Tag Archives: price

Aug 17 2012
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Ad World, Marketing Insights, On Learning

How Much Will It Cost?

Pricing happens to be one of the easiest marketing factors to change.

It also happens to be one of the easiest ways to kill trust and ruin relationships with your customers.

In other words, it may be easy, but that’s not to say that pricing-related decisions are uncomplicated. Pricing, and price promotions, have the ability to do the most damage to a brand, in the least amount of time.

Having a deep understanding of the multifaceted factors that all fall under “pricing” (e.g. how will the sales team execute on this strategy?) is one of the most underrated skills in a marketer, or any business person, for that matter.

When it comes to pricing strategy, as marketers we must be aware of whether we are acquiring or retaining customers. If we are acquiring them, we in turn must know where this source of volume is coming from. These customers are either new to the entire category itself (or we are creating a “new category”), or we are earning share from our competition.

It would make sense that that any pricing tactics, therefore, encourage trial in some way to acquire this kind of new customer. In this case, you’d want to clearly define how you interpret a current customer, and you’d have to clearly define who you are “stealing” share from. If it’s vague, then you might just be setting yourself up for an undisciplined approach, and if it doesn’t work, you’ll have to guess at why.

If marketers are in a position of retaining our current customers, pricing and marketing tactics must be aligned with our other brand objectives: delivering the product or service performance, and maintaining and building customer loyalty. Like maintaining anything, maintenance of brand inertia takes consistent work. Steep price changes that happen overnight are a sure way to threaten that loyalty.

For a store like Kroger, it would make sense that a pricing strategy would have a continuity objective. What else might you see under this strategy? Tactics may include product improvements or product line extensions (which would then be advertised), a strong customer relations team and/or loyalty programs, and promotions aimed to get more “share of wallet.”

And, in the case of Kroger, sending out coupons to the “most loyal” to get them to come to Kroger more often is exactly what we see in the marketplace right now.

Pricing and pricing strategy not only acts as a strong signal to customers, but it should also be important to your shareholders. After all, savvy, long-term investors know that companies that do have the power to increase prices and keep their customers, are the strongest of companies.

But note that these companies — such as Starbucks, for example — do not increase their prices too sharply at once. Instead, they demonstrate their ability to raise prices slowly over time. This pricing strategy not only demonstrates a powerful business model, it also shows disciplined and highly strategic leadership guiding the brand.

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Jun 17 2012
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Ad World, Career, Marketing Insights, On Learning, Self Management

Back to the Basics

The use of marketing jargon hurts marketers, especially those on the agency side.

It might happen no matter the industry, but the way we choose to use words, especially to when explaining our value to clients, can be a problem when it threatens our credibility.

I’m all for marketers having a common language, but that’s much different! With more and more new words being coined in the digital space each day, it’s time we all have a clear way to define the foundation of brand management: “brand building” and “brand equity.” By doing so, we can ensure these phrases don’t become overused and misused.

There are three core parts to brand building.These components should be able to be answered with three simple questions:

  1. Who are you? This answer establishes a strong brand identity.
  2. What are you? This answer builds a strong brand meaning.
  3. What feelings do you elicit? This answer shapes brand responses.

If brand equity can be defined as the value of a brand above and beyond its measurable attributes, we can break down a product’s desirability as brand managers into the following buckets as we explain our strategy and tactics when we build brands:

  • Brand awareness. As consumers we must know a brand exists in order to choose it. Studies have shown that 80 percent of variance in choice is due to set of brands someone considers when they go to purchase.Knowing a brand, of course makes learning about a brand easier. The more familiar we are with a brand (or anything), the closer we are to liking it.
  • Brand associations. We quickly form associations about brands. These associations help us process and retreive information when it comes to the decision making process.
  • Brand loyalty. The concept of brand loyalty might now be another phrase that’s being abused, but it comes down to trust in your brand and those that back the brand. Once developed, it has invaluable power: besides retaining customers, it can serve to attract new customers, can give you more time to respond to threats in the market, can reduce overall marketing costs, and gives you trade leverage.
  • Perceived quality. We like to look for signs of greatness as consumers, and we like to confirm our expectations about a brand with other information as it relates to quality. Strong perceived quality can help brands launch brand extensions and have more power in their respective channels.

Instead of speaking in terms of the umbrella term that is brand equity, these components can help us form strategy, and have lively discussions about it, as we shift from managers to product line managers.

These basics of marketing are behind why we “build brands” to begin with. One, brand equity management brings value to the customer: reduced search costs, decision confidence, and satisfaction with their choice and outcome. And, two, it brings value to the company behind the brand: brand loyalty, higher margins, brand extensions, and trade leverage, for starters. Instead of getting away with somewhat ambiguous language, we can make strategies a bit more tangible for clients when we tactfully choose the wording we use to explain our goals and objectives.

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Jan 30 2011
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Ad World, Marketing Insights, On Learning

Lessons on Price Reduction

Vlasic might just be the most recognizable name when it comes to pickles.

They also serve as a lesson in price reduction. Said another way, they show the riskiness that comes with price reduction that relies on an asymmetrically large increase in sales volume.

For years Vlasic was the market leader and had charged a price premium over others in their category. But then along came WalMart, which decided to offer gallon jars, weighing in at 12 pounds, of Vlasic pickles at less than $3 per jar. For a comparison, most grocers charged more than that price for just a quart of pickles.

Stacked up at the entrance of WalMarts across the country, people took advantage of the loss leader which for WalMart represented the deep discount mentality of their stores. Amazingly, more than 80 jars of these pickles sold per week, per store.

So while 30 percent of Vlasic’s business was then going through WalMart, Vlasic’s profits declined over 25 percent. The outcome was that Vlasic had undone its ability to charge premium prices, something they had spent years in establishing the ability to do.

Since they were the market leader, this was in actuality negative for the entire pickle category. Later it turns out they also filed for bankruptcy.

What’s the lesson here? For marketers, it’s that price may be the easiest variable to change, but it can also be the most damaging.

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