Short-term promotions may benefit brands but long-term discounting will damage their equity, says Lyndsay Peck
There's tension in the air - and not just because of the recent riots. There's also tension between brands and retailers over how to keep consumers on side during economic hardship, with the role of promotions under scrutiny.
The issue is a subtle one for brands. Price, especially in a recession, is an integral part of the whole product mix and sets up consumer expectations about quality. Not only is the more expensive product often rated better, but it can produce a more pleasurable experience in the consumer's brain.
This is not simply consumers rationalising their experience; they have been conditioned at a subconscious level by the price. To make sense of the sheer amount of information available to us, we unconsciously adopt coping strategies, or heuristics. 'If in doubt, pick a leading brand it must be OK.'
Another critical factor is elasticity: how does demand change when price changes? Analysis of sales data indicates there is quite a wide variation between categories in terms of elasticity, where products or brands move price within the category rather than the category as a whole. Understanding elasticity is critical to understanding how far you can push price.
Price can also affect perceived brand value. In 2007, Asda did a limited run of £30 bottles of Dom Pérignon, which normally retails at £80. At the same time Woolworths offered Champagne for £5.
The promotions might have gone down well with shoppers, but they were also perceived as having an adverse impact on the value of Champagne and the category as a whole. This is because the price point is a key part of the mix. Think of the premium lager that has long differentiated itself by being "reassuringly expensive".
If your brand has established equity, it will not be negatively affected by the occasional short-term promotion and may even drive new consumers to trial. However, when even a strong brand is consistently discounted, this can lead to an erosion of brand equity. S0 brands need to align themselves with time-poor, cash-strapped consumers, but without surrendering brand value to gratuitous price cuts.
There's tension in the air - and not just because of the recent riots. There's also tension between brands and retailers over how to keep consumers on side during economic hardship, with the role of promotions under scrutiny.
The issue is a subtle one for brands. Price, especially in a recession, is an integral part of the whole product mix and sets up consumer expectations about quality. Not only is the more expensive product often rated better, but it can produce a more pleasurable experience in the consumer's brain.
This is not simply consumers rationalising their experience; they have been conditioned at a subconscious level by the price. To make sense of the sheer amount of information available to us, we unconsciously adopt coping strategies, or heuristics. 'If in doubt, pick a leading brand it must be OK.'
Another critical factor is elasticity: how does demand change when price changes? Analysis of sales data indicates there is quite a wide variation between categories in terms of elasticity, where products or brands move price within the category rather than the category as a whole. Understanding elasticity is critical to understanding how far you can push price.
Price can also affect perceived brand value. In 2007, Asda did a limited run of £30 bottles of Dom Pérignon, which normally retails at £80. At the same time Woolworths offered Champagne for £5.
The promotions might have gone down well with shoppers, but they were also perceived as having an adverse impact on the value of Champagne and the category as a whole. This is because the price point is a key part of the mix. Think of the premium lager that has long differentiated itself by being "reassuringly expensive".
If your brand has established equity, it will not be negatively affected by the occasional short-term promotion and may even drive new consumers to trial. However, when even a strong brand is consistently discounted, this can lead to an erosion of brand equity. S0 brands need to align themselves with time-poor, cash-strapped consumers, but without surrendering brand value to gratuitous price cuts.
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