It takes years to get the reputation of being the best in your category… and you finally achieve it! You earn the right to use words like original, genuine, and authentic in your marketing. You get the reputation of being the top brand for quality, dependability, and status. Your brand is priced higher than the velocity price point, the price at which the most sales volume occurs. You have managed to break this price point barrier and now command luxury status. If customers want the very best, they have to plunk out a few more bucks for your brand.
Your product merits its higher price. Your volume is low but your dollars per sale are much higher. Your costs are higher but you still enjoy a large profit margin. You use your profits to ensure you are in stock, prominently placed, promoted, and recommended. Things are pretty good.
But then the imitators come out with a cheaper product in an attempting to steal your idea and your market. Someone in production, marketing, or sales points out that if you only had a lower priced product you could compete with these imitators. They even promise increased volume, resulting in more profits.
Makes sense, right? Think again! Here are 5 reasons why this may be a very bad idea:
- Exceeding your Brand Width. Just like a band width, your brand can only carry so much of the mindshare of your salespeople, retailers, and customers. They begin to wonder if you have changed from high quality to cheap. With more choices focus begins to blur and confusion results. Increasing your product line requires more mind share and more shelf space, and the market has a limited amount of both.
- Cannibalization. “Now that you’ve got a cheaper version, we’ll take that one. We don’t have room for both!” you’ll hear. Offering a cheaper model always results in a race to the bottom price wise and a trade out on the shelf of your top quality product for your lower priced offering. Retailers love to swap out higher priced products for lower priced products because they move faster. But is this really what you want?
- Trading Dollars. Oh, and that increased volume they promised you? Sure, that lower priced offering was certainly more attractive to retailers and now you have many more placements – all requiring service. The servicing costs are the same per item sold as your higher priced products, so now your profit per sale is much less. What you thought you were making in volume is getting eaten up in overhead.
- Damaged Brand Image. That top quality, top-of-the-line reputation you built over the years is suddenly in jeopardy. Now that you are making a cheaper version, customers will ask, “Is this just as good as the one I’ve been spending more for?” Or, “Why should I pay more?” Or worse, “They’ve been ripping me off all along!”
- Reduced Profitability. Now you are selling less of your higher priced product. And your lower priced product is costing just as much to sell. You have become much busier with all the volume, so your administrative overhead increases. You are handling more dollars but banking less!
Think again before you trade your brand down. Don’t buy into volume when you already have the higher profit, lower volume business the folks at the velocity price points wish they had!
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders