Which brands are best placed to raise prices without alienating customers in the face of rising inflation?
A new study published by the Wall Street Journal covered 846 major publicly-traded firms. It incorporated 34 indicators across five categories: customer satisfaction, employee engagement and development, financial strength, innovation, and social responsibility.
To gain a clearer view of raising prices, the research zeroed in on the correlation between net profit margins and customer satisfaction, as tracked by research firm J.D. Power in 2021, with some 24 industries featured in the analysis.
Companies in industries with a significant positive correlation are thought to be in a relatively strong position to pass along price increases; those in industries with a significant negative correlation are presumed to have a more difficult time raising prices without alienating their customers.
Best-performing industries
Six industries registered a “significant statistical relationship” between customer satisfaction and net profit, meaning when one metric rose, the other did.
These industries include household/personal products, automotive, telecoms, consumer services, banks, pharma, biotech, and life sciences. Higher brand loyalty and differentiation were among the potential contributors to this outcome.
Procter & Gamble, the CPG manufacturer, was an example of a high-performing company. Its customer-satisfaction rating for last year stood at 70.4 on the study’s index, placing it within the leading 1% of enterprises.
Worst-performing industries
Several categories logged a “significant negative correlation,” suggesting brands could witness greater pushback if they raise prices. They included consumer durables and apparel, technology hardware and equipment, energy, and transportation, such as airlines. Food and staples retailers, software and services, and commercial/professional services also struggled on this metric.
Fresh Thinking:
This research would imply that P&G is well-placed to raise prices if required. On the other hand, any brand with low customer satisfaction would have trouble when raising prices, regardless of the industry, it is in. Factors like market share and competitor activity must also weigh into any such calculations.
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