8 MAY 2014
Four strategies to
stop your brand
becoming a commodity
.....
Mark
Ritson
“Coke-owned Innocent
risks losing its distinctive
marketing ethos”
Insight
.....
Opinion
.....
The power
Make an
of B2B
impression
How the $2trn global tech
industry is learning to
appeal to marketers
Kellogg’s Alex Tait argues
viewable impression
metrics are flawed
£3.95
Opinion
Is the
price right?
LUCY TESSERAS
The pressure to cut prices from supermarkets
and comparison websites is becoming greater
but new research shows compelling reasons
why brands should resist. Here are four rules
to help you avoid the commodity trap
At the weekend, Tesco announced the roll-out
of 300 ‘pound zones’, areas in its shops that
will sell branded goods for 50p and up, and last
week Morrisons became the latest ‘big four’
supermarket to launch a round of price cuts,
reducing the cost of 1,700 products by 17 per cent.
Meanwhile, the Co-operative Food has earmarked
£100m for its pricing strategy and kicked off its
‘Fair and Square’ campaign.
Suppliers are likely to fund retailers’ price
promotions and negotiations may be intense with
a manufacturer trying to avoid discounting that
can turn their branded goods into commodities.
Meanwhile, in sectors such as insurance, having
a well-known name may help a brand charge
a premium but comparison websites encourage
consumers to focus more on price than overall
value. Some brands are charging the right price
for their goods, while others could make better
margins, according to a study by research firm
BDRC Continental.
To help measure the effect that a ‘brand’
can have on the price a company can charge for
a product, BDRC has developed a Brand Margin
metric. It has used it to examine several sectors,
showing the results exclusively to Marketing Week
(see chart, page 16).
The research shows, for example, that the price
and brand value for baked beans are very aligned.
The intrinsic value of a 410g-420g tin of beans is
40p, according to the research but the value of the
Heinz brand means people will pay an extra 21p
for it, making the total 61p with a brand margin
of 34 per cent. This compares to an average retail
price of 62p, suggesting that Heinz is charging the
right amount for its product.
Below are four ways to help marketers prevent
their brand becoming a commodity.
1. Create an emotional connection
Heinz chief marketing officer Giles Jepson says
that a variety of attributes will contribute to the
price charged for a product.
“Value for money is multi-faceted; it is not
just about price. In any consumer market there
are different product offerings that connect
differently with consumers, with different
histories and reputations, experience and product
attributes,” he says.
“Our communications have enabled an
emotional connection that means consumers are
able to make choices that go beyond just price.”
Apple tops the smartphone category with
consumers adding 38 per cent to the intrinsic
product value for an iPhone, but the research
reveals brands in less fashionable and trend-led
sectors can also command a premium.
The AA performs strongly in car insurance and
breakdown cover, both of which are commodity
categories where price is dominant. It has a brand
margin of 12 per cent in car insurance – three
times that of any other company. Aviva and
Halifax have a brand margin of 4 per cent, while
Churchill and Direct Line have a 2 and 1 per cent
brand margin respectively.
Kwik Fit, Esure and Acorn Insurance have
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MARKETING WEEK
8 MAY 2014
SPEED READ
With supermarkets slashing prices
and consumers becoming ever
more choosy, how can brands
make sure they can still charge the
right amount for their products?
Emotional connections, new
pricing structures and being
first to market with new
products will help.
The essential read: pricing policy
.....
Nathan Ansell
Head of brand and marketing
for food, Plan A and M&S Energy
Marks & Spencer
Marketing Week (MW): How do you decide
where to position your products in terms of price?
Nathan Ansell (NA): We’re quite democratic.
We have a team in the commercial division
of the food group that is responsible for pricing
and promotions but we’ll come together as
a management team and collectively review our
policy on pricing, so it is definitely not exclusively
a marketing decision, it’s a team decision.
