Which Do Customers Really Prefer: Cut Prices or More Brands?
Price cuts are a good way to build sales and destroy the business. London's Evening Standard newspaper has been giving a masterclass in this suicidal art form.
Over the last two years it has responded to the free sheets by halving its price, giving it away free on some days, charging full price but giving away free umbrellas, charging less after 9pm at some locations; offering discounts for loyalty card holders and many other pricing wheezes.
Each short-term fix gave a short-term boost to sales. It was following the 'birdie strategy' -- birds go "cheep cheep", and the Standard went cheap, cheap.
Academics call this "blue ocean strategy", which sounds fancier. But each short-term fix was as effective as another hit of heroin for an addict: the immediate relief simply creates long-term problems. The Standard was educating its buyers into believing that it was not worth full price.
Last month, the birdie strategy reached its logical conclusion: the Standard is now free, and circulation has gone up. Its only rival free paper, the London Lite, is going bust and laying off all 36 employees (36 employees for a newspaper?)
That is the problem with free: it can be crap -- 36 employees can do no more than clip together press releases, buy a few freelance photos of celebrities and print some opinions. Opinions are cheap, facts are expensive. It was hardly a newspaper.
This, inevitably, is the fate of the Standard. It will not be able to afford news, so it will resort to opinions, celebs, and games. The paper has already got much thinner since going free, and it will continue to cut its product. First cut the price, then cut the product. Like the Cheshire Cat, it will slowly disappear until all that is left is its smile.
There is an alternative. Stuart Rose, chairman, CEO, big banana and el generalissimo of M&S, finally announced that it would sell leading brands in M&S. "Customers are saying to us that I like my favourite brand... and you, Marks and Spencer, don't sell it so I have to go somewhere else to buy it," Duh. Only 20 years too late. For genius insights like that, he must be worth every penny of his outsize salary.
So the alternative to the birdie strategy is to build your brand. Tabasco, Mars, Fairy Liquid, Marlboro all have built up unique customer franchises over decades. They have educated their customers to buy the brand and buy quality.
All of them could double sales tomorrow by slashing their prices. But no brand manager outside of an asylum would follow that route. As the tale of the Standard shows, cutting prices destroys your brand values. Temporary price reductions have a nasty habit of becoming permanent. Invest in your brand and you will not have to destroy your business with price cuts.
What do you think: as a customer, do price cuts influence your perception of a brand's value?