Good marketing for worse times - Part 2
Eight ways to price your brand to survive during the recession.
When this recession started we – and a lot of other marketers – thought the strategies and tactics that had worked in past downturns would work this time, too. Some do, but there are also some very significant differences from the recessions of the past.
One big change is the importance of price. During past recessions, cutting prices has generally been a serious mistake. But in the present Great Recession, price cuts may be a necessity.
According to Bloomberg.com, the average paycheck fell 0.5% from February to June.
Ryan Sweet of Moody's says "Workers' bargaining power for wages is evaporating," and predicts "outright declines in wages."
Although the recession may be close to bottoming out, recovery will be slow. Employment isn't projected to increase until late 2010 or the first half of 2011. And family income isn't going to increase appreciably until then.
Since people have less money -- and are worried that they may soon have none at all -- price has gone from the fourth or fifth determinant in purchase decisions to first in many product and service categories.
If prices have to come down, here are eight good ways to do it:
1. Lower prices profitably. Cutting prices to an unprofitable level may be a faster route to extinction than losing sales because prices are too high. It's essential to lower the cost of producing the product or delivering the service so every sale isn't a net loss.
Burger King franchisees rebelled when the marketers at corporate decided to offer a double cheeseburger for $1. Turns out franchisees can't produce a double cheeseburger at that price, so they would lose money on every one. Not a real good recipe for survival.
Quiznos got it right. Instead of arbitrarily slashing the price of existing sandwiches, they concocted a sandwich they can sell profitably at a low price, the $3 Bullet. They lowered their average transaction value, but those transactions are still contributing to the bottom line.
2. Keep value in the equation. A low price won't sell a product people don't want in the first place.
Soon, commercial pods will be filled with thirty second spots with cheerful, enthusiastic folks urging us to take advantage of a once-in-a-lifetime opportunity to save. (Well, maybe once in a lifetime if you're a fruit fly.)
Infiniti is running two fifteen-second spots in commercial clusters, sometimes back-to-back, other times separated. The first spot is brand sell, the second a sale message. According to Infiniti VP Ben Poore, "We thought we could improve brand perception but at the same time have a call to action."
No luxury car is going to have good sales this summer. Even Cash for Clunkers won't be much help, because of the mileage requirements for new cars purchased under the program. (No Infiniti models get the 22 MPG minimum.)
3. Launch a low-price flanker brand. Instead of diluting a brand's quality/superiority perception with a lower price, launch a separate, less-expensive product.
In 1855, the wines of Bordeaux were classified into ranks. In the not-to-distant past, the top rank, the premiers grands crus classés, commanded up to $500 a bottle.
Most of that breathtaking price is prestige. And a lot is rarity, because the ranking system also specified how many cases of the rated wine could be produced each year. The idea was to keep quality up by preventing over production, but there have been tremendous improvements in viniculture in the last 154 years. The premiers grands crus classés vineyards now produce a lot more wine than they did in 1855.
That excess wine is sold at a tiny fraction of the princely sums it would fetch with the premier grand cru classé label stuck to the bottle. And it's sold very discretely. The vintners don't dilute the perceived value of their up-market brands by calling the excess production Son of Chateau Margaux or Chateau Haut Brion Lite.
4. Sell one item at a low price to sell another one at full price. Computers are very aggressively priced at Wal-Mart and Best Buy right now. And we're in the middle of the back-to-school computer buying season.
Why are these very savvy merchants selling computers so cheaply? Because they're counting on selling peripherals at full price. A notebook priced hundreds of dollars below the customers' price expectations creates the perception that all of the store's computer gear is a bargain, so customers don't bother to comparison shop when they add the printer and the external hard drive.
The loss-leader strategy has been used by supermarkets for years. A few items are priced at or below cost and promoted heavily in weekly ads, commercials and postings. Labor Day shoppers attracted by a great deal on hot dogs aren't likely to go elsewhere for mustard and buns.
Now the data from loyalty programs and a few simple algorithms let supermarkets tailor offers very likely to bring individual customers back the following week – and do it in real time, as the customers go through check-out lines. The hard-to-resist offers are delivered with the customers' cash register receipts.
5. Consider coupons. 94% of shoppers report using coupons sometimes, 76% say they use them regularly, and 60% claim to have used them more often in the past six months.
Coupons have changed significantly. After years of decline, The Wall Street Journal reports coupon usage is up 10% in the first half of 2009. Online coupon usage is starting from a small base (4.8% of total redemptions), but it's growing fast – 130% in the last year.
More important, the way marketers use coupons has changed.
Once coupons were used for pantry loading and trial. Pantry loading is the art of getting consumers to buy a lot of your product just before a competitor launches a new brand, so all the competitor's launch-weight advertising and promotion is wasted. The prospect already has a three-month supply on hand and doesn't need more. Trial is getting the product into the prospect's hands once so he or she will try it and, hopefully, decide to buy it again.
Now coupons are an effective way to give a brand's regular users savings without cheapening the product or service. The price isn't lowered. Just the cost to the consumer.
6. Offer a rebate. A money-back-after-purchase offer is better than a straight discount because there's almost always breakage. That is, not all of the rebates are claimed. Of course CFOs love rebates rather than discounts because the company offering the rebate gets to hold on to the money for a few weeks.
7. Let someone else give your customers a rebate. Rebates were a big part of car manufacturers' problems, but right now they're a tremendous opportunity. Because now the federal government is supplying the cash. Virtually every car company has declared itself "Cash for Clunkers Headquarters." It's a win-win-win-win proposition. The folks who trade in a gas guzzler get up to $4,500 off the price of their new car. The manufacturers move some metal. And the dealers get some desperately needed revenue. All courtesy of the taxpayers.
Insulation companies and door and window contractors are using money from the government to incentivize customers, too. Needs-based homeowner Energy Efficiency tax rebates of up to $1,500 can make home-improvement projects affordable.
Retailers use manufacturers' rebates the same way. A BrainPosse principal recently bought a printer at Office Depot. Cash back from Hewlett-Packard helped close the sale.
8. Bulk up. Sell a whole lot of product at an incrementally lower price. Most transaction costs remain the same, only the cost of goods increases. So try a big economy-sized package. Customers get your product at a lower cost per unit. And you get more money up front because they buy more initially.
And, of course, bulk bargains also have the two big benefits of pantry loading:
You lock up the customers' consumption in your product category all the time they are using up your mega-sized product.
You may habituate customers to your product over a prolonged period of use. In most product categories, between three and six purchase cycles do the trick. If an economy-sized package equals three normal-sized packages, that might be enough to establish a brand habit.
Got some other thoughts on lowering prices without losing brand equity? Please share them in the comments section.
To find out more about good marketing for the worst times – and for the better times to come – call BrainPosse at 865-330-0055 or click here.
Next week:
Eight ways to succeed by giving away your product or service.
Coming:
Eight companies using job-loss insurance as a sales tool.
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Looks like it's been a while since you shopped for grands crus classes Bordeaux. They were up over $1,000 a bottle a couple of years ago. They've just come back down to the $500 range.