Some searching questions recently from executives who seem to pride themselves on being brand skeptics prompted me to review the parameters of what brands can do, what they can’t and why I still believe that branding is a vital business activity.
There are five drivers of customer brand insistence – awareness, relevant differentiation, value, accessibility and emotional connection. To be competitive, brands must relentlessly pursue ways to strengthen each. Today, I will focus on the importance of brand value.
Brands send powerful messages through how they price. Price can be influential in portraying a brand as affordable and ‘on the side of the customer’, or exclusive and just for the few. It can generate responses ranging from the thrill of a bargain to the indignation of a price tag that seems far too steep.
As Martin Bishop explained here, the pricing mechanisms that generate those emotions are increasingly varied, ranging from the ‘lock-them-in’ attraction of unbundled fares for those lured by what it says on the tag to the dynamic pricing of hotels and Uber that re-sets worth based on current demand.
Economists tend to view pricing as an expression of supply and demand, with scarcity increasing price and over-supply pushing prices down. While those dynamics are true for commodities, they don’t always apply to brands. And that’s because brands look beyond market logistics for proof of value. They draw on powerful attributes like perception, aesthetic and story to move the brand’s price beyond what the market would otherwise ask. In fact, through its choice of pricing, a brand sends three important signals to its target markets.
1. Access – price makes a product or service rare or plentiful, regardless of the actual production cost. That, in turn, decides who even looks and who doesn’t.
In keeping with its luxury technology status, Apple prices its products high. In so doing, it not only confines its buyers to those who are passionate about the brand, it also reinforces that Apple products are not for everyone. Walmart does the opposite. By dropping its prices to the point where it now matches online retailers, the brand reinforces the value of buying physically, directly addressing the showrooming issues that plague retailers elsewhere. The clear intention is to lift foot traffic. In this context, price lays out the welcome mat.
Most of us are ignorant about prices. Experiments have shown that people will:
- Pay more for an item priced at $39 than one priced at $34
- Spend more when the dollar sign is removed (1,500 vs. $1,500) and more again if the comma is removed (1500 vs. 1,500)
- Think that prices written in a smaller font are less than the same price written in a larger font.
- Buy relatively more premium-priced beer than standard-priced beer if a third super-premium beer is added to the choices on offer but buy relatively less premium-priced beer if a cheaper beer is added to the mix
- Pay a lot more for any particular brand of beer when it’s being sold in a fancy hotel than if it’s being sold somewhere less fancy like a grocery store
(Good summaries of these and other examples can be found here and here.)
What is a marketer to do when faced with such ignorance? There’s economic reward to be gained by devising pricing and payment strategies that confuse the hapless consumer into handing over more money. But what about the impact on brand reputation?
Unbundling: Unbundling means pricing items or services separately rather than as part of a package. It’s been a lifesaver for the airline industry generating a lot of additional revenue. (Spirit generates almost 40% of its revenue from these non-fare fees.) Consumers hate these fees but pay them anyway because they shop on fares and just grumble about the add-ons. That makes the economics too compelling for airlines to ignore whatever the cost to the brand. Southwest is an exception. With a brand built on being a consumer champion and acting differently from the main carriers, it’s committed itself to a no-added-fee strategy and has made that an important part of its overall marketing message. It’s cost them a bundle but, in this case, adding the fees would have been off-brand and even more damaging to its reputation than it’s been for other carriers.
Consciously or not, many brands are now running a freemium model. They are giving away a lot more than they used to, particularly across social media, just to keep up with the changing competitive landscape. And they are hoping to recoup on that significant content investment when consumers do buy. So has any of this changed the fundamentals of brand economics, or has it merely altered the manner in which brands achieve visibility?
By way of a sanity check, I went back to this paper from some years back to assess what still holds true.
Brands continue to simplify recognition and selection, and to instill trust in a world bulging with options. They continue to offer a simple way for time-poor consumers to filter the choice set. Consumers still buy because they identify with what some brands stand for – although one could argue that the criteria themselves may be shifting, particularly with younger buyers, as ethics becomes an important judging point.
Brands continue to draw on the associations they generate to seek extension and licensing opportunities, and my assessment is that this exploration of brand “green-fields” shows no sign of slowing down as brands look to broaden reach and multiple returns through a single relationship. But we are also seeing major brand portfolio managers like P&G focusing their assets much more specifically within set categories. It will be fascinating to see how these contrasting strategies – intensification and diversification – play out in the years ahead in terms of returns.
Brands continue to build value through emotion – but there are two changes in dynamics here that I think are worth noting. Firstly, the nature of the emotion generated. In a less connected world, brands sought to build emotional connection on a more one-to-one level through reassurances around quality and features. In theory, buyers saw an ad, were convinced and acted. Today, as quality becomes more consistent or at the very least more tiered and defined, brands must look to generate likeability at a highly collective social level as well, and the timeframes within which passions, good or bad, can grow has condensed enormously. These macro-attitudes can significantly affect the trending power of a brand – making it hot or not.