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Are you a 'Value brand'?

 

How in order to command a premium price, the world's top brands are trying to shift the global consumer’s perception of value from a product that’s bargain-priced to one that’s convenient, efficacious or high-quality!
MANISH PANDEY | Issue Dated: October 18, 2013, New Delhi
Tags : Value brand | CavinKare | |
 

Would you say that a 'value brand' is one that offers the most benefit for the cost? It sounds reasonable, right? Ever since the world’s largest chain of hamburgers McDonald’s started selling 49 cent hamburgers and 59 cent cheeseburgers, and supermarkets across the globe started launching private labels, value has come to mean just one thing – cheap. And why not? After all, the world, during the period, went through its longest, and by most measures worst economic recession since the Great Depression. In fact, the recession, between December 2007 and June 2009, cost US over $13 trillion, alone.

 


Come today and a new realisation has started sinking in among marketers: It can’t stay this way if brands are going to survive the dodgiest economic recovery in history. In fact, some of the world’s biggest brands, from Procter & Gamble (P&G) to McDonald’s to Ford Motor Company, have already started trying, with varying degrees of success, to shift consumers’ perception of value from a product that’s bargain-priced to one that’s convenient, efficacious or high-quality enough to command a premium price. Marketers know that a typical customer wants one of two things: great quality deals at value prices or a premium indulgent experience at a higher price. And if they can’t afford to go ahead with the first one, it’s better they offer customers the latter.


The reason is simple. Brands can no longer wait for consumers’ wallets to fatten again. According to the Chicago-based marketing research firm IRI, about 40% of the US population (and approximately the same percentage in several developed as well as emerging economies across the globe) is still downtrodden, concerned or otherwise worried about their financial futures.


In addition to convincing consumers, brands are required to accomplish an even tougher task: redefine their own definition of value to one that’s additive. After all, it’s a known fact that brands that have high perceived value are always included in a purchaser’s consideration set. If a brand’s combined tangible and intrinsic equities are consistently higher than any other brand in the category, that brand will have the highest customer loyalty in terms of purchase, repurchase, and recommendation. Competing brands can only improve their loyalty against the brand equity leader by lowering price in the short term, improving their product’s tangible features in the mid term, or improving their brand’s intrinsic benefits, or equity, in the long term.


In fact, when not reduced to the question of price, value speaks directly to what benefits a product or service adds to a customer’s life. Some smart brands get this and are using packaging, design, and technologies etc to entice consumers to get them to open their wallet a bit more, even in these tough times. A classic example of a recessionary innovation that gets consumers to pay more, not less, is P&G’s Tide Pods. The repackaging of its detergent into one-pack-per-load pellets has been a clear boon not only to the consumers (because it eliminates messy measuring), but also to the company. In fact, the first results of consumers using Tide Pods are in. Overall, laundry detergents sales in US fell 2.1% in FY2013, according to Nielsen, but for P&G it’s been a breakout hit that collected a about $500 million in sales for its fiscal year ending in June 30, 2013. Its competitors are crying foul and complaining that innovation shouldn’t reduce sales. However, P&G couldn’t be happier, and it has the reason. P&G is stealing customers from the competition, and those buyers are paying more per unit purchased.


This is one great example of the power of innovation. Tide didn’t invent a new product or created a wholly new formula for its Pods, but rather innovated a better solution to a customer problem (limited time, messy bottles). What’s more? The bundle of individual laundry detergent packages comes at a significant premium to liquid Tide – $18.99 for a 66-load container of Pods or $0.287 per load against $10.99/150 loads for Tide liquid, or $.073/load – over triple the price. No wonder its competitors are going mad.


Even our local players have, in the past, leveraged the power of innovation to not only steal customers from the competition but also to add value to their offerings. One of the biggest success story has been of the Chennai based CavinKare. In 1983, CavinKare used sachets to sell its shampoos. It understood that the price-sensitive Indian consumer was not willing to buy a whole bottle. But a small sachet was a luxury she could indulge in. Result: Today, over 40% of the shampoo market consists of sachet buyers. and this homegrown brand has become a formidable player.


While Tide is banking on packaging, Ford Motor Company is taking a different route: technology. In 2011, Ford found that adding Sync, its hands-free communications system that lets drivers control music, make calls and perform other voice-enabled activities, was contributing to average price-per-transaction increases of more than $4,000. Ford has said more recently that over 50% of customers cite the tech system as a reason for purchase. This clearly proves that even in tough times, consumers are willing to pay more for added value.


All this clearly indicates that great global brands do not succeed because they are cool or trendy. They succeed because they remain relevant to consumers. “The truth of the matter is that brand strength does not protect you: when market tastes change; when competitors develop more effective business models with which you struggle to compete; or when disruptive new technology displaces your product,” says Nigel Piercy, Faculty of Marketing at Warwick Business School.


Thus, just adding customer-centricity to your brand’s vision statement isn’t enough. Thinking like your customer is the first challenge, and delivering a positive result is even harder. Achieving customer-centricity requires rethinking the way business is done. And this, in turn, requires a holistic approach that encompasses everything from analytics and insights to strategy and customer experience, from operating model design and execution to governance and transformation management.


Further, value is in the eyes of the beholder, and it changes based upon changing circumstances. Creating and delivering value is about figuring out how to ‘go deep’ into your relationship with customers and their relationship with you, each other, and your brand. It’s about new processes, new ways of thinking, wand new ways of interacting.


The days of doing a little passive market research with customers, and then using that data to manipulate messages are long past. Today, you must be immersed in your customers’ changing lives, and deliver something compelling and meaningful. Something that they are willing to pay for. Then only will you be termed a ‘Value brand’.  

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Issue Dated: Feb 5, 2017