becoming an issue then they will discuss it at the Board level and the Board will decide if they need to make adjustments. Look what happened when marketing took control of delivery times — cost rocketed and it became a bidding war to the bottom. We don’t want that again!
Not to split hairs, but there is a difference between asking about “control” and the “role” marketing should play in pricing. The role is huge, but that’s different than control. Marketing is a big messenger of the brand promise, and sometimes that’s about pricing and sometimes it isn’t. The data coming out of the marketing exercise has to be mined for all the different messages the customer is sending. Product, packaging, presentation, pricing. If marketing is the communication to the customer, then how is the communication back from the customer digested? It isn’t about control, it’s about learning.
Price is one of the traditional four Ps of marketing. Yet strategy and finance now need a say, as the economy splits low and high, and profitability pressures compound. Retail costs keep climbing due to inflation, tech investments and supply chain disruptions. Pricing that protect margins demands cross-functional expertise.
Most definitely. Price increases are a shared decision with input from the owner (in cases of smaller companies), marketing and finance. Retailers have to be thoughtful in the execution of cost increases.
Product, price, promotion, and place are the cornerstones of traditional marketing. Successfully selling a product cannot be achieved without full control over the selling price of a product. That is the onus of marketing and the requirement that they are expected to fill. How can there be any other way in modern marketing?
I’m not crazy about the sample size referred to in this article. As a former brand manager I believe price is always on trial, depending on market and competitive factors. Yes, retail needs to be more aggressive in communicating reasons for price increases.
Marketing has always had some influence on retail pricing, and that is incredibly important. However there has to be a connection between price setters and market makers. It comes down to arguments and conclusions, and through working together the best strategies are instituted. It’s a group game.
Is marketing a critical stakeholder in setting promotional pricing? Yes. Should marketing “own” pricing at most retailers? No. I’ve helped numerous tier one retailers develop consumer focused pricing strategies and have seen success with many different organizational structures. Having said that, the best solution for retailers will always be to have a strong, centralized pricing team which uses the best analytics and solutions to develop a holistic pricing approach to support merchandising and marketing (i.e. brand) objectives. Merchant and marketing teams play fundamental roles in retail, but simply don’t have the time, expertise or global perspective to own pricing. Even the best merchants don’t have visibility to how their pricing actions can impact broader, more strategic pricing objectives – and the same goes for marketing. A great promotion should involve a very collaborative merchandising, pricing and marketing effort using the best analytics, processes and governance available to ensure they are offering the right price and the right message to the right consumers, through the right channels and locations on the best items while having a thorough understanding of how these promotions impact other areas of their business (i.e. category cannibalizations and affinities, brand image, growth of private label, etc.)
The roles of merchandising, marketing and digital are melding and changing. While each has specific operational role, all have valuable insight that should be heard and considered throughout the pricing lifecycle — strategy, competitive positioning, initial, promotions.
Without question marketing and pricing should be working together so that each is both integrated and reflective of the overall business strategy. The majority of marketers, as the survey reflects, only impact pricing from a margin reduction standpoint, i.e., promotion. Marketing also typically includes the customer loyalty “discipline” (that may be a generous term), which when done right focuses on getting customers to prefer a brand to the point where (by definition) they are willing to pay a premium.
There are myriad other reasons for marketing and pricing to be integrated but like so many other strategic decisions, leadership matters to ensure that it is done.
A famous example of a heavy role for marketing in pricing is the $1.50 hot dog and soda at Costco, led by co-founder Jim Sinegal. Although Sinegal set that price, it’s a pure marketing play to pull in customers, show incredible value and reflect the brand.
Finance and Product/Category leadership can create direction to drive profit targets. Marketing heads and marketing-oriented CEOs must influence pricing to ensure it reflects the greater product experience, brand strategy and customer experience.
Having worked in both the CPG and Retail industry, this can be a polarizing question.
For CPG, Brand Teams set the price. Sometimes, a Finance or Pricing Team will pretend they have authority here, but the bottom line is that the people responsible for the brand P&L drive pricing decisions. This is not going to change unless brand management changes.
On the retail side, this is tricky. I have been a buyer. I’ve set retail pricing as a Merchant. I cannot imagine the Marketing Team coming in with their $.02 on pricing because they were not responsible for driving category sales nor did they have responsibility for the related budgets or financial targets of the category. That being said, I believe there may be consultative value that marketing can bring with industry/competitive insights that buyers often crave. At the end of the day in retail, the merchant or buyer has final say.
Finally, in one of my Trade Marketing roles, I was responsible for “clean up” of poor retail sell-thru. It was frustrating to see my recommendations on pricing and production ignored and then be asked to create promotions to move excess inventory. Predictably. I get it.
I’ve seen seen pricing through many different lenses. Ultimately, the people who hold the fiduciary responsibility for that brand or product or retail category are making the pricing decisions, not the ones responsible for marketing. Still, there is certainly room for retail marketing to take on a more consultative role in setting prices.
As product, placement, and promotional decisions are fundamentally tied to pricing, marketing should consider them. However, not all pricing decisions are created equal.
In CPG, strategic pricing decisions include price positioning for new products, price management throughout the product’s life cycle, price discounting, and competition. The strategic pricing decisions involve multiple data inputs and rely on multiple analytical methodologies. Decisions of this nature are relatively low-frequency but high-impact.
Pricing and discounting decisions related to specific sales opportunities are tactical pricing decisions. Salespeople managing specific sales situations may find it difficult to explain that understanding to their boss, much less to the rest of the company, in order to make tactical pricing decisions well. But it must be done.
Today customers have access to enough knowledge on products and they have many options to choose from while making a purchase decision. So, definitely, the role of marketing has increased to deliver better customer service. Therefore, it is the ideal time for retailers to begin engaging the marketing department and inform them on pricing including how, why, and for what purposes it is set at a particular level.
If the marketing department is not properly involved, the retailer’s brand awareness and communication of product knowledge to customers will suffer. As a result, they would then be limited to competing on prices. But, in reality, the price wars work like a death spiral, and retailers are forced to reduce prices till it becomes unaffordable for them. To refrain from such situations retailers must bring the required change and start involving the marketing department where it is imperative.