Faced with several days’ hiking in the western Altai Mountains of Mongolia, I am contemplating whether I really want to lug my Nikon D80 camera with me. With the lens, it weights over three pounds, and that could be the straw that breaks the camel’s back while hiking over rough terrain. So far my research has not identified an adequate lightweight alternative, but it has turned up yet another case of dual branding. I wonder … has true product differentiation really become redundant?
While looking for a good quality compact camera, I decided to check out what Leica had to offer. Leica has always had a good reputation for the quality of their lenses, and their film cameras have commanded both a premium price and a loyal following over the years.
The review of the Leica compact on CNet was OK, but concluded “the Leica D-Lux 3 has a price only a Leica aficionado could love.” The detailed review, however, made me wonder whether even an aficionado would be willing to pay the asking price of just under $600. The introduction to the review read:
Every year, Leica and Panasonic collaborate on a few camera models that get branded under each company’s name. If you can’t tell them apart, just look at the price tags. Leica generally throws in about $100 worth of perks–usually better software and an SD memory card–then charges about $200 more for the bundle.
Ouch! You really do want to have the Leica name on your camera if you are willing to pay $100 more for what is essentially the same product. A history of quality and positive word of mouth seems unlikely to justify that magnitude of price differential to me.
Of course, dual branding has been around for many years. I am sure that my U.S. readers can think of many instances of the same car being offered under two different Ford or Chrysler nameplates. But it does seem to me that more and more cases are coming to light, suggesting that “differentiated product” is no longer regarded as one of the necessary foundations of a brand. Instead, brand owners seem to expect the brand to do all the heavy lifting. And for many brands, that might be too much of a stretch.
By example, in researching the flight to Beijing which will start my holiday, I discovered exactly the same flight being sold online by two different airlines. The flight, direct from JFK to Beijing, is operated by Air China. A seat on the same flight could also be purchased from United—but they were asking almost $1,000 more for the round trip. Now, United is one of the airlines I use on a regular basis, but there is no way I am going to pay $1000 extra simply to have their name on my e-ticket. What’s the benefit to me? It certainly does not make me feel any more favorable toward United. If nothing else, this confirms the power of the Internet to make this type of pricing tactic obvious to everyone.
Apparently, for many brands “product differentiation” has been written off as a means of gaining competitive advantage—in which case, the emphasis on maintaining a price differential over competition falls squarely on how much consumers value intangible brand benefits. For strong brands, this may not be a problem but for others it creates an enormous challenge, particularly in these days of easy access to information on products and prices.
So what are your thoughts? Have companies given up on product differentiation prematurely, and at the expense of their brands? Please let us know.
(18 votes, average: 3.17 out of 5)
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July 6th, 2007 at 2:23 am
Hi Nigel,
I would guess that companies don’t even realise that they have fallen into this trap too often. I don’t mean that they are too stupid to realise that the products are fundamentally the same - rather that they believe the ancillary benefits they are packaging in are really worth the premium. I’m sure that if you called United, they would tell you that you were getting extra benefits for your $1000 - air miles, tier points and interline options etc. However I would argue that the rise of companies like Southwest or Travelocity has allowed consumers to unbundle features in their minds. Maybe it’s the companies who rely on bundling as a part of their brand who should worry the most as their margins get continually eroded. These guys tend to bundle more and more to try and maintain share or go for the premium markets and they will eventually lose out to unbundles offerings.
John
July 6th, 2007 at 4:20 am
There are two different issues here.
1) If two items are identical, should they cost the same?
2) If two items are similar, should they cost the same?
These may appear to be the same question, but they are not.
If I wished to travel from JFK to Beijing then, like Nigel Hollis, I would choose the cheaper flight. I have to go to the same airport, sit in the same departure lounge, wait the same period of time, sit in the same plane, eat the same airline food, travel for the same time, wait just as long to get off the plane, pass through immigration, collect my baggage, and leave the airport. I gain nothing from buying a more expensive ticket.
My answer to 1, therefore, would be ‘yes’ (although I shall return to that).
However, I own a Leica D-Lux 3 camera, so my answer to 2 is clearly ‘no’.
