Consumers won’t pay more unless they see real value: BCG’s Jean-Manuel Izaret

Let’s start with strategic pricing. How is it shaping markets in mature economies, and how should businesses in price-sensitive markets like India balance price increases with customer loyalty?

Jean-Manuel Izaret: The key is aligning pricing with value. Companies need to understand their customers’ needs and communicate how their product delivers better value. Price becomes secondary if the value is clear.

Globally, inflation has raised prices across industries, and companies must balance this with profitability. Revisiting product offerings and providing real value while responding to inflation pressures is essential.

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Nimisha Jain: In India, over 50% of earnings calls have mentioned inflation as a driver for pricing decisions. It’s a key issue for businesses here, and they need to find the right balance between profitability and value, especially in such a price-conscious market.

During covid, government initiatives helped sustain the rural economy. How important was this for India’s recovery?

Izaret: Government support was crucial in maintaining demand, which had a ripple effect on other sectors. In India, programmes like free foodgrain distribution kept rural spending afloat, helping the overall economy recover faster.

Can brands still raise prices and grow market share in today’s competitive landscape?

Izaret: Yes, but brands need to justify the price increase. Innovation is key. For instance, Apple hasn’t introduced many groundbreaking products recently. If they don’t innovate, raising prices could hurt them in the long run, as markets tend to be efficient. Consumers won’t pay more unless they see real value.

On the other hand, brands like Netflix have managed to introduce different pricing tiers based on the presence or absence of ads, giving customers more choices while still increasing prices. It’s all about delivering value and offering options that justify the higher cost.

What pricing strategies should Indian companies adopt in such a price-sensitive market?

Jain: Indian consumers are value-conscious, not just price-conscious. They’re willing to pay more for better products. Brands need to deliver superior value—whether through innovation, better features or enhanced performance—and tailor their strategies to different segments of the Indian market.

How do consumer habits influence pricing? For example, many Indian consumers are used to low cable bills but are willing to pay more for OTT services. How do brands navigate this?

Izaret: It’s tough to raise prices if customers are used to paying less unless you clearly communicate the added value. Brands like Netflix have introduced new pricing tiers to provide customers with options and justify higher costs. It’s all about offering choices and showing the value.

Premiumization is growing fast in India. What’s driving this trend in a value-conscious market?

Jain: India’s affluent households are growing rapidly. Consumers are willing to spend more in certain categories like skincare, gadgets and cars where they see higher value. Premiumization happens when you deliver a superior experience that meets consumer needs, like the rise of SUVs, which offer comfort, status and practicality for Indian roads.

How can businesses align their pricing with customer value?

Izaret: It’s not just about the price tag—it’s about the entire experience. Companies need to understand how their products are used and price based on the full value they offer. That’s what drives customer-centric pricing.

With Gen Z and Gen Alpha becoming key consumers, how should brands adapt their marketing strategies?

Izaret: Gen Z and Gen Alpha expect more than just product functionality. They care deeply about a brand’s values, such as sustainability and social responsibility. This requires companies to be more transparent and authentic in their messaging. The challenge is twofold: changing the message and shifting to new digital platforms. Traditional advertising channels, like TV, aren’t as effective anymore. Brands need to engage with digital influencers, social media platforms and podcasts to connect with these younger audiences.

Jain: Exactly. And it’s not just about changing your message, but also the capabilities required to execute these new strategies. With the rise of digital, brands now have the ability to hyper-target their audience. Using AI (artificial intelligence), brands can personalize their marketing at scale, delivering different messages to different customer segments. However, companies need to invest in building these capabilities to stay ahead.

How much of a role does consumer trust play when companies change their pricing stance or introduce new models?

Izaret: Trust is essential. If customers feel like a company is engaging in a “bait and switch," where they promise one thing and quickly turn around and do the opposite, it damages credibility. But if a brand is transparent about why they’re changing their pricing—such as market conditions or innovation—customers are more likely to accept it. Companies like Apple, for example, have adjusted prices after market feedback without damaging trust, by acknowledging when they made a mistake or when conditions have changed.

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In the Indian market, we see a sharp divide between mass-market pricing and premiumization. How should companies manage this dual strategy, where affordability is key but there’s also a rising demand for luxury products?

Jain: India’s market is highly segmented. While affordability is critical for the majority, there’s a fast-growing affluent class. Companies need to “de-average" their strategy—break it down by region, income segment and product category. For instance, in rural areas, affordability and value are key drivers, while in urban centres premiumization is accelerating, especially in categories like skincare, mobile devices and automobiles. A one-size-fits-all approach won’t work in a country as diverse as India.

In the context of inflation and rising costs, what should companies focus on to maintain customer loyalty and still be able to raise prices?

Izaret: You have to focus on value and innovation. Consumers won’t accept price hikes unless they see a clear reason for it—whether that’s through new features, improved quality, or added services. OpenAI is a good example of this, where they’re planning to increase prices significantly for new, advanced AI models. As long as these new models deliver more value—such as automating tasks that save time or money—customers will be willing to pay the higher price.

Jain: It’s about packaging your product in a way that meets evolving consumer demands while balancing inflationary pressures. In India, for instance, brands have to think about not just raising prices but delivering superior value. Even in price-sensitive segments, we see consumers trading up if they perceive they’re getting more for their money.

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