1. WHY IS IT ALWAYS VOLUME
BEFORE PRICE?
POINT OF VIEW
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Perhaps the answer lies in a need for short-term
results brought about by shareholder pressure,
a “now” mentality that needs to see results
yesterday, along with a business culture in which
people advance quickly through positions, creating
a lack of continuity in senior marketing roles.
Whatever the cause, the result is a disconnect
between short-term volume boosts driven by
price cutting (which are easily and immediately
measured), and the long-term brand investment that
can sustain a price premium and secure margins.
We have consistently seen, even during recessions,
that consumers are willing to pay more for brands
that they perceive are worth it. That is one reason
why the share price of the most valuable brands
consistently outperforms the S&P 500, even during
tough economic times. In fact, during the 2008
global recession the value of the top 100 brands
increased by 2 percent to $2 trillion.
While pressure from key stakeholders may be
considerable, marketers should not make pricing
decisions based on short-term targets. Rather,
they should invest in research to quantify the role
of price in their long-term brand strategies. The
understanding gained will result in much better-
informed pricing decisions.
PRICE ASSOCIATIONS CAN GENERATE
DEMAND
Most marketers acknowledge that strong brands
benefit from positive brand associations in the
minds of consumers. However, associations with
price are often considered separately from other
equity-driving perceptions; price is frequently
seen as a different type of influence. But as
Gordon Pincott argued in his Point of View
“Brand Equity: What’s Price Got to Do with it?”,
perceptions of price can in fact be a critical part of
the association set that determines brand equity
and the resulting long-term volume demand.
Rachel Leaver
UK Head of Marketing Science
Josh Samuel
European Development Director
Brand Equity
Why Is It Always Volume Before Price?
It has been 10 years since McKinsey published proof that a price increase
of 1 percent will produce an 8 percent increase in profit, assuming that all
other things remain equal. So why are companies ignoring this and focusing
on chasing volume instead of securing margins through well-informed
pricing strategies?
Even during recessions,
consumers are willing to pay
more for brands that they
perceive are worth it.
2. WHY IS IT ALWAYS VOLUME
BEFORE PRICE?
POINT OF VIEW
SHARE 2
In the UK airline category, for example, we have
found that associations relating to low cost (such
as offering more acceptable prices and offering
good deals and promotions) are the second
most important group of brand associations for
generating demand. This importance is driven by
the low-cost airlines such as easyJet.
However, in spite of the fact that low price is a
key factor in generating demand, there are some
brands that won’t benefit from an association with
low price. For example, for Singapore Airlines,
demand is generated by the associations of
exclusivity supported by perceptions of high price.
There are also some brands that need to avoid
strong associations with either high or low prices;
British Airways is an example. The airline needs
to avoid too strong an association with high prices
in order to maintain volume demand for cheaper
European hops, but it must also maintain some
sense of exclusivity to support demand for long-
haul business and first-class flights.
BRAND ASSOCIATIONS CAN SUPPORT
A PRICE PREMIUM
Even when marketers recognize that price
perceptions may have a role in securing volume
demand in the long term, they often still fail to
ask themselves what mix of brand associations
will best justify a premium price point for their
brand. When trying to measure and build brand
equity they still default to drivers of preference and
volume. But for many brands, the main financial
return delivered by brand equity is the ability to
charge a price premium. To ensure the long-term
financial health of these brands, managers must
understand and manage the associations that
support this ability.
Though there is some overlap between the brand
associations that generate volume demand and
those that support a price premium, the optimum
brand strategies for each task will rarely be
identical. We generally find that the best way
to drive volume demand is to build very strong
associations with core category needs, whereas
to justify a price premium, brands usually need to
go beyond core needs to show that they offer a
meaningful difference—that they are unique or
a step ahead of the competition in some way.
They may do this by offering exclusive product
features or cutting-edge innovation; often,
however, a brand may establish a meaningful
difference that justifies a price premium through
establishing intangible associations that are unique
to them. With British Airways, for example, the
sense of connection that their customers feel with
one another makes the brand stand out from other
airlines, thus making consumers willing to pay more.
If brand owners continue to design their strategies
solely around what drives volume demand while
ignoring the perceptions that can defend a price
premium, they will inevitably struggle to justify high
price points, and even if the brand penetration
grows, profits will suffer. Consequently, Millward
Brown has developed two metrics to measure
equity: “Power,” to measure the equity that delivers
volume; and “Premium,” to measure the equity
that justifies a higher price. Using the concepts
represented by Power and Premium, you can
understand your brand’s situation and shape and
optimize your pricing strategy.
