As we know, recent tariffs have been affecting businesses in the home improvement and building industry, from manufacturing to distribution to retail to end-user.
According to data from the Home Improvement Research Institute (HIRI.org), 37% of contractors said that tariffs have impacted their business, mostly by increasing materials costs, reducing profit margin and lengthening material lead time. Our team at The Farnsworth Group regularly meets with industry manufacturers, retailers and associations, and it is rare for a conversation not to include the topic of tariffs.
Regardless of their stance on tariffs, industry leaders are sometimes unsure of how to address the situation. They question whether to absorb the higher materials cost and reduce margins or increase the retail price and pass along all or some of the cost to end-users. But how can manufacturers and retailers know which pricing decision is best?
When questions like these arise, it is best to start with internal and external research. Then you can make a decision once you uncover how price changes impact the customer’s willingness to purchase your product.
Pricing Elasticity Research
Pricing elasticity research is one way to find out how much a brand can raise prices before consumers will consider other options. There are several methods to determine acceptable price points for existing, new or enhanced products.
One type of pricing elasticity research we often recommend employs a technique called choice-based conjoint. In this methodology, respondents are presented with several product choices that have different attributes and price points. They are asked to choose which product they would most likely purchase based on those attributes and the price.
Results allow you to determine the impact a specific feature has on preference. Analysis of the results also reveals which price points have positive or negative impacts on customer preferences, allowing a brand to maximize profit and protect margins without losing customers to competition. You can also determine how much more a customer would be willing to pay for certain features, such as a power tool with a rubber over-mold on the handle vs. one without, or a walk-behind mower that comes with 3 speeds vs. a single speed.
Traditionally used in product development for new or re-engineered products, conjoint can also be a great solution when price sensitivity increases in the market.
If you can understand which attributes a customer is most willing to pay for, or even which features you can eliminate to reduce manufacturing cost, that knowledge can inform you on the product feature set. This will help you drive messaging, product development and how you sell the product to your merchant.
Conjoint is one of several methods you can use to better prepare for acceptable price changes. Most important is that you utilize market feedback to ensure your approach to tariffs and pricing strategies does not have a negative impact on your brand or your sales.
For more information on how pricing elasticity research can help you make the best decision in response to recent tariffs, contact The Farnsworth Group to start a conversation about research today.