Levi Strauss, the 167-year-old blue jeans company, is fast-tracking its brand-business strategy to address our changing retail habits. The venerable brand has a great deal of incentive to do so, as many retail establishments are struggling or are facing Chapter 11 bankruptcy. Levi Strauss has several plans that focus on how we will be shopping from now on into the future. As with other retailers, coronavirus pandemic has accelerated the implementation of these strategies.
Our expectations have changed. Retailers must focus on our changed perceptions of value. Retailers must recognize that value-seekers are not a market segment. Everyone seeks value. Different people just value different things. We are all “value” shoppers.
In an interview with The Wall Street Journal, Levi Strauss’ CFO spoke about the brand’s clothing lines and the pricing differences between third-party retailers (Target, e.g.) and its direct-to-consumer sales. The CFO said, “If you think about product hierarchy, there’s a better product and a best product. The good product is the jeans (sic) for about $40. The better product is anywhere between $60 and $80. And the best product is upward of that. Wholesale in the US is largely a good product market. Our direct-to-consumer business is more of a better and best product.”
The Danger Of Good-Better-Best Strategies
A good-better-best strategy price-tier strategy can be death-wish marketing. It can kill the most wonderful brand-business strategies. A good-better-best price strategy is all about price and not about value. Price segmentation is a manufacturer’s approach. Manufacturers decide the price. But, customers decide value. Price and value are not the same. For example, the lowest price tier is designed to appeal to “price-conscious” customer. While, the implication of the highest price tier appeals to customers who care about price.
Price segmentation is a risky strategy. It is easy to do and easy to explain. Just carve up the marketplace by price point. Sometimes the price points are given names such as mid-market, up-market, and premium. The automotive industry is great at this: entry-level, mid-range, mid-luxury, near-luxury, luxury and premium. Hotel marketers have a similar approach… limited service, entry-level, mid-scale, upper-mid-scale, upscale, and luxury.
Labels such as these make no sense from the viewpoint of customers. The best approach is to create pricing strategies that are focused on customer perceived value.
Organizing by price point reinforces the misperception that marketing is all about price. It confuses price and value. Which is the better value? The lowest price? The highest price? Or is the mid-price the best compromise?
It is an unfortunate occurrence that the word “value” is becoming synonymous with “price.” Some brands say they target their low-price “value brands” for the so-called “value-conscious” consumer. Do these brand leaders think that if we pay a premium price we are not value-conscious? Mercedes buyers believe they purchased a good value for their needs. Kia buyers feel also feel they purchased a good value. For some of us, in a certain situation feel that a glass of Prosecco is the best value while for others, in a different situation a glass of Moet is the best value.
All of us are value-conscious, and this includes those of us who pay super premium prices. People value different things for different needs in different situations. What price-point strategies fail to take into account is the fact that all of us want to think we have purchased the best value for our particular need in our particular circumstances within the set of brands we can afford.
As Professor Robert H. Frank said in one of his Upshot columns for the New York Times, “Clearly many rich people like to display their wealth. Yet, generally, they think they know value when they see it.” He continued,” The rich, of course, are willing to spend more, often a lot more, for products that deliver quality improvements they value. But, few of them want to throw money away.”
The Price Focus Threat
A price focus demeans the brand. It is price management rather than brand management. Price segmentation sets the stage for third-party online shopping channels that sort brands by price from lowest to highest within a set of specifications and without regard to brand differentiation. For example, sites like Expedia lead to the unintended consequence of brand commoditization driven by price-focused segmentation.
Price segmentation is not customer-centric. Customer-focused segmentation should be focused on situation-based needs, not merely on price. Which brand promises and delivers the best value for satisfying my needs in this situation? Value is in the eye of the customer.
Levi Strauss’ CFO indicates that they understand its customers varied needs. Shoppers want positive branded experiences that they value. This is why Levi Strauss is retaining many brick and mortar establishments. Levi Strauss strategy is to implement a needs-based segmentation approach to channel management.
Levi Strauss has a hybrid strategy that addresses online clothing ordered directly from a brick and mortar store, brick and mortar store sales and wholesale to other retailers such as Target, Macy’s and Kohl’s. However, every price point must be a great value. In our uncertain times, we want the best value for our money regardless of price point.
Contributed to Branding Strategy Insider by: Larry Light, CEO of Arcature
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