Chopping prices without killing the brand ~ Brand Mix

Tuesday, January 6, 2009

Chopping prices without killing the brand

It's all very well for people to say that brands should not cut prices to prop up volume. But these are recessionary times. In Economics language, the demand curve has shifted and the law says prices must fall or quantity will fall even further.

Some may try and ride out the storm but most will take a hard look at their pricing strategy and come up with options, hopefully trying to figure out which tactic will help sales without hurting the brand. Here are some of the pricing strategies I've seen or heard about recently. Let's see if we agree about their brand impact:

1) Costco TV bundled pricing: Ah! the venerable Buy One Get One deal. Favorite of sales people everywhere because it "moves boxes." Costco has come up with an inventory-clearing variation of the theme by "bundling" TVs together and selling them for one low price: Two Sharp 42"LCD HDTVs for $1,499.99! "One for the living room, one for the bedroom." Best Buy is also using bundling pricing at the moment but its strategy is a little more sophisticated--they are bundling different things together like TV and an Xbox or a TV and free installation.

Brand Equity Verdict: This promotion is great for Costco, not so good for Sharp. A 50% off deal would have been worse so perhaps Sharp should be relieved. Best Buy's approach is much kinder to the manufacturer's brand equity.

2) Starbuck's 20% off sale: Starbucks broke one of its cardinal rules with this promotion: "We will not discount our whole bean coffee." For a limited time in December, Starbucks had 20% off merchandise as well as some blends of whole bean coffee.

Brand Equity Verdict: A promotion that lacked imagination and was poorly executed, at least in the store I visited. Just some unenthusiastic hand-written notes on the merchandise and a message on the chalk board. The short time period helped but overall not helpful for the troubled Starbucks brand. The company's efforts to boost the attractiveness of its loyalty card seem much more promising.

3) The Black Friday sales: Not just the early opening feeding frenzy sales that had such unfortunate consequences at the Walmart in New York but the general trend to start sales earlier and earlier. Sales that were once designed to clear out inventories after the holidays are now used to draw in customers at the height of the season.

Brand Equity Verdict: Consumers have learned the game and are now well-trained to avoid paying full price for anything. If brand equity is measured by the premium that brands can charge, then these sales have done an effective job in wiping it out. Still, now that almost all retailers have played this card, it's only the brave few that won't join in. Abercrombie & Fitch's CEO Michael Jeffries is one of those few. He told analysts during an earnings call, “We will use markdowns only to clear through seasonal product in a brand-positive way…It is clear to us that the short-term relief provided by the use of promotions is more than offset by the damage inflicted on the brand in the long-term.

4) Bailey's value-added holiday pack: Baileys (and a host of other brands) took center stage at BevMo! in the holiday period with packs featuring free glasses. Although these packs were designed for gift buyers, the same principle can be applied to add value as an alternative to discounting. In my Coffee-mate days, we sold our fair share of bonus packs or jars shrink-wrapped together as a way to boost sales without cutting prices.

Brand Equity Verdict: Adding value rather than cutting price is a preferred approach but watch out. Programs like these can be logistical nightmares. Not just dealing with the new codes, manufacturing headaches and new shipping arrangements etc but, most difficult of all, forecasting accurately. Produce too few and suffer the wrath of unsupplied retailers. Produce too many and wait for ship-backs and/or clearance bins (which are real brand killers).

Any other/better examples?

Other people's thoughts on price discounting and pricing strategies:
1) Can your brand afford to discount? Paul Williams
2) Price Reductions Threaten Brands: Jack Trout
3) How to Think About Pricing Strategies in a Downturn: Nick Wreden
4) The Illogic of Sales: Jonathan Salem Baskin

5) Frequent Price Promotions Threaten Quality Brands: ScienceDaily
6) more power to ya, a&f: Denise Lee Yohn
7) Segment Customers and Price Accordingly in a Downturn: Dana VanDen Heuvel

1 comment:

Pratiksha Jadhav said...

Cool post. I always read your blog. The information you have provided about brand is really nice. These is good blog on promoting the brand during recession times. Branding services by Brand Harvest specializes in all areas of professional services.

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