Brand Value and PreferenceBy Tom Dougherty
3 July 2014
Use Brand Value to Increase Preference
There is an age old problem in consumer products and packaged goods. What is the best brand strategy to use when you want to increase preference and margins? Especially when relaunching an existing brand, improving the parent brand, or launching a flanker brand.
The Brand’s Role to Increase preference
What role should the parent brand take on? Should it be in a supporting or leading role? What are the implications of these strategies on margins and preference and how does the company manage the cannibalization of the parent brand by the new offering?
A Standard Solution
While not a pure consumer brand by definition, it is interesting to look at how gasoline companies address the problem by adding modifiers to the base brand — super, plus, premium etc — and the effect that these offering have on the margins that they command. A 5.6% price difference from the base brand to plus, an 11% price difference to premium from the base brand. These margins are rather modest increases.
In packaged goods and consumer products, the R&D investment involved in a new product requires the new brand to demand much higher price points than these. Obviously it is a simple, but short-sighted strategy to only add a “retail-like” modifier to the base brand. It will NEVER deliver the results you desire because the customer does not see themselves as different and better for having made the choice.
They simply see a quantifiable product improvement and their willingness to pay a premium will be in direct proportion to the quantifiable gains in efficacy. You don’t need a brand strategy to accomplish that. Infomercials accomplish that all the time.
A Better Idea
Gillette took a different point of view and Gillette has executed a superior brand strategy than the petrol industry when they launched the Mach3 brand. They did not walk away from the parent brand but they placed it in a supporting roll. Consumers knew the new products by their individual brand names i.e. Atra by Gillette.
When they decided to invest in, and develop their three blade system to increase preference, it was decided to downplay the Gillette parent brand even more than in the two preceding products. The reason for this is evident when we look back at the gasoline example — limited upside. In the petrol model, three blades could only command a multiple of three over a single blade offering.
As a result, they made the Mach3 brand name more dominant than the Gillette brand because they recognized that the consumer would not pay the premium price-point they desired if they named it Sensor 3 (the original internal preference as they had already launched Sensor Plus).
Learn From Experience
To Gillette’s credit, they took to heart an important brand learning from their experience to increase preference with the highly successful Sensor brand.
Instead of the modest price increase we saw in gasoline (5.6% & 11%) Gillette was able to set the price point at a significantly higher premium (51% & 121%) above the base brand.
Big Changes to Increase Preference
A change like that from Sensor to Mach3, when enveloped under the old brand umbrella is seen as a “bug fix,” using the parlance of software. As such, customers believe they are entitled to it and will not pay a premium to own it.
This sort of success should give pause to manufacturers who enter the market with a new or improved entry and simply brand it as “Ultra”, “Max”,”Super”, or simply just “New and Improved.” To make this brand support strategy work, the parent brand must already hold important equity and therefore give the new brand permission to be taken “as important and viable” by the category. It also requires an advertising and marketing campaign that sells the brand.
A Breakthrough Idea
Think about this lesson from history. There is even a greater opportunity for increases in margins and price point if you invest in branding the entire category or your brand comes to denote an entirely new category. MP3 Players offer a perfect example of ways to increase preference
These MP3 players have been around for about 7 years and for much of the early history of the category they were known by the function they fulfilled. “They played MP3 compressed music.”
No compelling, or more importantly, differentiating brand name was strongly associated with any of these players, (like gasoline… much to the chagrin of Exxon).
The major consumer electronic manufacturers and computer manufacturers entered the fray and the market proliferated. Popularity of the new category skyrocketed. All that changed when Apple introduced the iPod.
Success Spells PROFITS
The competitors in the category are forced to call their entries MP3 players. Apple is free to call its device by the simple word: “iPod.”
Apple has succeeded in taking over a category. And they increased preference so completely that automakers are building 70% of their new car models with “Apple” connectivity. Also, an entire industry of iPod (not MP3) accessories has arrived. When an owner cannot locate his player, he does not ask “Has anyone seen my MP3 player.” No. he now exclaims…
“Has anyone seen my iPod?”
The results of this brand strategy were nothing less than phenomenal. And the price points within the category tell almost the entire story. Price points for “generic MP3” players are lower. (And now those players are simply non-existent, especially with phones taking over.) Even those that were manufactured and distributed by mainstream and branded consumer electronic companies hovered around $75. iPods sold upwards of $200 dollars with many models commanding a $350 price point.
A multiple of almost five. However, price point is not the whole story here.
Preference deserves an even bigger mention.
Today, iPod commands 90% of the domestic US market.
Here is an article about Switching Triggers