For more months than I wish to remember, I’ve worked alongside far too many businesses dealing with suppressed demand and falling revenues. Conversely, yet less frequently, I get to enjoy dealing with the growing pains of businesses and brands driving growth, increasing market share and outperforming their sector. This may not sound unusual, there will always be winners and losers, but as someone who takes comfort from finding order in chaos, I think 2023 has started to provide an evidence base to support some of my general observations. Can these be used to better align businesses for growth?

The first is around POSITIONING. Inflationary pressures have clearly affected some businesses more than others and historically this would be around discretionary purchasing decisions but that’s not clear and obvious to me right now. What is clear, is that discretionary products and services can perform exceptionally well if regarded or even perceived to be premium. Within the hospitality sector, customers appear to be moving to either the value end of the market, to maintain the same frequency at a lower cost, or reducing frequency but trading up to more premium propositions – if they are doing it, they are going to do it well. Mintel figures suggest that only 23% of people in the UK go out to socialise as often as they did pre-pandemic. Those with a value or premium perception can outperform the sector but this statistic is especially challenging for those operators with a general, mid-market offer. In the retail sector, those who can provide high quality together with value, typically the German discounters, continue to see epic growth in customer numbers.

Defining premium is troublesome but I’ve observed that products and services featuring perceived benefits to health, wellbeing and mindset are performing far better, potentially providing some insight into important drivers for consumers. These include health foods, supplements and businesses in the competitive socialising space. Some caution is advised here though as more generally, large brands guilty of toxic positivity are seeing consumers switch off to unrealistic over-promises of apparent features and benefits. Combined with recent research suggesting a level of eco-apathy from consumers towards the green credential claims of businesses, it seems that tangible, authentic honesty could contribute significantly to driving a perceived premium that customers are drawn towards and willing to pay more for.

The second is around PEOPLE. In a World dominated by automation and algorithms, those businesses who can offer meaningful relationships via human interaction appear cushioned from the current pressures and are able to react more positively to the challenges faced. This is particularly the case in the service sector where a highly efficient, fully automated business is missing a key tool in maintaining and developing revenues when customers are making binary choices via a phone or computer screen. By developing human relationships businesses can unlock significant growth whilst protecting themselves from high churn. Interestingly, building people into the proposition appears to drive premium perception, allowing businesses to potentially price more ambitiously to help cover the significant additional overhead.

The final observation concerns PRICE. In the fervent search for profit whilst offering ever increasing value in the face of soaring costs, some businesses have taken what appears to be a counter-intuitive approach and increased prices. But these businesses have taken a calculated risk based on blending a dose of micro-economics theory with explicit consumer insight to identify a correlation between product rating and price sensitivity. Price elasticity of demand in nothing new but I’ve observed a number of businesses using product ratings to correlate and inform which products or indeed services are most likely to sustain demand at a higher price. In one case, a client was even able to calculate by how much a price could increase before demand was suppressed across a range of bands. Products with a consumer product rating of 95% plus, could sustain a 3% price rise without any noticeable effect but only a 1% increase for products scoring between 88-94%. Less than 88% and then any price increase had an adverse effect. What was most surprising was that this process could be repeated with similar results over a relatively short timeframe. It was determined that products rated 95%+ could sustain three compounded 3% price increases over the space of 12 months adding 9% overall with no impact on demand. This exercise also shone a very bright spotlight on the products with consumer product ratings of below 88%, drawing product development, innovation and R&D teams into sharp focus and providing them with a very succinct ‘to-do’ list.

The service sector has also taken a key interest in pricing in two very distinct areas. Dynamic pricing is largely the process of rewarding clients for helping the business improve efficiencies by smoothing its demand curve. The reverse is also true, penalising clients who are unable or unwilling to engage at a time to suit the business. Delivery services are one such example, if you require a supermarket delivery booking in for exactly 6pm on a Thursday its relatively expensive, less so if you are happy to have it delivered after 10pm at night or a Sunday morning. This approach can be positioned very successfully, if convincingly portrayed as adding a premium for a premium service whilst offering the opportunity to provide a better value service for those who appreciate that.

Value-based pricing is the other area of interest, especially within the professional services sector. I’ve worked with a number of firms who are open minded about pricing which is based on the value perceived rather than value received. Engaging with a lawyer has been charged at the appropriate fee earners hourly rate for as long as we’ve known but value-based pricing involves a new level of sophistication that aims to provide services based on the value that service brings to the client. 50 hours of commercial litigation to resolve a disputed debt of £20,000 will likely be of less value than the same 50 hours being used to draft the sale agreement of one’s business worth £5m, even if the hourly rates of the respective lawyers are equal. It’s a compelling proposition for clients, whom for many, don’t undertake certain legal activities as they simply aren’t deemed as economically viable. However, with value-based pricing, the rock-solid fundamentals of charge-out rates are turned to sand with service sector firms needing to build business models based on far more fragile assumptions, exposed to service mix, service offering and a significantly greater element of commercial risk. For those who get this right, the impact can be transformational and an incredibly powerful way to take market share but at the moment, this approach is so niche that PR and marketing to communicate this differentiator is a key consideration.

In conclusion, whilst challenging conditions prevail, there is enough evidence to suggest that opportunities exist to countermeasure or circumnavigate several key macro drivers behind the current commercial environment. Its emergingly evident that historical playbooks lack the required complexity and dexterity to navigate such a wide-ranging set of issues with any confidence of success and, as ever, it’s agility, innovation and the bravery of business owners, compelled to follow through on instincts, that will provide the most effective solutions to such modern problems.

The North of Tyne Combined Authority is a partnership of three local authorities: Newcastle City Council, North Tyneside Council, and Northumberland County Council and the North of Tyne Elected Mayor.
The UK Shared Prosperity Fund is a central pillar of the UK government’s Levelling Up agenda and provides £2.6 billion of funding for local investment by March 2025. The Fund aims to improve pride in place and increase life chances across the UK investing in communities and place, supporting local business, and people and skills. For more information, visit https://www.gov.uk/government/publications/uk-shared-prosperity-fund-prospectus