We make calls about where we want to go with
our policies on a fairly regular basis and try to be
as competitive as possible, but at the same time
we are not a value retailer.
MW: What effect has introducing branded
goods had on how you price M&S products?
NA: It has had some effect but the launch
of the Simply M&S range has been more
transformational. Having hundreds of items in
store that are price-checked against competitors
and come with a quality and price promise – that
has made a bigger impact because it is a consistent
brand that customers are seeing across the whole
store rather than on branded goods only.
MW: Do you always try to offer an M&S version
to the branded alternative?
NA: We sell many items where we don’t have
an M&S equivalent. For example, we’ve launched
M&S baby food that we sell in the chiller cabinet
but at the same time we decided to stock Pampers
nappies because we want to demonstrate that
we are a place to do a family shop.
We are never going to be big in nappies and
it’s not an area we want to go into, so we chose
to stock Pampers nappies alongside our own
brand baby food.
Women, who
are the main
shoppers of Mizkan
products, owner of
Sarson’s, tend to value
brands higher
HOW PREMIER FOODS PRICED RICE PUDDING
Before launching Ambrosia twin pots,
Premier Foods conducted a series of tests
to determine the launch price point.
“Consumers make a very quick decision
when they are in store so the price has got
to feel right for the brand and the product,”
says Claire Harrison-Church, category
business director – sweet at Premier
Foods.
“For any new product we will do
quantitative research on purchase intent.
We tell consumers about the product, what
the content is, what the attributes are and
we show them the packaging. We put in
a range of pricing scenarios and then work
back from that to determine how much
people are willing to pay.”
She says setting up pricing is a
commercial decision but that the brand
teams work collaboratively on matters
such as price elasticity, how the brand
is positioned in the marketplace versus
other brands and the average category
price.
“We take all that into account when
considering a price or price change on our
brands, particularly when bringing new
product development into the equation,”
adds Harrison-Church.
Marketing then plays a critical role in
setting up new products and building
brand loyalty.
“Marketing has a huge effect on how
consumers value our products because
we are investing in brands and brands help
consumers make quick decisions about
which products to buy. It has a massive
impact on how people think and feel about
those brands and therefore how they
value them.”
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MARKETING WEEK
8 MAY 2014
a negative brand margin of between -1 and
-5 per cent, which means they need to do more
to convince consumers of their brand value.
AA marketing director Michael Cutbill believes
having a strong, recognisable and trusted brand
allows the AA to command a premium.
“If you don’t have brand strength, then you will
be knocked out by the next company that comes
along and undercuts you. Brand strength is
critical for stability,” he says.
“We are a premium brand and we set out to have
premium prices. Therefore we don’t say we’re the
cheapest but we do say we offer the best service
and we spend a lot of time substantiating that
and making it a reality.”
BDRC Continental director James Myring
suggests the research indicates that the AA
could charge more for its services because of the
strength of the brand.
But Cutbill says: “Although it’s great to see that
we have a 12 per cent brand premium, the truth
is that price comparison websites make the motor
insurance market incredibly competitive and
as a result our prices are kept in check by the
WOMEN WOULD PAY MORE
“Those who do
most of the shopping
are going to have a greater
affinity with the brands
they buy because they
understand the pricing on
the shelf and the value”
LORNA KIMBERLEY
MIZKAN EUROPE
Women consistently value branded products
higher than men, according to research by
BDRC Continental.
For example, women give toothpaste an
average brand margin of 26 per cent while men
add 20 per cent to the intrinsic product value.
Likewise, women give smoothies an average
brand margin of 29 per cent compared to men
who add 19 per cent, which surprises Nathan
Ansell, Marks & Spencer’s head of brand and
marketing for food, Plan A and M&S Energy.
“I’m surprised by this as most of our research
shows that men are less price sensitive than
women, largely because women do more
of the shopping than men on the whole.”
