Branding Strategy Insider

ROI, Brand Value Calculators

One of the five drivers of brand insistence is value. Value is a function of two things: (1) benefits delivered and (2) cost of receiving those benefits. For business-to-business brands, value often translates directly to ROI. It will benefit brands in many business-to-business categories to create a brand value (or ROI) calculator and post it on a website or otherwise make it available to customers and potential customers.

Brands that offer superior long-term ROI can use the calculator to demonstrate that while their products and services might be more expensive upfront, the long-term savings realized from using them more than compensate for their higher upfront price. Creating an ROI calculator enables all of the efficiencies and savings that they deliver to be captured and compared to those of their competitors in a very concrete way.

The calculator can be designed to highlight the advantages that your brand offers over its competitors. Additionally, it can attract potential customers to your brand’s website and reinforce the value-added services (in this case, the calculator itself) that they can come to expect from your brand.

The calculator captures the following types of variables and assumptions: purchase cost, maintenance costs, replacement parts costs, average downtime frequency and duration, out-of-service costs, ongoing energy usage and costs, non-compliance fines and surcharges, estimated (or guaranteed minimum) product life, performance efficiency, ability to charge a price premium for product usage, etc.

We would be happy to help you develop a brand value / ROI calculator for your brand.

Sponsored By: Brand Aid

Price Reductions Threaten Brands

Price is often the enemy of differentiation. By definition, being different should be worth something. It's the reason that supports the case for paying a little more for a product or service. But when price becomes the focus of a message or a company's marketing activities, you are beginning to be perceived as being unique. What you're doing is making price the main consideration for picking you over your competition. That's not a healthy way to go.

Few companies find happiness with this approach for the simple reason that every one of your competitors has access to a pencil. And with it, they can mark down their prices any time they want. There goes your advantage. 

Getting Around Price

Market leaders will always be attacked on price. It appears to be almost a law of nature. So what do you do? Do you have to match all their moves that are made against you? Well, there are some tried-and-true methods of getting around a price attack:

1. Do something special. The leader can go to its biggest customer and offer something special. Nike went to Foot Locker with Tuned Air, a $130 running show that they make exclusively for the big shoe retailer. So far, so good. Foot Locker has ordered more than a million pairs. 

2. Cause some confusion. In some industries, pricing can be quite complicated. Some years ago, MCI launched their Friends & Families discount program. The deal was discounts on those calls you made to your friends and families as well as to those that were made to you. AT&T ignored this for a while, but MCI's market share started to climb. Eventually, AT&T introduced "MCI math." This aggressive ad program challenged those MCI rates as not being very much when you got past the small print (the 20% discount shrunk to about 6%, which worked out to pennies on a phone call.) AS the arguments raged, the market became confused about what was a real discount and what wasn't. Other discounts from Sprint and a new breed of telephone discounters only added to the confusion. MCI's market share progress was halted. Who wins when the market is confused? You guessed it: the leader. People just figured, "Why bother? Let's stay with AT&T."

Strategic Pricing's 3 Keys

A survey from the Chartered Institute of Marketing suggests British marketers are lost when it comes to setting prices for their products.

According to the report, the most extensively used technique for pricing was 'face-to-face research'.

A report from consultants McKinsey observed that many firms set prices based solely on anecdotal evidence.

You will struggle to find a marketing textbook that defines the 'face-to-face' approach or explains the role of anecdotal evidence in marketing decisions because, of course, both are hallmarks of marketing managers who don't have the faintest idea.

Times are changing, however. The introduction of the euro, in particular, has ensured that most European marketing managers have been faced with a huge number of simultaneous price changes and very few 'anecdotal' guidelines to help structure their thinking.

There are three key constructs to consider when setting a price. The first task for any pricing decision is to determine the value of the offering to the customer. Inevitably, any market research into this area will reveal that different customers can derive very different utility from the same product or service and thus a hallmark of a good pricing strategy is that it is usually combined with the parsimonious segmentation of the market.

Price: Friend and Foe of Brands

People buy a brand because it stands for something. People buy commodities because they are the cheapest alternative available. It is worth pointing out that brands are not created that way, they all begin life as commodities.

Once upon a time Microsoft was just software, Nike was just running shoes and BMW was just a car manufacturer from Bavaria.

The challenge for any marketer is to expedite a transformation and take a commodity, like water, and turn it into a brand, like Evian. This process is called 'brand building' and involves associating a product with values and meanings that the target audience aspire to.

Advertising, sponsorships, endorsement, packaging and a thousand other techniques can be used to link product to meaning and thereby transform a commodity into a brand. Eventually the brand is built and consumers no longer consider it a commodity and are prepared to pay much more for it as a result.

Many marketers do not appreciate that this process can also be reversed.

Sorry Marketers, You Can't Go Up

Zale's, the king of middle-market jewelry, tried to sell more expensive jewelry. They had little success.

Wrangler, a brand that sells $15 dollar jeans at Wal-Mart, tried to sell $190 jeans at Barney's. They had little success.

Wal-Mart launched a marketing effort to sell more higher-priced merchandise as a way to get business from Target. They will have little success.

What these companies fail to understand is that it is exceptionally difficult to take a well-established brand up in price or value. The automobile people have a long history of failure in this regard.

Years ago, Cadillac tried to take a $50,000 Allante against Mercedes. They had little success.

More recently, Volkswagen tried to sell a $60,000 Phaeton against Mercedes and BMW. They had no success.

Cadillac’s only hope of competing with the super-premium cars is with a different brand. If they had dusted off an old, classic brand, called it LaSalle, and reintroduced it as America's first super-premium car, they might have had a better chance of success. But of course, they would have probably upset a large number of Cadillac dealers who want to continue to offer General Motor's top-of-the-line automobile.

