Consumer lifestyles have changed significantly over the past two years, and many of those changes will remain after the pandemic is behind us. Even as more consumers return to work, the pandemic lifestyle likely will not shift back entirely to pre-pandemic modes. Traditional price elasticity has been upended recently and, with so many factors at play, it can be difficult to say which shifts in buying behavior are due to pricing. And that means questions surrounding pricing will continue to be top of mind in retail this year.

Supply disruptions and rising manufacturing costs leading to price increases have been a major story since the beginning of the pandemic. Retailers and manufacturers are still playing catch-up with supply in many industries, which is part of the reason prices for certain products have increased as much as 25%. However, as demand settles back, and as supplies rise, prices will likely fall between 10% and 15%. “Similar to what we’ve seen recently with gasoline prices, the result will be prices above pre-pandemic levels but below the highs of 2021,” said Marshal Cohen, chief industry advisor for NPD.

The ongoing lack of promotions is a new retail adjustment for consumers, and one many retailers hope will remain in play so they can match or beat 2021 comparisons. However, when consumer demand falls, as it is likely to do by the middle of the year, many retailers once again must goad consumers to spend — and they will no doubt resort to promotions to aid that effort.

“Consumers have not been buying because retailers are coming out with great deals. Instead, they are shopping to enhance their lifestyles,” Cohen said. “There’s been a dramatic shift in consumption and the reasons for purchase. Consumption habits are evolving, demand level is changing, and the purpose of spending is on the move. Pricing reflects all of that and more.”

Shoppers are still spending in the here and now, even as many forms of government stimulus fade away, leaving much of the retail industry’s growth in 2022 to come from upper-income households. “While this sounds like a boon for luxury and high-end products, it also creates challenges, as aspirational consumers, who are no longer able to reach up, will be missed by the upper market,” Cohen said.

Retailers and brands must recognize there is still a lot of demand out there, even as post-pandemic demand dynamics surrounding the return to offices and experiences emerge more fully. In some parts of the country, COVID-19 cases are declining, as vaccination rates for adults and children continue to rise. If those and other positive trends continue, we could even see demand (and prices) keep rising, but only so long as consumers can pay — and as long as they remain willing to do so.

Pricing Q&A with Don Unser

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Chief Retail Strategist Don Unser leads The NPD Group’s practice areas for thought leadership, financial services, and the public sector. Unser’s expertise in consumer and retail trends spans a wide range of general merchandise categories, making him a trusted advisor to some of today’s most successful brands.

Q: When it comes to pricing, what is the main focus for NPD clients?

A: Retailers and manufacturers must be mindful and deliberate about how to price their products. As always, the first step is knowing who their customers are, what they have gone through, and what they are about to go through.

Q: How are demand levels shifting?

A: With consumers at all income levels, everything is connected to the economy. Retailers and manufacturers must spend more time investigating their customers’ psyche. Economic headwinds and tailwinds even affect the mindsets of consumers with higher household incomes who have a lot of savings. If their wealth effectively goes down, so too will their spending on high-end products.

Q: How can manufacturers and retailers leverage pricing and gain long-term share?

A: Communicating your value proposition to consumers is always important, but it is especially crucial now, when there is so much uncertainty in the mix. Explaining why prices are rising on certain products is key. We also need to understand that, while upper-income consumers will generally continue to buy higher-priced products, many at the lower end will struggle more this year without the help of government stimulus payments. Pricing products at lower tiers to cater to a wider range of customers is the smart thing to do.

Analyzing Pricing with NPD

Helping companies spend wisely

Trade promotions often represent one of the largest expenses after the cost of the product itself. Pricing analytics let clients assess which promotions are driving incremental sales and ROI.

We help our clients simulate price and promotion changes to assess strategic opportunities for discounts and base price changes. These simulations predict expected sales from future promotions and base prices so clients can spend more wisely.

Optimize Your Pricing Strategy

Case study: An automotive aftermarket company needed to determine the best mix of base price and discounts to maintain shelf space at a key retailer.

Are You Paying Enough Attention to Pricing?

Learn how a foodservice chain operator used insights from our Checkout Omnichannel Tracking and Menu Price Track services to determine their pricing strategy when launching a new menu item.

