Sales & Marketing

How Michelin, Bayer, and Fiji 'Market for Margin'


What makes Michelin (ML:FP) worth more than Goodyear (GT)? Why do people pay more for Bayer (BAYN:SW) than for regular aspirin? Why would anybody fork over twice as much for a bottle of Fiji? These are all great brands, but they have similar, lower-priced substitutes. What gives?

Every product or service has a price/value equation. Its functions, features, attributes, and image add up to a certain value to consumers, who decide—based on a host of reasons—whether or not the total value is worth the price. The more commoditized the product or service, the more pressure the market will bring to bear on pricing.

That's why it's odd that anybody would pay extra for branded aspirin, which is, chemically speaking, exactly the same as its unbranded counterpart. Or for costly tires that the average buyer couldn't scientifically differentiate from those of a less-expensive brand. Or for bottled water that costs significantly more than the brand sitting next to it on the supermarket shelf. Yet it happens every day.

There isn't a category of product or service that isn't subject to commoditization pressures. It's easy to wring your hands worrying about pleasing customers on the price side. While many companies host sales, offer discounts, and flood the market with coupons, more enlightened brands understand that it's the denominator of the equation that matters. Aggressive competition will always put pressure on pricing; a brand doesn't need to add to that pressure by sending signals that people can (and therefore should) be able to buy it for less.

Advertising Alone Can Support Premium

Margin-driven brands instead focus on improving their product or service. They add features and benefits, revamping their packaging and enhancing their image by leveraging a principle that too few companies understand: Advertising, all by itself, can improve the "value" side of their price/value equation. Michelin, Bayer, and Fiji are all premium-priced brands that, logically-speaking, shouldn't be able to command a premium. How they do it holds lessons for us all.

There are a variety of ways to market for margin—not least, the message a brand chooses to convey and the tone with which it conveys it. When it comes to brand ideas, there are as many different possibilities as there are products and services to represent them. Let me offer two suggestions that any company can adopt, regardless of the content of its ads.

The first is to invest in production values. Forrest Gump's mom says: "Stupid is as stupid does." When it comes to branding, cheap is as cheap does. Regardless of what form your tactics take, how you dress them sends a signal. If you want consumers to invest more in your brand, you need to believe that its presentation is worthy of your own investment. A t-shirt and flip-flops won't get you a table at 21.

Share of voice is also important. Similar in concept to market share, share of voice is the proportion of all the advertising in your category that your brand's advertising represents. Share of voice can fluctuate, just as market share can fluctuate. New research demonstrates that the two tend to move in the same direction.

Share of Voice Can Gain Market Share

Nielsen Analytic Consulting and the Institute of Practitioners in Advertising, a UK-based trade association, studied well over 100 packaged goods brands and found that those whose share of voice exceeded their share of market were better able to catch up with competitors. The study emphasized the importance of the advertising message as well, but it made the point that share gain can happen, independent of message content.

This shouldn't come as a surprise. Higher share of voice generates higher levels of awareness and recall, but it also generates confidence. Consumers intuitively understand that for a brand to advertise, it must be successful. Brands that advertise more would logically be perceived as more successful than those who do it less, winning them higher perceived value.

We still don't understand all the ins and outs of why consumers make seemingly irrational decisions when it comes to the prices they pay. Better production values and higher share of voice are just two ways to drive the value side of the price/value equation. It behooves any company to take a page from the book of successful high-margin brands and spend its resources driving value, rather than trimming price.

The next time you want to tip the price/value equation in your favor, take the money you might normally be willing to forgo via discounts or price cuts and invest it in production values and share of voice. You might be surprised when more people begin to agree with your estimation of what your brand is worth.

Steve_mckee
McKee is president of McKee Wallwork & Company and author of Power Branding and When Growth Stalls. Find him on Twitter and LinkedIn.

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