Branding or price offers to grow business
Often the first thing companies do during a downturn in the economy
and a time of head-on competition, is to reduce prices of their products
and services to maintain sales volumes.
Look at the price wars and unbelievable promotional campaigns in Sri
Lanka in Credit cards, super markets, home appliances, clothing and
eateries. Crazy deals such as 50% discount or 1:1 free.
But is this a sound strategy? Can a price reduction actually hurt
rather than help? While it may be necessary in some cases to reduce
prices, discounting has its risks. The biggest risk is that it can
create a negative long-term perception of a brand, ultimately leading to
market-share erosion. Value-minded consumers have long-term memories and
it is hard to retain market-share when the economy recovers and you try
to raise your prices or eliminate promotions.
However, when offered at the wrong time - for no other reason than to
boost sales - it can cut the other way and create brand deterioration.
One of the quickest, easiest, and most popular ways for brands to
compete in a tough operating environment is price.
When you offer a discount, you are taking the focus from the value
you provide and placing it squarely on your price. There is no way to
escape that. After investing millions to build their brands, why do
companies turn around and do something crazy that damages the core value
The reasons for price promotions are multiple and overlapping; to
drive short-term sales, because the competition is doing it, retailers
expect it or because customers are searching out deals. All these sound
logical and sales and marketing people can easily make a case for upper
management approvals. However, the visible short-term sales results lead
managers to overlook the long-term negative impact to the brand's value
and ultimately, the financial returns to the firm. How do price
promotions hurt the brand? In many ways; Consumers become conditioned to
buying only during sales. And when they do buy they buy in bulk and
store up so they have enough supply to last till the next sale.
Consumers also become increasingly focused on price over product
differentiators and perform mental trade-offs based primarily on
cost/benefit versus emotional attachment to the brand.
They are also much more likely to switch between brands simply to get
a good price. For the company this means that it is continually selling
its product at a lower price throughout the year and offering steeper
discounts to woo customers back from the competition. Over several years
this continued discounting erodes margins significantly, which in turn
erodes shareholder value.
The ultimate decision-maker
Whether or not discounting has an effect on brand image is not
something you can dictate, or wish away. Don't fall for the trap where
you confuse the message sent with the message received. Some marketers
believe 'positioning' is inherent in their advertising, but it never is.
Unfortunately for the brand, price is more easily tampered with than
quality. Quality is made up of tangible attributes, intangibles, or just
warm fuzzy feelings. Quality is a belief, often difficult to articulate,
held by the collective mind of customers. Quality and price do not exist
as isolated concepts in consumers' minds. They are interrelated. Deep
and persistent discounts do cause the consumer to doubt your brand -
that quality also has been lowered.
Two points. First, avoid getting into the cycle of frequent deep
discounts. Second, if you are in it, slowly get out. A deal can always
be beaten by a competitor if they so decide, no matter if they make
money or not.
An image is quite a different thing altogether. Strong brands can
withstand and benefit from a well thought out discount program only if
it's a part of your brand equity building plan.
Don't get me wrong; there's no doubt that discounting and sales
promotions are a vital sales techniques when done correctly. It inspires
excitement and creates a call to action but make sure it's a part of
your strategy not discounts in isolation.