In this edition of the Managerial Excellence Masterclasses, we had the immense pleasure of welcoming
Stéphan Guinchard,
a French pricing specialist and expert in hidden champions. A graduate of the École Polytechnique and London Business School, and a former director at Simon-Kucher & Partners, he reveals the secrets of pricing in a period of historic inflation.
The London Olympic Games: Pricing as a Marketing Lever
Stéphan begins with an exceptional case study: the London 2012 Olympic Games, which transformed pricing into a genuine communication tool. All prices referred to 2012: from £20.12 for entry-level tickets to £2,012 for premium seats.
“It was a synthesis of all the research on pricing with real in-depth work,” he explains. Beyond the symbol, the organizers developed strong marketing initiatives: “Pay your age” allowing children to pay their age (2 years = 2 pounds), and specific rates for seniors.
The objective was twofold: to serve profitability and to create a positive perception among the British population, demonstrating that pricing can be much more than just a financial lever.
Cognitive biases at the heart of price perception
Stéphan reveals how price itself becomes a vector for communicating value. The example of painkillers is striking: the same medication (actually vitamin C) given for 9 euros to some patients and 2 euros to others produces different effects. Patients who paid 9 euros felt objectively better.
“When I don’t know how to evaluate a product’s effectiveness, price becomes an indicator of its value,” he explains. This logic applies massively to the structuring of offers into three levels: rather than two choices (cheap/expensive), three alternatives naturally push towards “the cheapest must be unreliable, the most expensive is too expensive for me, I hit the middle.”
Price elasticity: knowing your limits to optimize your margins
Faced with inflation, Stéphan proposes a pragmatic approach to determining how far to raise prices without losing too much volume. The method begins with an internal simulation exercise: “If my prices drop by 3% and my volumes by 5%, what does that mean for my profitability?”
The 80/20 rule is particularly powerful for SMEs that don’t have the resources to conduct large-scale econometric studies. “If I lose 5% in price, how much more volume do I need to make up my margin?” This question often yields surprising answers from salespeople.
The crucial issue: “If I make a 5% margin and drop the price by 5%, I no longer have any margin, so I need unlimited volume to compensate” – which is impossible.
Differentiation strategies in the face of inflation
Differentiation strategies in the face of inflationIn the current context, Stéphan advocates a differentiated approach: “If I want to obtain a 10% increase, it’s by looking for 20% from a supplier for whom we are essential and 3% in difficult sectors.”
The key word: differentiation. “If we have a uniform increase in costs, we should not try to pass this increase on uniformly to all customers.” This segmentation makes it possible to optimize the acceptance of increases according to the sensitivity and dependence of each customer.
He also emphasizes the importance of timing: “It’s better to be ahead of the curve than behind. At the end of the year, with the closing of budgets, it’s more tense and complicated.”
Price signals to avoid tariff wars
Stéphan develops the crucial concept of price signals to anticipate competitive reactions. “If I target 15% and everyone else is 5%, I can trigger a price war. Conversely, if I only achieve 5% and everyone else is 15%, I risk underperforming.”
The signals can be institutional: articles in the trade press, communications via professional unions. “The idea is to set the tone by saying: ‘It is becoming vital to rebuild margins because otherwise the players will die.'”
This coordinated communication avoids misunderstandings that lead to price wars that are destructive for the entire sector.
Pricing innovations: getting out of the competitive game
Faced with customer budget constraints, Stéphan proposes business model innovations rather than simple price reductions. The example of Rolls-Royce illustrates this transformation: “Before, they sold aircraft engines. Now, they sell by the hour of use.”
This approach offers several advantages: flexibility to adjust the offer, variability of customer costs, and maintaining the value-price balance. “Mr. Customer, you no longer have the budget to invest? Here is a rental solution that varies your costs.”
Fencing strategies also help optimize segmentation: offering a stripped-down offering for price-sensitive customers while maintaining the premium offering with clear barriers to avoid cannibalization.
The Hidden Opportunities of the Crisis
Stéphan concludes on an optimistic note: “This crisis puts the spotlight on the imperative of pricing. All players will be forced to take charge of the issue.”
“We’ll be all the better prepared for next time,” as this period forces experimentation and the development of long-neglected pricing skills. In a context of scarce resources, it’s also an opportunity to prioritize the best clients and test increases with calculated risk.
In a nutshell…
- Pricing becomes a powerful marketing lever when it intelligently exploits cognitive biases and the perception of value.
- Segment differentiation and timing are crucial for successful price increases during inflationary times
- Business model innovations offer more flexibility than traditional price adjustments alone
Don’t miss the next Masterclass!