As for Volkswagen, they already own the Audi brand. So why try and compete with them?

What all these companies fail to understand is that it is not what you want to do, it is what your customers will let you do. But even more importantly, it's what their perceptions will let you do.

Understanding Reference Prices

People often compare a product’s price to a “reference price” that they maintain in their minds for the product or product category in question.  A “reference price” is the price that people expect or deem to be reasonable for a certain type of product. 

Several factors affect reference prices:

•    Memory of past prices
•    Frame of reference (compared to competitive prices, pre-sale prices, manufacturer’s suggested prices, channel-specific prices, marked prices before discounts, substitute product prices, etc.)
➢    Creating the most advantageous (and believable) competitive frame of reference is essential to achieving a price premium
•    Prices of other products on the same shelf, in the same catalog, or in the same product line
➢    The addition of a more premium priced product typically increases sales of other lower-priced products in the same product line
•    The way the price is presented – for instance, absolute number versus per quart, per pound, per hour of use, per application, for the result achieved, etc.; also four simple payments of $69.95 versus $279.80; for automobiles: total purchase price versus monthly loan payment versus monthly lease payment
•    The order in which people see a range of prices – like when a realtor uses the trick of showing the poorest value house first.

Sponsored By: Brand Aid

Ten Sources of Potential Share Loss

Don’t ever be satisfied with ‘business as usual.’ There are always others in the marketplace trying to create the next ‘killer application.’ They are smart, they are savvy, they have discovered new technologies, they have deep customer insight and they have an outsider’s perspective. Stay close to your customers. Understand their frustrations. Identify their latent needs. Keep abreast of market trends and new technologies. Constantly innovate. Test new features and new concepts. Relentlessly search for superior solutions to the customer needs that your products address today. Try to view your business from an industry outsider’s perspective. Try to put yourself in your customers’ shoes.

Following are ten sources of potential share loss for your products and brands:

1.    SUBSTITUTE PRODUCTS – Products offering a similar consumer benefit but from a different product category

a.    Examples:
    i.    Vacation rental homes in lieu of hotels or motels
    ii.    Contact lenses versus eye glasses, LASIK surgery versus contact lenses
    iii.    Aspirin versus Acetaminophen versus Ibuprofen versus Naproxen
    iv.    A plane versus a train versus a bus

2.    BIG BOX RETAIL/CATEGORY KILLER STORES - A new retail format offers significantly more variety and selection (and often lower prices too) than your retail store does

a.    Examples:
    i.    Barnes & Noble replacing smaller, local book stores
    ii.    Wal-Mart replacing smaller, local department or variety stores
    iii.    Home Depot or Lowe’s replacing smaller, local hardware stores

When Regression Means Progress

If there was a prize for the greatest marketing cliche of all time it would probably go to John Wanamaker. It was Wanamaker, followed by about 40,000 marketing executives giving boring presentations, who uttered the immortal words: 'I know I waste half the money I spend on advertising, the problem is I don't know which half.'

It was a fair statement for a 19th-century department-store baron. Advertising back then was a wonderful combination of art, sales and skulduggery. Today's marketing executives may also query which of their investments drive brand equity, sales and market share, but they have little excuse to be as ignorant or sanguine on the matter as Wanamaker was.

Multiple regression analysis is a marketing manager's dream calculation because it addresses the classic investment question that so many organisations find impossible to answer. Multiple regression analysis examines the relationship between a series of independent variables (the inputs) and a single dependent variable (the output). For example, it can enable marketers to study the impact of different media investments on the sales of a particular item. Alternatively, it can explore the relationship between various sales promotions and their impact on brand equity. Regression analysis can turn on the light in the darkened cupboard of marketing decision-making and apply rigour and strategy where before there was just instinct and inertia.

Regression analysis has been around for a century but its adoption in marketing has been severely limited by the relatively poor analytical skills of marketers. It is all too easy as a marketer to dismiss the power of techniques such as regression analysis on the basis that they are too complex and that, ultimately, predicting marketing success is impossible.

The Advantage of Price Segmentation

Price segmentation (offering different prices to different market segments) increases overall revenues and profits, and it is particularly beneficial to industries that have high fixed cost structures.  Obviously, price segmentation works better to the extent to which there are real customer need segments and to which you can effectively isolate those segments.

As an example, imagine that your business only offers one product priced at $5.  But some consumers are willing to pay up to $8.  You are leaving $3 on the table for each of them.  Other consumers are more price-sensitive and only willing to pay $3.  You do not get any of their business. With price segmentation more revenue  is generated by offering three prices -- $3, $5 and $8 – instead of just one -- $5.

Prices can be segmented in the following ways:

•    By time (higher hotel room rates for holidays and other peak tourist seasons)
•    By location (higher prices in locations with less competition or in which less price-sensitive shoppers shop, orchestra versus balcony seats in a theater)
•    By volume (volume discounts for large orders)
•    By product attribute (first class vs. coach section on airplanes; solid brass vs. plastic faucets)
•    By product bundling – examples:

Dangers of Extending the Brand

One of the biggest dangers is a brand extension that repositions the parent brand in a negative light (like Bayer “aspirin-free” products or “Fat Free” Fig Newtons).  One of the trickiest extensions is creating a “value” version of the parent brand. Extending your brand up to a premium segment or down to a value segment has the greatest potential for negative impact, as a brand’s quality and value perceptions are often central to its positioning.  You don’t want to create the perception that the original brand was overpriced.

Often the best solution is creating a new brand or sub-brand.  If the market is moving away from your brand’s position, it may be better in the long run, despite the cost, to create a new brand to meet and own the solution to the evolving needs of consumers. This is a more expensive approach with a higher probability of failure and is not a brand extension.

Sponsored By: Brand Aid