Marketers should make their brand feel different to consumers, and so justify their premium, writes Nigel Hollis, executive vice president and chief global analyst at Millward Brown.
In developed economies, when prices are easily compared online or on the shelf it’s difficult for people not to take price into account when making a purchase decision. Price creates an obvious benchmark by which to judge which brand to buy, and no-one wants to spend more than they have to.
And it’s not just the consumer paying attention to price. All too often marketers appear to give more consideration to what competitors charge than what consumers are willing to pay. Brands often enter into lengthy price wars from which no winner emerges other than the consumer.
All the evidence suggests that using price as a long-term incentive to drive volume sales or indulging in open price competition is one of the worst things a marketer can do, particularly if their business model is not designed to support the lowest price.
Instead marketers need to use price promotion tactically, with a specific objective in mind, while applying all the tools at their disposal to draw attention to qualities and impressions that justify their price premium.
Right perceptions
Contrary to expectations, commanding a price premium is not a barrier to growth, provided it’s supported by the right perceptions.
Research conducted by Millward Brown finds that people are willing to pay up to 20% more for brands they believe are meaningfully different from the competition. But this is not difference for difference’s sake. People must believe the brand is different in some way that’s personally relevant and appealing.
That belief may be founded in a tangible product benefit or simply in a perception that the brand shares their values, adds something to their life or espouses a cause they believe in. It is the feeling of difference that matters.
In an analysis of long-term brand success across five years we find that the winners are the brands that initially are seen as different, but not meaningful or salient to many potential buyers. Over time, marketing and positive experience make that difference meaningful and salient to more people, allowing the brand to grow.
Losers tend to be bigger brands that were well-known and used by many people but over time lost differentiation and relevance. Scale alone provides no benefit unless the brand constantly invests to support its perceived differentiation and make it meaningful.
When the Apple iPhone first launched in 2007 most people saw it as different but not that meaningful; they didn’t understand how its difference was relevant to them. Over the years, with each new iteration and accompanying marketing campaign the iPhone has become meaningful and salient to more and more people. By contrast, Nokia was widely seen as meaningful, relevant to people’s needs and appealing; an obvious choice, but not that different. Less than a decade later and Nokia, once the largest mobile phone manufacturer in the world, is history.
So how does a brand get people to believe it’s meaningfully different, and justify its price premium? The principles are simple but effective execution demands an in-depth understanding of what makes people willing to pay more for a brand given its status, category and context. The three basic mechanisms marketers can employ are challenge, credibility and communication.
1 – Challenge
Brands command a price premium by changing the way people evaluate a product category. The launch of the iPhone is an extreme example of the power of innovation to challenge perceptions. Coca-Cola’s hugely successful launch of the I Lohas water brand in Japan is less well-known. Its new thin and lightweight packaging offered I Lohas the chance to create a ritual of crushing the bottle, which helped it become the number one mineral water sold in Japan in just six months, displacing imported premium brands like Volvic.
2 – Credibility
The act of twisting the I Lohas bottle is a very credible demonstration that the packaging is more environmentally friendly than competitors’, but this was just one aspect that lent credibility to the proposition. The name itself stands for ‘Lifestyle of Health and Sustainability’. The marketing team also turned what had been a negative into a positive: rather than publicising the qualities of a single source like the French Alps I Lohas was promoted as coming from seven local sources around the country.
3 – Communication
Effective advertising reminds people what your brand stands for and why they buy it – strengthening that all-important emotional connection. However, in categories where product differences are not necessarily apparent to consumers advertising can create enough difference to justify a price premium. In the UK, Peroni has used its Italian origins and images of Italy’s Golden Age to create a meaningfully different positioning that allows it to charge more than its competition.
Many marketers have lost faith in the ability of their brand to command a price premium. In part this is because retailers constantly emphasise the need for low prices, even though consumer behaviour proves that people will pay a premium for brands they believe are meaningfully different. Commanding a price premium does not limit growth prospects; indeed it may enhance them by giving consumers a ready reason to choose.
Few brands can aspire to be an iPhone, but all can seek to make their brand feel different to consumers and so justify their premium.
