Do You Compete on Brand or Price?

By Chris Wadsworth

Published in The Source issue 14

It is a common misconception that many customers make their purchase decision based on price but the reality is they actually choose what to buy based on value. It’s rarely a case of buying the cheapest product or service available but more about the best value they can get for their money.

This applies whether it’s a product or a service that is being considered and can be equally relevant for low or high cost purchases. One area where this is particularly relevant is fast moving consumer goods (FMCG).

Packaging design and branding for FMCG

Many FMCG are bought on the strength of their packaging design, their brand or both. When someone is making a new purchase decision the design of the packaging is significant in attracting attention and communicating a value proposition. When supported by a strong brand the perceived value of a product is increased further. For example, if you package two identical products differently it is possible to create two very different perceptions of the product’s value. If one of the products is branded with a strong brand that is recognised and trusted the value of that product will be perceived as being higher. If the price of the products are similar the branded goods will be preferred. However, if the branded goods are a higher price they can still out-sell the cheaper version of the same product because they are perceived as being higher value.

The recent Agree Disagree campaign by British American Tobacco (BAT) demonstrates how important branding is on product packaging. It has cost BAT hundreds of thousands of dollars on billboard, press and TV advertising; and a campaign website. Their campaign has different views that oppose plain packaging (with proof, intellectual property and illegal markets among them) but it is price that is their main concern. Without branding they will be forced to compete on price which will drive down profits considerably.

BAT have some of the most recognised brands in the world including Kent, Dunhill, Lucky Strike and Pall Mall. In the year 2011 they increased their global sales of Kent cigarettes alone by 10% to 67 billion cigarettes and globally they sold over 700 billion cigarettes (source: www.bat.com). With big brands and growing sales it is no surprise that they are concerned about the prospect of plain packaging laws.

Marketplace presence

In order to compete against your competitors you need to have a presence in the marketplace. For many distributors, and in particular supermarkets, they want products on their shelves that will give the most consumer appeal and the best profit margins. This is where competing on price can be a big disadvantage. Distributors want to know that the products they sell are going to be promoted well which takes investment. Those products with higher profit margins are in a better position to invest in promotions and to reinvest in their products, both of which makes them more attractive for consumers and therefore more attractive to distributors.

Supermarket own brand products have a big advantage for marketplace presence but even they are continually trying to improve their perceived value. While offering competitive prices they know that it is value that drives sales.

Sustainability

Both business and environmental sustainability depend on healthy profits. A business with low revenue is vulnerable and with fewer funds to invest in their products they have fewer opportunities for future growth. Environmentally sustainable initiatives also depend on the funds to implement them and increasingly environmental attributes are becoming a more significant element of the perceived value of products. Competing on price rather than increasing value, or perceived value, provides less opportunity for a healthy business with a sustainable outlook.

Branding process

Increasing value through branding can be achieved for any business, not just those that sell products. When done thoroughly the branding process goes beyond aesthetics and looks at the core values of a business and the promises it makes its customers. It ensures the business can deliver on its promises and it is a driver for business growth and strategy.

If you are running a business where price is a major competitive strategy then branding could be a way for you to grow your business for future success.

Posted 14 November 2012

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