Here's some positive news. The average salary in the UK is £29,588*. That's up +3.5% YoY, which is the highest growth since 2008. That’s higher than the rate of inflation, so a positive sign on peoples ability to spend. This should make businesses feel more confident about putting prices up.
To take this a step further the price of goods is increasing. Basics like apples (+10% YoY), bread (+4% YoY), tomatoes (+7% YoY), milk (+3% YoY) and bananas (+2% YoY) are seeing an increase. Then there are things like Coca-cola (+16% YoY), kitchen towels (+27% YoY) and mushrooms (+42% YoY) which are up significantly. It is worth considering the impact of things like the sugar tax and environmental impacts on certain products but nonetheless there is a clear impact on household spending.
The average weekly household food bill in the UK is £91. That's up +3% YoY. So, whilst people might be earning a little more they fully expect to spend more on shopping products. This puts them in the mindset for expecting increases in price for consumables.
As you might expect in the wake of Brexit and increased price of food 'The Consumer Confidence Index' is displaying a negative figure, currently sitting down -13 of base. However, it has remained stable over the last few months which can be seen as a positive sign.
Despite salaries going up confidence is still low, so there is a need to be mindful that consumers are keeping an eye on their spending and especially on any goods seen as being luxury.
Thinking about spending on products like newspapers and magazines as an example. There is a need to be mindful of the free content that is available now. From free magazines and newspapers to all the information available through social media and online.
However, there are still lots of reasons to be optimistic about paid for publications. Lots of the research highlights that there is a still a need for it. With digital content a lot of it is untrue or 'fake news' whereas people know with a printed publication they are getting trusted editorial content produced by experts (mostly).
A lot of magazines that have a long history have become heritage brands, something that digital content hasn’t got to yet. Also, people are often getting added value with publications via cover-mounts. Magazines have also become status symbols for collecting or putting on your coffee table. Just getting on the train you can see free copies of Stylist or Metro all over the floor, but you’re unlikely to find a copy of any paid magazines treated in the same disposable way.
Looking at total market average cover prices they have been trending up in the last few years and from 2015 the increases have actually been tracking above inflation. Publishers are already being aggressive with price.
Average cover price for the market is now £2.36. 2019 is particularly high, with a +11% jump in price, although that will flatten out as the year goes on.
THREE PRICING PRINCIPALS
1) CREEPING: Putting your price up little and often Increase at least annually by less than 5%
2) LEAPING: big increases in price of over 10%
3) HOPPING: which falls between leaping and creeping
With these examples you can see how receptive customers are to a change in price. On average for magazines they have a 0.7 price elasticity so for every +10% change in price you would expect to see a -7% change in sales. If the elasticity is lower than this then your customers are less price sensitive
THE FORMULA
Forecast Elasticity -0.7
Old Price £3.50
New Price £4.00
Price Change £0.50
% Change In Price 14%
% Change In Sale -10%
CREEPING works best when price is well within a £ barrier. But don’t do this over a £ barrier. For that the best thing to do is go big and LEAP in price. You are going to see a loss in sales but there should be an increase in RSV that outweighs this (RSV = the total sales that your customer, the retailer, will take from selling products). HOPPING is less clear and can see both increases and decreases in RSV.
You should always price test first to see how price sensitive your customers are, especially when going over a £ price barrier.
BEFORE YOUR TEST ASK YOURSELF
Are you a strong brand in the market, is it the biggest volume seller?
Are you the go to brand?
Are you the most well known brand?
Is there a web or digital alternative, this doesn’t just mean do you have a website but instead is there trusted information widely available digitally that people can turn to?
Is your audience digitally savvy?
Are your competitors cheaper?
Are you already priced at the top of the market?
Is your title better or worse than the market average?
Is there an obvious title for your customers to switch to if they found your price too high?
Are your customers wealthy?
Do they solus shop your product?
PRICE TEST RULES
Pick an area of the country that you will increase price and then you can analyse how sales perform against the rest of the country who hasn’t put their price up. It’s the most robust way of testing how sensitive your customers are to price.
Test area should be at least 10% of national distribution
Minimum 4 weeks (the more the better)
Don’t test other things at the same time
Don’t run over Christmas or on promotional specials.
Sales in the test region should follow a similar pattern to nationally i.e. test region should not have strong seasonality
Not have an underlying sales trend which is different to the national picture
Not have sales which are extremely volatile relative to the national picture
IF YOU DECIDE TO REPRICE
Once you’ve done your price test (or not) and have decided to put your price up there are a few ways to support the increase to make it more palatable to customers. Do it on a special week in the year. Also put it up at your seasonal peak when people are more likely to want to buy your product and therefore be less sensitive. You can do added value on the price change.
*Office for national statistics 2018, based on full time employees
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