What Unexpected Cost Spikes Reveal About the Strength of Your Brand Positioning

Cost spikes are expected to happen at various points within a company’s existence. Whether it’s with one or two suppliers or it’s changes that have impacted the entirety of the economical market in general, price hikes can certainly prove challenging for companies and their brand’s positioning on the market.

In this guide, we’ll look at how unexpected cost spikes can serve as a potent diagnostic tool for evaluating true strength and resilience for your brand. It will also highlight the vulnerabilities that would otherwise remain hidden and how your company can work proactively to benefit from unexpected cost spikes.

The Power of Pricing Elasticity

Strong brand positioning is helpful in building price tolerance. That way, regardless of when and how cost spikes occur, the brand can easily raise their prices without suffering a drop in demand.

This inelasticity is helpful when costs increase, like a sudden jump in raw material pricing for example. Customers who believe in the brand and trust it, will likely remain loyal because they perceive the unique value that the brand is offering, is worthwhile.

A weak sign to look out for when it comes to your brand on this occasion is where a cost spike forces you to absorb the cost immediately. This erodes your margins and indicates as weak and easily substitutable brand position as a result.

The Clarity of Your Unique Value Proposition

Cost crises often force brands to articulate why they’re worth a premium or why customers should change to align with the company’s needs.

A strong positioning sign is where customers immediately understand and accept the necessity of price adjustments. When a UVP is clear and valued, customers will likely agree to the price changes without fuss.

A weak positioning is where you struggle to justify the price increase. If customers view your products with less value or need, then they will often kick up more a fuss when it comes to the price hike.

The cost spike will often expose your inability to differentiate in the customer’s mind and so it’s important that your UVP is as strong as it can be, despite what price points you set your products or services at.

Depth of Brand Loyalty and Trust

Brand loyalty is incredibly important when it comes to coping with a crisis. Just take a look at pandemics like COVID-19 in which a lot of businesses fell apart due to lack of profits or a drop in customer sales as a result of finding better options elsewhere.

Acting as a buffer during crises, brand loyalty helps to create a strong brand that customers will continue to stay loyal to. Customers will assume the price change is necessary and fair, often judging the brand’s commitment level to quality. So long as the product or service quality is high, you’re much more likely to get away with price increases when they’re required.

Weak positioning of a brand can be a higher customer churn and public complaints when it comes to ‘price gouging’. A rapid migration to cheaper alternatives also indicates a lack of trust  and a superficial loyalty that isn’t handy for the long-term profitability of the business. 

These spikes in price will often reveal that your brand’s equity is too low to ask customers for understanding or sacrifice.

The Agility of Your Market Perception

A brand that has clear positioning in the market, can quickly communicate the various external reasons for the cost change, helping maintain a perception of control. 

Brands that often have weak positioning in this regard will often appear desperate, reactive or inefficient during a cost spike. Not being able to take control of the narrative, often reveals a lack of clarity in how the brand would like to be perceived within the market. This often allows competitors to define the brand as being unreliable or expensive in comparison.

How to benefit your brand and business from unexpected cost spikes

If you’re looking to improve your brand and business positioning and help avoid the fallout that can sometimes come with unexpected cost spikes, here are some tips to get you started.

1. Enhance your brand’s reputation with transparency

First and foremost, look at how you can turn a negative into a positive by focusing on audience trust.

Always communicate honestly and do so in a prompt and informed manner. This is good for the purpose of both customers and stakeholders when it comes to cost increases and the specific, unavoidable reasons that they’ve occurred.

It’s also important to use it as an opportunity to reinforce the brand’s commitment to the customer.

2. Optimize internal efficiency and innovation

Cost spikes help to force a re-evaluation of current practices. This can lead to long-term operational improvements which might be needed. Conducting a full audit is therefore useful, to help analyze every aspect of your operation in order to identify it’s inefficiencies. 

It’s worth conducting a full audit so that you’re finding where the inefficiencies lie. Look for areas where waste can be reduced and negotiate better contracts where possible, streamlining your processes too.

Look how you could innovate your products and services, as well as invest in the right technology that will help provide long-term cost savings and efficiency gains. That way, it’ll make the company more resilient to future financial shocks.

3. Strengthen customer relationships with value

Instead of focusing solely on the price, highlight the value proposition of what you’re offering. Consider offering bundled solutions and create new bundles that offer more value to the customer too.

Introducing tiered pricing helps to offer different service levels to give your customers options. It also gives you the ability to raise your prices with the promise of more premium services.

4. Improve financial resilience 

Improving financial resilience helps to keep your business and brand afloat. That’s why it’s important to use these events as a catalyst to build more robust financial structures in the future.

Build stronger cash reserves where you can and diversify your suppliers to help mitigate future price strikes whilst also ensuring continuity of supply.

Unexpected cost spikes don’t need to be feared when your business and branding positioning is strengthened.