Is your price premium still justified?

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Is your price premium still justified?

  1. 1. -WHITE PAPER- Is your price premium still justified? The revival of the Value-For-Money model: identifying how close to danger your brand is - and how to save it Are you losing market share? Are you suffering from private labels or low-end competitors? Has your churn rate gone out of control? Has a substantial increase of your production costs positioned your price setting offside? Plenty of examples feature brands experiencing difficult times while their customer satisfaction is still high. Others show brands with strong brand equity and product superiority being cannibalized by private labels. We even see consumers switching to cheaper alternatives with which they are actually not really satisfied. How can we explain these evolutions? How can we prevent them? How can we help you to get back in the game? This is when the Value-For-Money model comes in useful.2011 Keystone Network 1 The revival of the Value-For-Money modelwww.keystone-network.com
  2. 2. The Value-For-Money line In the original Value-For-Money model, the price the customers think they pay is confronted with the value they think they receive. Perceived price and perceived value meet on a fair point on the Value-For-Money line. • Originally, the concept was created with the purpose of assessing whether or not an organization had obtained the maximum benefit for the products or services it provided. • Today, most marketers tend to abuse the expression ‘Value- For-Money’ to merely designate a low-end proposition.“The concept of It is observable that none of these two definitions actuallyValue-For-Money correspond to the modern-day marketing challenges. The concept of Value-For-Money has gained a new, useful application, due tohas evolved. In the changing consumer and the varying competitivetoday’s context, it environment.has gained a new,useful application” How brands evolve on the Value-For-Money line Modern-day consumers live in a world of perpetual choices. • They trade up and trade down based on personal state needs. “I don’t mind paying more for a better service” Versus “I don’t mind the service being poor as long as the price is really cheap” are quotes of consumers justifying their choice of Air France or Ryan Air for a specific travel need. • They challenge the brands and form their own opinions, constantly questioning the value and price of products and services. This phenomenon has evidently been accelerated by the crisis, as well as by the accessibility of comparisons through online resources. 2011 Keystone Network 2 The revival of the Value-For-Money model www.keystone-network.com
  3. 3. • Simultaneously, low-end propositions have slowly gained in quality, both actual and perceived, which makes them increasingly taken into consideration by customers. • The regular rise of raw materials costs as well as inflation increase products prices while the perceived value is not necessarily evolving. This obviously affects all brands in their relative position on the Value-For-Money model: a new player offering a decent“Brands constantly proposition for a cheaper price can provoke a change in yourmove on the model: brand’s perceived value. This shows how, suddenly, your brand can get expelled from thedo you know where Value-For-Money line, due to a new issue: an unjustified priceyours is now?” premium. An unjustified price premium represents a huge danger for a brand Within this context, even loyal customers are reassessing their loyalty paradigm, based on a comparative evaluation of cheaper alternatives. In any cases, your brand needs a real, relevant, valuable competitive advantage, making the price gap worth it. If not, your brand is facing a real danger, and probably loss of market share. 2011 Keystone Network 3 The revival of the Value-For-Money model www.keystone-network.com
  4. 4. How to reach back to the Value-For-Money line? It has become very common for brands to reach a decentralized position on the Value-For-Money model. A diagnosis then becomes worthwhile. A strategy bringing the brand back to a relevant Value-For-Money level by working on price and/or value perception, should be planned. Decreasing the price perception: • can be achieved through an actual price decrease as like Ikea dared to do recently. An adaptation of your brand’s codes and signals through all customer experience touch points can accomplish the same goal. For example, through a less“Brands are luxurious look, a more aggressive promotional policy and/orcommunicating the use of a new, lower-end channel.about their priceand value through Increasing the value perception:all touch points.Excellence and • can be achieved through a tangible improvement of theconsistency of the product or service superiority. In most cases, an important exercise on the perception is required, aiming at repositioningcustomer the product, service or brand in a more valuable way. Onceexperience are more, communication is key and has to be dramatically wellnecessary.” managed in order to play a positive role: defining the right brand personality and tone-of-voice, finding the right balance between creative idea, choice of media, short-term sales objectives and longer-term value creation. In both cases, consistent communication through all touch points has to play a key role in re-setting your brand on the Value-For- Money line. Market research can be of solid help in the process of re-setting a fair value justifying your price premium: realizing an audit of your brand, validating the potential of your brand vision as to create sufficient value, identifying the gaps, defining the right personality and communication style to adopt and emotions to induce. And, of course, pre-testing your communication campaigns to assess their potential to meet their image objectives. 2011 Keystone Network 4 The revival of the Value-For-Money model www.keystone-network.com
  5. 5. Where on the Value-For-Money line do you want to situate your brand? Brands of all pricing levels can be situated on the Value-For- Money line, as long as they offer a fair ratio between perceived price and value. All brands with a clear, steady organic growth belong to this category. In our model, three relevant levels are distinguished: • The low-end part represents Best Deal Brands. These brands offer low-end pricing. Lidl, Kia or Ryan Air can be categorized“Brands of all as Best Deal brands. Besides the price, a decent perceivedpricing levels can be value is also necessary to make sure the Value-For-Money lineValue-For-Money. It is met. Ryan Air achieves this by focusing on relevant benefitsis not about being such as punctuality.cheap, it is about • The middle part is where Win-Win Brands are represented.offering a fair ratio These brands offer a competitive advantage, which is clearly differentiating as well as creating value for the customers fatabetween price and reasonable price. Easyjet is a successful example of a Win-Winvalue” brand. • The superior part represents the Passion Brands to which marketers often aspire but which are the most difficult to achieve. Most of the brands currently losing market share used to be Passion Brands. Unfortunately, these brands did not succeed in keeping enough perceived value to justify their (increasing) price premium. Achieving the status of Passion brand can be realized through the demonstration of a clear, important product superiority, or through a powerful emotional bonding with the customers. 2011 Keystone Network 5 The revival of the Value-For-Money model www.keystone-network.com
  6. 6. Conclusion Evolving competitive environment can be synonymous with the need to regularly re-assess your brand’s situation, as to make sure its price premium is under control and still justified by a fair perceived value. By not doing so, managers of underachieving brands take the risk of not having identified where the real problem lies. All touch points play an important role in price and value perceptions. Hence, more than ever, a crucial need for excellence and consistency in customer experience and communication is required. About Keystone Network Keystone Network is an international and independent qualitative research agency. We deliver Strategic Results and Inspiring Insights to help to strengthen the competitive edge of your company and your brands. We literally live with your customers: we meet them, we communicate with them, we visit them, we accompany them, we observe them. We transform the findings into actionable results to help you throughout your marketing process. About the author Emeline Mettavant is Research & Account Manager within the Keystone Network team. Through her 7 years of experience Emeline has developed a passionate focus on brand management and communication. Are you curious about how your brand is performing on the Value-For-Money model? Do you have any questions or remarks? Emeline would love to hear from you: emeline.mettavant@keystone-network.com2011 Keystone Network 6 The revival of the Value-For-Money modelwww.keystone-network.com

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