BRAND BUILDING
Death By A Thousand Cuts
By Senorine Wasike
Brand X has been growing year on year and delivering lucrative margins for the business . A change in regulation , rising cost of goods , and increasing competition is starting to impact the brand performance . Despite all these , Brand X must continue to deliver volumes and profit , at least going by the view of the executive team .
Where do you look to ? Often , finance will propose reducing the advertising and promotion budget to go to the bottom line . The supply chain team will go for the cost of goods ( COGs ) optimization , and marketing may opt for promos . All these initiatives are good as quick fixes but are hard to sustain in the long term .
A report by McKinsey titled the Hidden Power of Pricing found that a 1 percent price increase translates into an 8.7 percent increase in operating profits . Similar research reported that a brand that loses 5 % margins , either by holding price or due to increased COGs , would need about 18 % volume growth to make up for the margin erosion . This means that brands looking for sustainable growth must focus on value and not necessarily volume growth .
Building Valuable Brands
Every organization has two most valuable assets ; people and brands . Marketers have the privilege of being valuable assets ( employees ) and managing the other valuable assets ( brands ). As brand custodians , or brand GMs as we often call them , marketers must ensure that they build brands for long-term value . In the current environment , where there is an increase in the cost of goods and rising inflation , brands face the challenge of remaining valuable to consumers . There is reduced consumer spend which can be seen through category discounting and down trading . The temptation is always to discount or give offers to both consumers and retailers .
Incremental changes to the product or A & P budgets over time could result in death by a thousand cuts ! Cutting and slashing have a compounding effect which may not be visible immediately but eventually will devalue the brand .
Building brands is like putting together a jigsaw puzzle . The many interlocking pieces are the different strategies we execute to complete the bigger picture . Everything makes sense in the end , but for it to work out , brand custodians must have faith in the plans , ruthlessly execute them , and stay the course . Staying the course means you defend the plans because you believe in them . If anchored in real consumer insight , the pieces will fall together .
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Building brands is like putting together a jigsaw puzzle . The many interlocking pieces are the different strategies we execute to complete the bigger picture . Everything makes sense in the end , but for it to work out , brand custodians must have faith in the plans , ruthlessly execute them , and stay the course .
Consumers often buy brands they love , trust and admire hence the need to establish your brand in the mind of the consumers . First , you must let consumers know ( awareness ). Secondly , you must communicate value to them ( meaningful difference ), and lastly , your brand must target the key consumers because no brand can be all things to all people .
Building Value Ahead of Price
A good pricing strategy allows your brand to attract the right consumers and maintain profit . Marketing and communication are at the core of boosting perceptions of meaningful difference . For consumers to pay more , they must perceive your brand as different from other alternatives within the category . This is true for both premium and cheaper brands because different doesn ’ t have to be tangible . To win in the price game , your brand must build perceptions around value or superiority of the product . Perceptions can only be built by reminding consumers why they need to buy from you .
So next time you are tempted to cut back on product ingredients to optimize COGs or A & P budgets to minimize spend , remember that you could be setting off on a journey of death by a thousand cuts .
What has been your experience with managing the price value propositions for the brands you manage ?
Senorine Wasike is a Strategy and Innovation scholar with over 10 years ’ corporate experience . She currently heads marketing at Kenya Wine Agencies ( KWAL ). You can commune with her on email at : Senorine . Wasike @ gmail . com .
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