The disparity between how men and women
value branded goods in various demographics is
one of the consistent trends, says James Myring,
director of BDRC Continental. Differences
in social grade and age didn’t have an impact
on what people would pay for products.
Even for more male-orientated or gender
neutral products, women consistently give
a higher brand margin than men. Within lager,
for example, women add an average of 28 per
cent for a branded product compared to men
who add 19 per cent to the intrinsic value.
Similarly, women give airlines a 21 per cent
brand margin, while men add 15 per cent.
Lorna Kimberley, head of marketing at Mizkan
Europe, says: “Those who do the majority
of the shopping are going to have a greater
affinity with the brands they buy because they
understand the pricing on the shelf and the
value. If women are valuing brands higher,
men might be underestimating their value.”
Consumers undervalue Ecover products
yet the business has grown faster than
mainstream competitors
rest of the sector. We have to be reasonably
competitive or we just won’t be seen.”
2. Consider premiumisation
BSkyB also claims that scores for exclusivity and
innovation were also higher for the more affluent
group, suggesting that there is potential for the
brand to charge a premium for a new vehicle.
Audi has explored how its brand can influence
the price of its new luxury saloon car, specifically
among highly affluent audiences.
It selected households using the Sky AdSmart
platform, and was keen to measure the value this
level of targeting adds to its campaigns.
Using the Brand Margin metric, respondents
were asked to imagine that a new luxury saloon
car was being launched in the UK at a price of
£25,000. They were questioned about how much
the addition of different car brands would add
to the value of the vehicle.
Among an untargeted ABC1 audience,
respondents added £5,163 for the Audi brand,
giving it a brand margin of 17 per cent. Meanwhile,
the targeted affluent audience added 19 per cent
to the intrinsic value, putting an extra £5,898 on
the value of the vehicle. Those exposed to the Audi
ad on Sky AdSmart added an extra £6,245, 20 per
cent more than the unbranded vehicle.
3. Create new pricing structures
Upmarket food brands such as Marks & Spencer
and Waitrose had to adapt their pricing structures
during the recession, with the latter launching
Essential Waitrose and lauding it as a ‘billion
pound brand’ this March.
Nathan Ansell, head of brand and marketing
for Marks & Spencer food, Plan A and M&S Energy,
says the way customers view the brand is one
of the best and most challenging things about
working for the retailer.
He says: “Customers expect M&S to be better than
the branded alternative in most categories. They
expect us to have a better product, a bigger range,
more interesting flavours and superior quality.”
But it is this reputation that also enables it to
command a premium price (see Q&A, page 14).
The retailer’s Make Today Delicious campaign
positions M&S as a brand that can make “every
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MARKETING WEEK
8 MAY 2014
day special” and is part of its effort to become
more relevant for more occasions. Ansell says
it has resulted in some of its relevance metrics
increasing by 20-25 per cent.
M&S does well to command a premium for
its food products, and does better than other
retailers’ own-label brands, which tend to have
a brand margin of close to 0 per cent in most
sectors, according to BDRC’s research.
M&S has a brand margin of 24 per cent for
smoothie products, scoring almost as highly as
the category leader Innocent, which has 26 per
cent. Both beat Tropicana (22 per cent ), Naked
(20 per cent) and Dr Smoothie (17 per cent).
“This shows the power of the M&S brand in
food and beverages,” says Myring. “Because of
its reputation for quality it can command a high
price premium. Our research suggests it could
sell its products outside M&S stores and people
would still buy them.”
4. Make the first move
As the first mainstream dedicated smoothie
brand, Innocent also commands a premium.
The essential read: pricing policy
METHODOLOGY
BDRC calculates brand margin using
a ‘wisdom of crowds’ methodology.
It surveyed 1,000 consumers, who were given
an intrinsic value for a product and then
asked what they thought others would pay
for a branded version. The method takes into
account only customers’ perceptions
of the prices of brands, rather than looking
at the market value of the particular
product or brand.
