Ask almost any investor what they look for in a stock, and they will say the potential for value growth. Ask almost any CEO what they need to do to be successful, and they will say grow the value of their business. Ask almost any marketer what they need to do, and they will say grow sales. Does anyone else see a disconnect?
The answer is always growth, but rarely does any marketer actively consider price in their pursuit of sales growth. Sure, everyone knows that they need to protect margins, but the pursuit of growth inevitably focuses attention on volume sales and share, not value sales and share.
So, is the big mistake to ignore the price the brand is sold at? No, that is a big mistake but not THE big mistake. THE big mistake is to assume that the main purpose of marketing is to strengthen consumer attitudes and grow sales. WRONG. That is one purpose. The other purpose of marketing is to strengthen consumer attitudes and help justify the price asked.
By ’justify’ I mean make the purchase as easy as possible; either because people instinctively know the brand is worth the price asked, or they can easily justify it when they do consciously consider the relative price of brands. Now, some people will always choose based on price but if you want to maximize the price paid for your brand, you need to make sure the majority think it is worth paying the price asked.
The risk to margins of a single-minded focus on growth at any price is threefold. First, if you believe your objective is growth then all your efforts are focused on trying to change attitudes in order to grow your customer base. Guess what? Relative to growing distribution or salience, changing attitudes takes a back seat unless you have some truly meaningful and different news to publicize.
Second, in the absence of any real meaningful difference you waste a ton of marketing money on campaigns that are unlikely to achieve the stated objective of significant sales growth. Those campaigns might actually make consumers feel more inclined to pay full price for the brand, but you won’t necessarily know that because you are not measuring it. No wonder CFOs look askance at marketers.
Third, failure to grow sales means that marketing budgets get frozen; price promotion gets used to hold market share, which attracts price-driven shoppers who go for the lowest price, and people who would pay full price buy on deal instead. Next year above-the-line budgets get cut because margins have shrunk and the whole vicious death spiral gains momentum.
One colleague suggested to me that marketers do not focus on price, because once set it is very difficult to change. That is true if you want to raise prices. Once you set a price point in-market it is really difficult to shift that price up. However, it is really easy to let that price point slip down. And it happens time, after time, after time. Why? Because marketers do not really understand what their job is. Their job is to grow the brand at the price asked, and that is a whole lot easier to do if people feel good about paying that price.
Authored by Nigel Hollis,Executive Vice President and Chief Global Analyst at Millward Brown
Source:Millward Brown