For many brands,the main
financial return delivered by
brand equity is the ability to
charge a price premium.
3. WHY IS IT ALWAYS VOLUME
BEFORE PRICE?
POINT OF VIEW
SHARE 3
DETERMINE PRICING STRATEGY USING
BOTH POWER AND PREMIUM
Figure 1 illustrates the possible relationships
between Power and Premium scores and shows
how a brand’s standing on these dimensions can
help to identify a pricing strategy. For a brand
like easyJet, Power far exceeds Premium; thus it
would sit in the lower right-hand box. A brand in
this position would be right to maintain its primary
focus on driving volume (both through equity-
driven demand and in-market deals).
However, brands like Singapore Airlines, which
are low on Power and high on Premium, would sit
in the top left-hand box. Brands like these deliver
returns by charging a premium price; thus they
should keep their price high and focus on building
the associations that will justify that premium.
Plotting brands on the Power/Premium axes can
help managers of brand portfolios ensure that
each brand occupies a different position. If we
looked at Unilever brands in the U.S. shampoo
market, for example, we would see Nexus occupy
the top left-hand corner, meaning that it can
continue to position itself as a premium brand.
Suave, which targets the value shopper, would be
situated in the lower right-hand box.
Dove and TRESemmé would be right in the middle.
Brands in this position could conceivably be moved
toward more premium or more value-for-money
positions. To do this, they would have to increase
relevant brand associations and possibly adjust
their prices while taking care that the brands remain
differentiated from other Unilever offerings.
DON’T ACCEPT THE STATUS QUO
A brand’s position on the Power/Premium plot is
not necessarily its destiny. As discussed earlier, the
key is to understand which image associations can
generate volume demand and which ones justify a
price premium, and then feed that information into
your brand strategy.
Specifically, you should follow these steps:
1. Identify the images that contribute most to
generating volume demand and justifying a price
premium in your category, as well as those that may
be uniquely important to your brand
2. Understand the current strength of associations
for your brand in these areas. Is there room to
increase them?
3. Consider the feasibility of your brand owning
one or more of these associations and actually
communicating them.
Power Premium Brands
Underperforming Brands
Premium Brands
Value Brands
POWER
PREMIUM
Keep price high Keep price high
Use tactical price promotions
to drive additional volume
Keep price lowRefocus brand
Best returns at high price point Good returns at any price point
Lower returns at any price point Best returns at low price point
FIGURE 1: PRICING RULES BASED ON POWER AND PREMIUM
4. WHY IS IT ALWAYS VOLUME
BEFORE PRICE?
POINT OF VIEW
SHARE 4
Having gone through this process, you are in a
position to tailor a brand strategy and communications
plan that supports your chosen pricing strategy.
ACTUAL IN-MARKET PRICING
Finally, once you have selected a pricing strategy
and tailored communication to support it, you
need to understand the in-market price points that
any given product variant or SKU can command.
A conjoint or econometric sales model will provide
you with the tools to answer this question by
pinpointing the prices and promotions to use to
obtain your sales and profit targets.
Too often this type of analysis is done with the
objective of deciding what tactics to use to meet
short-term targets. The overall brand strategy
is not kept in view; hence the current situation
of short-term price cutting and possible negative
impact on the brand. However, this information,
combined with your overall brand-building
strategy, will provide you with concrete facts and
a strategic plan with which to negotiate terms
and build good relationships with suppliers and/
or retailers, while supporting the long-term
success of your business.
CONCLUSION
All too often, pricing decisions are made for
specific products based only on a consideration
of the short-term return that different price points
will deliver. And even when price is considered
as a key feed into long-term brand equity, the
focus is usually on the impact this future equity
will have on volume demand. There has been
a lack of emphasis on the role of brand equity in
supporting a price premium, and hence potential
for further profit has been lost.
A holistic understanding of the most suitable
pricing strategy for a brand can only come
with an understanding of the brand’s dual roles:
generating volume and supporting a price
premium. Only with that understanding can we
make informed decisions about specific price
points that will optimize both short-term volume
and long-term brand health.
When you combine all of these elements in
your approach to pricing, you are in a good
place to deliver long- and short-term sales
targets while at the same time reassuring all
stakeholders that your strategy is based on
solid research and facts.
To read more about the effect of
price on brand equity, please visit
www.mb-blog.com.
If you enjoyed “Why Is It Always
Volume Before Price?” you might also
be interested in:
“Brand Equity: What’s Price Got to Do
with it?”
“U.S. Shampoo: A Tale of Two Brands”
“Pricing Right: How High Can You Go?”