Marketing’s Impact on Pricing Power and Profitability
In today’s business landscape, marketers are under immense pressure to justify budgets and prove their impact on revenue growth. While most discussions focus on marketing’s role in driving sales volume, a crucial factor often gets overlooked—pricing power.
New research from Google and Kantar highlights the direct connection between marketing, brand equity, and pricing power. It demonstrates how strong brands influence pricing, proving that marketing is not just an expense but a strategic lever for long-term profitability.
The Importance of Brand Equity in a Price-Sensitive Market
With rising inflation affecting both businesses and consumers, companies must rethink their pricing strategies without losing customer trust. Many assume that marketing is solely about customer acquisition, but it also plays a key role in shaping how customers perceive price.
Michal Protasiuk, a research manager at Google, explains:
“Strong marketing mitigates the negative impact of price increases. It affirms a brand’s association with quality and trust, making customers more willing to pay.”
This means that investing in brand-building marketing efforts can reduce price sensitivity, ensuring that customers see the value behind the price.
The Link Between Brand Strength and Pricing Power
Studies show that strong brands can command prices up to twice those of weaker competitors. This means that companies with high brand equity can maintain profitability even in challenging economic conditions.
For instance, a U.K. skincare brand recently increased prices by 14%. Thanks to prior brand-building investments, it only saw a 7% decline in sales volume but gained a 7% increase in revenue. Had it not invested in brand equity, its sales could have dropped by 10%, limiting revenue growth to just 2%.
Similarly, McCain, a frozen food manufacturer, reduced its price elasticity by 47% over nine years through consistent brand advertising. This investment led to a 44% increase in base sales, proving that brand strength directly impacts pricing power.
How Marketers Can Strengthen Pricing Power
To build a resilient brand and maximize pricing power, businesses should focus on:
- Measuring Marketing’s Impact – Understand how marketing efforts influence pricing power and track brand equity metrics to assess price sensitivity.
- Aligning with Finance Teams – Speak the language of finance to demonstrate marketing’s impact on profitability, ensuring long-term investment.
- Investing in Brand Building – Prioritize long-term brand strategies that create customer loyalty and reduce reliance on price promotions.
Final Thoughts
Cutting marketing budgets during economic uncertainty may seem like a cost-saving measure, but it can be costly in the long run. Companies that invest in their brand build a competitive edge, allowing them to maintain strong pricing power and profitability.
Want to explore how strategic marketing can boost your brand’s pricing power? Book a call today and let’s discuss how we can help position your business for sustainable growth. 🚀
