Price Elasticity vs. Shopper Reality
By Phil Lempert, CEO, RDBA
For the ninth time in five years, Disneyland is raising its ticket prices on most of its park passes.
The cheapest one-day pass, single-park ticket is now $104, and the highest level ticket allowing you the most to see and visit is now at $164 per day. In general, like we just reported in The Lempert Report, consumers will pay more on peak demand days. Disneyland is citing the price hikes as “strong demand” – which is bound to put off a lot of would-be visitors. Now I don’t pretend to be smarter than the head of PR at Disney, but I do feel that if they cited that the price increases were tied to the fact that they had to shutter the park for 15 months, they would have a bit more empathy and understanding from consumers.
The same thing is happening in our food world. Xavier Roger, CFO of Nestle, said in September at the Barclays Global Consumer Staples Conference that ingredient and other cost increases are putting the company under pressure to raise its prices to the consumer. Just about everyone understands how climate change, labor costs and shortages and transportation issues are creating the perfect storm for price increases. But what was shocking, and we’ve heard it from other CPG brands over the past few weeks is that Roger also said that he is not worried about its ability to raise prices due to consumer demand for their products – and the strength of their brands.
On PepsiCo’s latest earnings call, Ramon Laguarta told analysts that consumers have a new view on pricing which could be due to the company’s success in selling value. He was quoted as saying,” As consumers shop in-store, they might pay less attention to pricing as a decision factor, and they might be giving more relevance to the brands they feel more emotionally attached to.” We are witnessing worker stoppages and strikes at major brands including Mondelez, Kellogg and Coca-Cola and Frito-Lay as workers demand better contracts that provide a living wage. At the same time some of these companies are reporting record profits. I fear that many of our iconic brands are not listening to consumers but have convinced themselves that they can raise their prices because they feel their brands are so powerful. Let’s not fool ourselves. According to a new survey from the digital bank ONE released just Tuesday of this week – 63% are highly concerned about supply chain shortages this holiday season, and 76% are highly concerned about inflation. The money has to come from somewhere, and the consumer is saying, I don’t have it.