Wading Through A Deluge of Recession Pricing Advice

Over the past year or so a lot of advice has come out from business thought leaders about recessionary pricing strategies. Below are three articles from what are considered to be well-regarded sources:
INSEAD: When to push the panic button?
Harvard Business School: Marketing Your Way Through a Recession
McKinsey: Pricing in an inflationary downturn
Although there’s a lot of valuable advice in these perspectives, it is surprising that some of these studies propose a one-size-fits-all approach to recessionary pricing.
Sorry to burst the bubble, but the consumer decision process is not that simple. For instance the INSEAD article proposes that consumers are not more price sensitive during a recession, the extra sensitiveness shown during recessionary times is attributed to income smoothing and advices firms to focus on share of customer wallet rather than share of market. Good advice, but while it is great to focus on share of wallet, share of market ultimately determines the financial performance corporate stakeholders will be evaluated on. Share of wallet as a metric is focused on retention(up-selling and cross-selling). While retention is critical, acquisition is important too in driving growth. Market-share is a more wholesome metric that takes into account performance of both retention and acquisition activities, especially if the firm is in a growing category, where acquisition could be a greater determinant of performance than retention. On the other hand for mature industries, retention would certainly be more important. This highlights the perils of subscribing to generic strategies.
Another frequent advice I have come across is to not take a perceived increase in price sensitiveness during economic downturns as a signal to aggressive pricing strategies that may lead to unprofitable price wars. That is all good, but game theory suggests that in multi-competitor industries, you will always have a player that will try to increase their payoff by defecting and using aggressive pricing strategies to garner market shares. In this case should you take the higher road and trust in your customer loyalty or protect your market-share?
The Harvard article scores on a few points, for instance Advice #6 is to “Adjust Pricing Tactics”- some good nuggets of wisdom here, but #3 “Maintain Marketing Spending” is no all that realistic. Margin pressures inevitably result in budget cuts.
The McKinsey article actually has some pretty good advice on how research steps that can help fine tune pricing strategy, without actually trying to generalize findings. I especially liked these:
Monitor customer-level profitability
Update price sensitivity research
Monitor your industry’s microeconomics
Consumers reaction to pricing in recessions is not generic across all of their purchases. For instance, if a Brand is in a category with relatively low product differentiation, price discounting could forever forfeit brand premium, while Brands in categories with higher product differentiation can actually leverage pricing without damaging longer term equity. Also for service-based industries, brands can drive longer-term market-share by lowering price and locking in customers over a longer-period. Ultimately the key thing to remember is that when it comes to pricing strategy- one size certainly doesn’t fit all.

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