I have compared the Panasonic and Leica products side-by-side. They are similar but different.
They share the same Panasonic electronics and the same Leica lens. To that extent the CNet review was accurate. The body of the Panasonic is entirely plastic; the body of the Leica is protected by a metal shell. This not only protects the camera but allows it to be smaller in two of its three dimensions. Panasonic chose to rotate the battery making the camera body more bulbous - I suspect this was a deliberate decision for people who prefer to hold the camera by the front and back faces. The Leica body is flat and thin, which I find preferable to hold (top and bottom so that my finger is comfortable on the shutter release); it also allows it to slide more easily into the purpose-designed leather case. Incidentally, Leica UK has chosen to bundle this case with the camera at no extra charge; I understand that there is a waiting list for this case in the US. Both cameras need a case to protect the large display on the back; when you add a case to the Panasonic, the price difference reduces. Leica has also moved some of the controls onto the lens housing, making them easier to find - for example, to switch between different aspect ratios (normal or wide-format pictures) the control is on top of the lens. n.b. I have not even included the differences that the CNet review also identified.
In short there are differences that I value sufficiently to pay a premium. Others may not - the Panasonic is also a good camera. Note, I am not even saying that the Leica is a better camera - to somebody who places a different value on those differences the Panasonic may be better.
Incidentally, the Leica has an optional adapter - which I don’t need, but some people might - that allows it to be attached to a telescope. I understand that that is one reason why it sells to bird watchers. My friend is considering replacing his Panasonic with a Leica and adapter so that he can attach it to a microscope.
I said that I would return to ‘identical’ products. While waiting for your flight to Beijing have you ever bought a cup of coffee or a soft drink? In most airports, and I have no reason to expect that JFK is different in this regard, the price will be slightly higher than outside.
You might argue that coffees differ and that JFK’s coffee is better than most so let us consider a can of Coca Cola. It is a standard product in a standard quantity, but I am sure that I can buy it more cheaply outside the airport.
Are people who pay this premium irrational? No - it is simply a measure of the value they place on having a can of Coke there and then rather than waiting until they are on the plane where a similar can is usually free of charge!
If it is considered normal to pay a premium on buying an identical product in different circumstances then it seems a bit odd to question paying a premium for a product that is noticeably different.
July 6th, 2007 at 5:25 am
Perhaps it is the impending vacation that is dizzying your judgment, but how can you compare Air China to United and not believe that there may be $1000 of additional value in the flight. I don’t know the leg room in each, but I’d have to imagine there are differences that could justify the difference. And what about scheduling, airports and even frequent flier miles? I have to believe there is an underlying product difference that may (or may not) make the incremental fare worthwhile – it really is more than a different brand name.
July 6th, 2007 at 9:59 am
OK, some interesting comments here, thank you.
First, Phil, I will happily share the details with you but as Mark correctly assumes it is exactly the same flight, same plane, same operator (Air China). There is no tangible difference that I know of. It really is just a different brand name.
John, you make a really interesting observation about the way in which consumers “unbundle” product and service offerings. My problem with both examples was that when I did separate out the different elements that I knew about it did not justify the price differential.
Mark, if nothing else I am going to look again at the Leica! I will return to your comment in more detail after my next set of meetings!
Thanks all.
November 27th, 2007 at 12:48 pm
I have been trying to find empirical data on price impact of branding on services but there doesn’t seem to be any, simply because it is near impossible to unbundle all aspects of a service. There are however studies of that sort about products, where they control all aspects including distribution -eg cost of branded drugs over generic even when identical and in the same drugstore. So the whole point is that if you can convert your product to a service for example what Starbucks did to coffee of McDonald’s to burgers it becomes near impossible to unbundle the cost elements. Unless you are an expert buyer and are able to look beyond the brands. So even with the example of online travel sites it will be a while before everyone is confident and expert at using them, so the brand arbitrage persists.
November 27th, 2007 at 4:47 pm
Hi Jessie, thanks for an interesting observation. I am not sure I have come across any data on services specifically but I would agree it is more difficult to debundle than a product that lists the ingredients on the pack.