I was struck by a recent article in the Wall Street Journal that discussed price setting in the consumer packaged goods industry. The article highlighted the professed confidence that P&G, Clorox, Nestle and others have about their higher prices sticking with consumers. It talked about the downward pricing pressure in everyday-use categories such as laundry detergents and toilet paper. This got me thinking about the extent to which pricing is perceived to influence a brand’s fortunes in today’s market.
The real issue is not price, but value. Or, to be more specific, perceived value. Consumers will generally down-trade only if they do not perceive the incremental value in premium brands. This raises significant questions for a number of premium and luxury brands. Are mere “feel-good” emotional benefits going to be adequate in selling a me-too product at a substantial premium? Marketers could perhaps get away with that in a booming economy when consumers, pockets lined with cash and hearts bursting with optimism, were buying into the hopes and aspirations of a better life and badge brands. In today’s world however, consumers are far more skeptical and discerning about the value they are receiving.
That however does not mean that brand owners have to abandon their premium positioning. Here are a few ideas on how to counter the current price and value challenge:
- Focus on the functional value: You have to deliver clear functional performance IN ADDITION to the emotional value of your brand’s offering. Gillette provides a clear technological edge in its shaving systems (pun intended) while also appealing to male confidence in being at their best. If consumers can experience (see, hear, smell, taste, feel) the difference in your product, they can make the linkage to the emotional appeal and you have a fighting chance at maintaining a premium.
- Introduce a value message for your brand: In this I think consumer brands have something to learn from B2B marketing where it has been very important for businesses to articulate the incremental value ($s, hours, etc.) of their product to hard-nosed procurement managers. So buying a piece of Oracle software is justified because of the incremental value it generates in savings and time-to-market as compared to DIY approaches or other competitive offerings. My wife was similarly touting a premium nail polish that she recently bought as a trial at a salon. While it cost her nearly twice her usual department-store bought brand, it not only gave her a richer and deeper color but also stayed on much longer without getting frayed. Here was clear experiential and economic value that she could perceive that enticed her to buy another shade of the premium brand.
- Leverage segmentation: Not all segments value the same thing. Breakfast is my favorite meal and I am happy to pay more $/lb. of cereal if I can get a proven healthy meal out of it. My neighbor across the street, however, usually buys on deal because of his large family size and his general apathy towards breakfast. Even consumer marketers can roughly tailor their price for each segment by understanding their shopping behavior and using SKU-level pricing and price-based promotions by assortment and channel.
- Change the frame of reference: A prime steak sold at the local grocer may appear pricey when compared to other meat or even other meal options. However to the discerning gastronome segment, the frame of reference is steak restaurant-quality beef, and the grocery store steak that offers steakhouse quality may actually appear like a very good deal. Similarly many personal care products can point to the appeal of their product’s favorable pricing when it is compared with salon treatments.
- Price for the portfolio: It is important to develop pricing strategy from a portfolio perspective and keeping the fair value corridor in mind on the benefit-price map. Taking independent pricing decisions on individual products can end up cannibalizing volume from your own portfolio. On the flip side, managing pricing appropriate to the role of each product in the portfolio can maintain or even enhance the portfolio profitability. A good example of this can be found in the ice-cream aisle where Dreyer’s has successfully broken the cycle of deal-based buying by introducing special “limited-edition” flavors which are not available at all times. This allows for full (premium) pricing on these products even while standard flavors can fight competition in larger pack sizes with volume discounts.
- Innovation can still command a premium: Desirable innovative products, like the new Kindle 2 from Amazon, can sell-out even in these dark times. These are not aspirational products simply because of their brand imagery or emotional appeal. They provide a unique consumer experience and offer both a transaction value (e-books are cheaper than printed books) and a strong “lifetime value” to their consumer. Similarly, me-too products which do not offer a clear product differentiation are likely to face downward price pressure.
It is really rough out there today, even for the leading brands from well touted marketers such as P&G and Nestle. Resisting pulling the pricing lever to protect short-term volume is as much a philosophical decision as a business-savvy one. The brands that will maintain long-term profitable health are the ones that are able to focus on the value that they generate for their consumers.