I spent enough money at Eastern Mountain Sports the other day to receive a $25 Gear Bucks card at the checkout. Thinking this could subsidize my holiday shopping, I was disappointed to find that the card would not be valid until December 25th, 2006. But later, when I read this piece by Al Ries in AdAge, it occurred to me that EMS is actually a much better marketer than most other retailers, who seem to be competing to give the store away even earlier than usual this year.
In his article, Al comments on the deep-discount advertising frenzy that marked this year’s post-Thanksgiving holiday period in the United States. He suggests that by offering low prices, retailers are simply training consumers to think that regular prices are too high, thus encouraging them to seek out chains that feature “everyday low prices.” Al compares the actions of price-cutting retailers to those taken by the airlines in what he calls their “discount derby.”
The long-established major carriers, such as American and United, have traditionally employed a “high-low” pricing strategy, charging a premium price for travelers with few options (such as those who must fly on short notice), while filling the planes by selling cheap seats to bargain hunters. Pointing to the success enjoyed by upstart airlines Southwest and JetBlue, who have made low fares part of their standard offer, Al sees trouble ahead for discount-crazed retailers. He adds, “What’s tragic about the retail industry’s ’sale’ mentality is the almost complete absence of branding in their advertising efforts.”
The parallel between retail chains and airlines brings an analogy to mind. Justifying a premium price is like keeping a plane in the air. A plane relies on thrust from its engines to keep it airborne. If fuel to the engines is cut off, gravity will pull the plane down. The more height the plane loses, the more fuel it will need to regain altitude. Similarly, if a brand cuts its price, it, too, will face a tough (and expensive) time regaining its previous price point.
What’s the fuel that allows a brand to charge a price premium? It’s the belief people have that it’s different from the competition—different because it has a patented product or process, different because it has an iconic design, different because the “right” people use it, different because it has great advertising. Each brand’s fuel is going to be, well, different. For some, investment in R&D will be critical, for others it will be great customer service, and for many, it will be great marketing. Very rarely can a brand become different by being cheaper – particularly when many competitors are also trying to claim that difference.
Price itself can be a determinant of perceptions of value. This post by Chuck McKay, which was brought to my attention by colleague Dede Fitch, provides three examples which illustrate that a price which is too low can be just as much a barrier to purchase as a price which is too high.
This concept - that price can impede purchase in two ways - is built into the core of Millward Brown’s brand equity framework, the BrandDynamicsTM pyramid. Price is one of the barriers which can keep people from getting to the Relevance level of a brand’s pyramid. People may be put off by a brand’s price, either because it is too expensive for their budgets. or so cheap that they doubt the quality (as in the case of Chuck’s examples). Equally, price can drive perceptions of Advantage and encourage people to buy the brand, either because it makes the brand a better value than others or, in the case of super-premium brands, it lends prestige. So price is not independent from brand perceptions, such as quality and attractiveness, but may actually be instrumental in shaping them.
Given that many people still associate low prices with poor quality, any brand that teaches people to buy on deal is asking for trouble. Consumers may not only become addicted to its low price, but they may come to doubt the brand’s quality as well. In the case of the U.S. airlines, this has become a vicious cycle. As cost-cutting diminishes the quality of the brand experience, travelers see no point in paying a higher price for a ticket. As Al points out, some of the big box retailers also appear to be heading down this path.
To conclude, while I may have been disappointed that I had to pay full price for that Sigg water bottle (sorry if I spoilt the surprise Russell), I have to applaud EMS for its savvy. Rather than giving away money before Christmas to drive volume, they chose to use a discount offer as an incentive to drive sales once the gift-giving has finished. With a $25 credit in hand, which will expire on January 31, 2007, I am much more likely to get back to EMS after Christmas than I might otherwise be, and I will probably feel more positively about EMS when I do so. To me, that makes EMS a good brand marketer, not just a retailer.
What makes a brand worth paying for in your eyes? Which premium brands do you buy? And which premium purchases are you unable to justify on the basis of a tangible product difference? Please let me know.
(24 votes, average: 3.33 out of 5)
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December 21st, 2006 at 12:21 pm
I guess to every rule there is an exception, some ‘premium’ brands have to discount, especially at this time of year . I am thinking of ‘Gifting’ brands, where the opinion of the receiver matters more than the opinion of the buyer.
Brands such as Ferrero or Lindt make their money from price cutting (I suppose their premiumness is arguable, but bear with me), while also sourcing a high proportion of volume from theoretically ‘equity sapping’ discount retailers…yet they continue to be perceived as ‘premium’ with relatively little ATL support.
Many of these brands drive 80% of their sales over Christmas, a period when they discount like mad…yet most hardly spend outside the Holiday season. In theory you would think that they would need to spend the other 9 months of the year re-building the equity lost over the holiday ‘2 for 1′ season.
The best strategy for these brands may be to sell cheap (your only going to give it someone else anyway), but look expensive…with much of the advertising intended to reassure the buyer that the eventual receiver will ‘think’ the present was expensive….a strange double jeopardy whereby to make a sale you have to be both good value (cheap compared to the other brands on the shelf) and yet percieved by someone else to be expensive.
December 21st, 2006 at 5:05 pm
Hi Diamond,
You raise an interesting point. The critical issue here is surely one of balance. If the brand is one with which you are familiar and which you believe is an acceptable quality - which as you point out will vary according to the purchase context - then finding it on discount is a plus. If, however you are unfamiliar with the brand then the discount might signal a potential lack of quality.
In your example I would suggest that Ferrero and Lindt are living off previously established equity, as well as having foreign provenance and looking expensive. The question is, will that equity erode without further support to the point where people lose confidence in the quality judged on looks alone?
Cheers,
Nigel
December 29th, 2006 at 11:52 pm
Hi Nigel
In India , we are also experimenting the Price cutting vs Brand to achieve our Business target
These days , its the bargain hunters being targeted at regular intervals
Its takes back to one of the rudimentary questions in Marketing : Is the brand thats responsible for sales or vice versa ?
January 2nd, 2007 at 11:05 am
Hi Diveya,
Of course, that is the age old question at the heart of the battle between marketing and sales: who actually generates the sale?
If you ask people who have made a recent purchase most would suggest that their decision was based on stuff they knew prior to getting to the point of purchase. Asked what gave them their initial impressions of the brand they bought marketing usually features high up the list (second only to personal experience).
But is marketing alone enough to make the sale? My answer would be definitely not. The brand still needs to be stocked where people can find it, presented in such a way that it confirms peoples’ desire to purchase that brand, and priced appropriately.
Would something sell if it was not branded? Yes, but it would sell less, at a lower price, and with less repeat purchase than its branded counterparts. How much more volume, price and repeat a brand generates is the measure of how well the marketing and sales efforts have worked. The problem is that there are very few unbranded goods and services to compare to and even if there were the last influence on the consumer prior to purchase is likely to get the credit for all the preceding efforts.