PRICE AND
THE RECESSION
HOW BRAND MARGIN IS CALCULATED Example: Baked beans, 410g-420g
Intrinsic product
value
Overvalued or undervalued?
The most frequently overvalued product by
consumers over the past four years is a pint
of semi-skimmed milk. In 2010, people valued
it 29 per cent higher than the average price,
which leapt to 76 per cent in 2013. Today,
people are overvaluing milk at 26 per cent.
Conversely, a packet of 80 Huggies baby
nappies is the most undervalued product.
Consumers knocked 34 per cent off the value
in 2010, which increased to 36 per cent
in 2013 and again to 52 per cent in 2014.
The wrong price
While semi-skimmed milk has been the most
overvalued product over the past four years
with people presuming it costs an average
of 44 per cent more, and Huggies nappies are
the most undervalued, consumers also miss
the mark in pricing a copy of the Daily Mail,
adding an average of 19 per cent to the cover
price between 2010-2014.
At the other end of the scale, a standard
adult ticket to Blackpool Pleasure Beach
is undervalued by an average of 38 per cent.
Everyday versus luxury
Consumers tend to undervalue luxury
and special purchase products more than
everyday items. An adult ticket to Blackpool
Pleasure Beach is undervalued by an average
of 38 per cent, while a new Ford Focus 1.8
Zetec car comes in 20 per cent under value.
For everyday items such as a 750g bag of
granulated sugar (-8 per cent) and a Kingsmill
white sliced bread (-9 per cent) the difference
is much less. But as with milk, consumers
overvalue half a dozen free range eggs,
adding an average of 7 per cent to the actual
cost over the past four years.
Source: fast.MAP
£0.40
Brand
margin %
Average retail price
for single can of beans
34%
£0.62
£0.54
27%
£0.67
£0.42
5%
£0.45
£0.40
£0.40
0%
£0.45
£0.40
£0.37
-8%
£0.32
£0.40
£0.21
Total price
given by
consumers
£0.61
£0.40
-£0.03
Value brand
adds
£0.15
£0.02
*Excludes store ‘value’ own brand. Source ESA Retail store and online checks, BDRC Continental
When the brand was launched it had no budget for
advertising, according to group marketing director
Franz Bruckner. He explains that choosing the
right name was imperative as it was the principal
way it communicated its brand promise.
“The name ‘Innocent’ is linked to our purpose:
to make natural, delicious food and drink that help
people live well and die old,” he says.
Marketing now represents “nothing less than
our entire business” he adds, so everything the
brand does, from the way it drives its vans and
answers the phone to its advertising, are used to
strengthen its overall brand position, enabling it
to command a premium price in consumers’ eyes.
Meanwhile, for environmentally friendly
laundry brand Ecover, which was one of the fi rst
brands to focus on eco-credentials, consumers
undervalue the brand. Consumers value it at £4.50
when the average price is £8.50.
Myring argues this could be because of its
environmental positioning, which gives it niche
rather than mass market appeal. But this unique
selling point and the fact that the environment
and sustainability have moved up consumers’
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MARKETING WEEK
8 MAY 2014
agendas has also enabled the business to grow
quicker than mainstream competitors says
Tim Smith, general manager of Ecover and sister
brand Method.
“Data from the back end of last year shows
that Ecover and Method were the fastest growing
brands in the cleaning market during the
recession,” he claims.
“We can place a premium on our products
because of the way they are made and the
ingredients we use. It’s similar to the issue around
food provenance. Consumers understand that
if they pay 99p for a frozen ready meal, they might
have to think about the quality of the ingredients.
“That’s not to say that every consumer is willing
to pay more but there is a market for consumers
who are conscious about how a product is made
and what is in it and are therefore choosing brands
that have a close affi nity to their own values.”
Price will always be a much debated issue for
all businesses but across the board it tends to be
the strong, reliable brands that consumers have
a strong affi nity with which can command
the highest premium in any given category.