Brands need to grow value, not just sales

frank-busch-PzifgmBsxCc-unsplash Credit: Frank Busch on Unsplash

The true value of a brand is defined not just by how much its products or services get sold, but also by how much they get sold for. Which is why Millward Brown, and subsequently Kantar, invested in the development of the Brand Premium metric.

Too many companies seem to regard price as a lever that they can pull to drive short-term volume, ignoring the possible long-term effects on the brand's ability to command a profitable price point (for more on this topic, check out, "Price is a signal too.") Sustainable growth requires marketers to focus on growing brand value not just sales, otherwise margins suffer, choking off future investment in innovation and marketing. And to grow a brand's value, it helps to understand whether it can justify its price point.

In 2014, Millward Brown conducted a study in New Zealand to integrate attitudinal survey data with behavioral data from Colmar Brunton's FlyBuys shopper panel for 13 consumer packaged goods brands and 810 respondents. This combined data set allowed the analysts to study the relationship between the Brand Premium metric, a perception based measure of a brand's ability to justify a price premium relative to the category average, and volume bought and price paid for the same individual. (It is worth noting here that New Zealand is well known its high levels of competitive price promotion.)

So what did the analysis find? The first finding was that attitudes are reflected in consumer behavior. Although most consumer goods shoppers are not loyal to one brand and buy from a repertoire, the evidence found that people who chose based on brand first and price second typically paid more for the brands they bought than those that chose primarily on price. Moreover, if brand-driven shoppers were predicted to have a high Premium score for a brand, they paid 40% more on average for that brand than if they had a low Premium score. High Premium scores are driven by whether the consumer perceives a brand to be more meaningful and different than the alternatives.

Other shoppers, either because their budget was constrained or they genuinely believed that there was little difference between brands, chose primarily based on price. Even so, the analysis found that price-driven shoppers paid 16% more brands that they perceived to be meaningfully different. The difference in price paid for a value brand might only a matter of a couple of percentage points for the cheapest brands, but that can still make a significant difference to the profit realized from the sale.

Unfortunately, if you have been involved in conversations with a buyer from Walmart, Tesco or Lidl the discussion will remind you that while consumers might be willing to pay a premium for your brand the retailer also needs to be convinced. Negotiations with the store buyer will undoubtedly focus on how well your brand justifies its price premium versus close alternatives, like their own store brand. And never mind the retail selling price, what margin is the store going to get? And are you going to take that promotional slot? Because if not they know someone who will.

So, marketers need to create a win, win, win. One where the consumer really believes that it is worth paying the price asked, the retailer is happy with their cut, and you can grow sales without squeezing your own margin. The solution is to create meaningful innovation, be it in purpose, product, packaging, or communication, in order to bolster perceptions of meaningful differentiation.

What do you think of this finding? What might marketers do differently to protect their margins? Please share your thoughts. 

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June 27, 2022

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