Rising Prices in a Crowded Marketplace: What’s a Company to Do?

There’s no other way to say it: pricing has caught up to everyone. If the recent flurry of TikTok videos about McDonald's Hash Browns has shown us anything, it’s that companies simply can’t raise prices forever. At some point, they’ll price themselves out of the market.

Within CPG specifically, prices are rising across the board. Raw materials are increasing. Shipping is up, as are shipping materials. Labor costs and rent are increasing. Places that were once prime for manufacturing — like China and Thailand — are more expensive than ever.

Everyday Cost Curbing

Of course, there are opportunities to dial in, to try to curb costs without significantly disrupting the consumer. Companies that once offshored can certainly consider bringing manufacturing closer to home. Perhaps the labor will be more expensive, but the shipping is less and the timing is better. Decisions like these can ease operational costs, allowing companies to more easily forecast what they need, and when. But they only go so far in curbing costs.

Package downsizing, more commonly known as shrinkflation, is another option. This keeps prices the same, but customers get a lot less for their dollar. Recent social media backlash reveals the risk of this approach and suggests that it cuts too close to the consumer’s direct experience.

When inflation is inevitable, what are some other options that allow you to meet company quotas without pushing your customers to the brink of their price elasticity?

In a corner of the CPG sector, one industry is actively making strides to figure out a solution to rising prices — one that prioritizes keeping customers while also meeting the bottom line.

Food for Thought: Strategic Case Studies

From rebranding to refocusing, the following four companies show us that rising prices don’t always stymie revenues — or loyalty. CPG leaders would be wise to consider the following approaches:

1. Emphasize a lower price point.

Once the name most synonymous with “affordable,” McDonalds has come under fire recently for its $3 Hash Browns. In Darien, Connecticut — one of the wealthiest towns in America — a Big Mac meal will run you $18. Chris Kempczinski, McDonald's CEO, said recently that the company will begin to pay closer attention to affordability by emphasizing more low-value options.

Kempczinski’s approach is worth noting here: If you dial in to your customers and their needs and then create options around them, you’ll keep them coming back for more.

Companies need to understand their consumer demographic goals: What price point are you going after? Are you entry level? Are you luxury? Are you middle of the road? You have to understand and make sure you're catering to that customer. This doesn't mean you can't have some other price points in your offerings — far from it. But it does mean that you keep your customers front and center and offer them options that meet them where they are.

Another option for McDonalds would be to focus on bundling. If it absolutely must increase prices to keep up with market value, where could it offer some of that back to the customer? Taking $1 off of a fountain drink (inherently more affordable) when customers purchase that more expensive item helps take some of that sting away.

2. Focus on novelty and entertainment.

First there was “The Most Oreo Oreo.” Then, there was “Space Dunk Oreo.”

Actually, these are just two of the most recent varieties to come out of one of America’s favorite cookie companies. Its focus on novel “one and dones” offers us insight into the power of food as entertainment — and the impact of limited-time novelty.

“The Most Oreo Oreo” came out in January 2023 and was met with intense excitement. Oreo even offered pre-sales for particularly eager customers. And because that variety was limited-edition, it practically flew off the shelves.

Oreo’s recent Space Dunk Oreo, which supposedly tastes like outer space, has also done well. My local grocery store sold out of them quickly, and I was one of the customers who purchased a package — at a slightly higher price point than I would have paid normally.

Novelty is fun and provides entertainment value. I’ll never forget the image of my son and his friend in our kitchen, an Oreo container open on the counter. Both boys were seeing how many “Most Oreo Oreos” they could hold in their hands before posting photos to social media. They spent a half-hour in the kitchen enjoying (and freely promoting) the Oreo brand. They got a memorable experience out of a cookie.

3. Try a rebrand.

A national cheese company came to us at an inflection point: Leaders discovered its product was no longer competitive among other basic cheddar offerings. They knew they had to keep raising prices in order to make a profit, but they had priced themselves out of their current market.

At our advice, the leaders opted to rebrand.

They upgraded the graphics on the brand packaging and refined the product language. They emphasized certain buzzwords they hadn't stressed before: Imported. Made from milk of grass-fed cows. Aged two years.

By and large, people were willing to pay more per block because the company’s rebrand effectively changed consumer impressions of the product. It became a high-end cheese made for a high-end experience, which helped justify its increased price point.

The luxury tag and packaging paid for itself, and the cheese — once an expensive basic cheddar — became an affordable luxury product. The company met its margins and its cheese ultimately became a top seller.

4. Lead with honesty.

It’s tempting to focus on how national corporations are combating rising prices, but that approach overlooks the important work small businesses are doing every day.

There’s a local diner not far from where I live. It’s known in our community for a series of dishes, including its chicken wings.

Five months ago, the diner needed to raise the price of its chicken to keep up with market value. The owners put an insert into menus with a clear note: “The price of meat has gone up so much, so we are forced to raise prices.” They were honest and wrote in their own voice — no business jargon. They said they felt terrible about the price increase and promised — in writing — to go back to previous prices as soon as it was possible.

The diner owner also added value where possible by offering complementary additions like a side salad to those wings should customers still want to buy them at that higher price point.

Customers still had to pay more for their favorite dish, but the owners’ honesty went a long way in keeping them coming back for more. A few weeks ago, when meat prices came down, so too did the price of everyone’s favorite wings. The owners kept their word, further establishing trust and long-term loyalty. (And to boot: They corrected the price of the wings at the bottom of their menus in red Sharpie!)

The Common CPG Imperative

Whether you take your cue out of the McDonald’s playbook or run with a smaller, more local approach, the most important reminder is to understand your customers and what resonates with them. This, above all, is the path forward.

Robert Gorin is a managing director and consumer products practice leader at Getzler Henrich & Associates LLC, one of the nation’s oldest and most  respected middle-market corporate restructurings and operations improvement firms.