Pricing Domination

At CES 2022, Ian Hamilton and Ben Arnold explored the ups and downs of tech product pricing.

Vertical Industries: What’s Up (and Down) with Pricing?

Questions about pricing are top of mind with our clients across vertical industries. Here’s what some of our industry analysts are seeing in our latest data.

FOODSERVICE
APPAREL
ATHLETIC FOOTWEAR
MOBILE PHONES
BEAUTY
DavidPortaliatin

David Portalatin
Senior Vice President, Industry Advisor, Food and Foodservice

Restaurant consumers in the U.S. spend more money now on a meal or snack, on average, than they did in 2019. However, they visit restaurants substantially less often. While restaurant visits improved in 2021 compared to 2020, they are still not back to pre-pandemic levels. However, with restaurant prices still rising across the country, foodservice sales are still robust.

When comparing the estimated average cost per meal sourced from a grocery store versus a meal sourced from a restaurant, the gap has widened by 24% (a 330% increase). In other words, a restaurant meal is more than three times as expensive as a grocery meal. At the same time restaurant meal costs are rising, there is a contraction in consumer spending. These dynamics are keeping the foodservice industry from fully recovering.

Maria Rugolo

Maria Rugolo
Director, Industry Analyst, Apparel

Consumers entered 2021 with more disposable income than in past years, and many hadn’t invested in the apparel category in quite a while. Because they had more disposable income from various government stimulus programs (not to mention their lack of spending on experiences), more people felt good about buying higher-priced products.

Last year, 44% of U.S. consumers bought apparel on sale, which was 5 percentage points less than they did in 2019 and 2020. However, the tide might be changing this year, with consumers citing price as the most important reason behind their apparel purchases rising by 11 points year-over-year — and narrowing the gap — behind comfort (falling by 8 points).

Last year, 44% of U.S. consumers bought apparel on sale, which was 5 percentage points less than they did in 2019 and 2020. However, the tide might be changing this year, with consumers citing price as the most important reason behind their apparel purchases rising by 11 points year-over-year — and narrowing the gap — behind comfort (falling by 8 points).

Matt Powell

Matt Powell
Vice President, Senior Industry Advisor, Sports

The number and depth of promotions on athletic footwear have declined over the past two years since the pandemic began. This decline has been especially pronounced in women’s and kids’ athletic footwear. Supply issues led to lean inventories, which allowed brands to promote less and sell more shoes at full price.

When we looked deeper at sport-lifestyle footwear (the largest category in athletic footwear) when promotions were run, we also saw actual selling prices were higher than in previous years. In addition to the lower number of units sold on promotion as full-price units rose, the depth of discounting also declined.

Brad Akyuz

Brad Akyuz
Executive Director, Mobile Phones

During the pandemic, the price elasticity of many products has declined sharply, with demand staying strong despite the increase in average selling prices (ASP). The price elasticity story has been no different for mobile phones, though the underlying reasons behind the strong demand, despite the rising ASPs, are quite different.

Carrier subsidies will likely continue until 5G adoption reaches a critical point when the financial liabilities of subsidies surpass the 5G migration cost benefits. This is good news for device makers, as consumers will continue seeking higher-priced models. However, future upgrade cycles signal possible volume declines, as 36-month EIP programs become the norm and reduce customers’ motivation to pull the trigger for an upgrade before they fully pay off the debt on their phones.

Larissa Jensen

Larissa Jensen
Vice President, Industry Advisor, Beauty

Our Price and Discount Trends data shows the promotion trend is reversing in prestige beauty overall, driven by a higher level of spending in the brick-and-mortar channel, which is less promotional than online. Despite this shift in channel spending, prestige beauty remains one of the higher-promoted industries among the 15 industries we track.

Across all beauty categories, share of units that were on promotion declined anywhere from 2 to 9 points, even as depth of discount remained steady. While this is positive news, it’s important to note that category trends vary by segment and channel. For example, a category like makeup is still highly promotional in segments like eye makeup and lipstick. Makeup is also most promotional online, where about half of units sold are on some sort of price promotion at a higher depth of discount.

The biggest takeaway for brands is to leverage market dynamics and differences by category and channel to maximize return.