One of the key elements of brand building is proper pricing. It also the hardest to get right. There are so many conflicting requirements that getting it right is like trying to escape the prison of established pricing conventions on a tight rope. Go too far one way or the other and you can significantly hurt your brand. Either you sales volume or your customers’ perception of value can take a tumble.
Timing is also crucial. Choose carefully when to introduce a new product or brand, or when to reduce or increase prices. The circumstances surrounding these decisions can also knock you off the wire. Pricing is ultimately the balance between what the market demands, what you have into it, and at what volume you break even and make a profit.
It’s not a world of all possibilities out there. The market already has a preconceived notion of your product and what it should cost based on existing prices for like goods and services.
Judgement. The products and services that bear your brand name are judged by their value. But value is a relative term. Basically it’s what you get for what you pay. But it’s not quite that simple. Value is also measured by the customer’s perception of the distinguishing merits of your product. These are influenced by your communication, education, and endorsements on your products, and how well you distinguish the merits of your offering from the pack. All these are weighted against price in the customer’s mind.
Category Prison. If you are selling branded products that the market perceives as a commodity, you are trapped to a great degree by the most common prices for that commodity. Even if there are different categories within that commodity, you are still stuck with the going rate for the category in which your product falls. These are called price points and the price points that show the fastest rate of sales within those categories are what we call “velocity price points.”
Doing Time. This is why we advise our clients and speaking audiences to find out what the velocity price point is for their category – before they finish their business plan and proposed pricing structure. You may find that what you have into it and what it costs to sell either place you outside the velocity price point or require years of loss to develop the volume required to see a profit. This is especially true of popularly priced branded products.
Prison Break. If you think you can ask considerably more than the velocity price point for your category, you have to convince buyers and customers that you are in a higher priced category or that you are in a new category. The latter is a serious challenge considering the intransigence of category management. Retail buyers will question where they should put it, and why should they take a chance on a new unproven category.
Push and Pull. Another dynamic that can blow you off that tight rope is the “push and pull” the market requires just to keep your branded products fresh, relevant, and compelling. Whether it’s called a temporary price reduction, a sale, or regular programing, ultimately you have to have systematic discounting. This is required in order to attract new customers, sell in quantity, and keep in line with the competition. It can be tricky to know how, when, and for how long to do this. You can easily lose your base price integrity if buyers and customers get the idea that you have permanently reduced your prices.
These are just a few of the considerations brand builders must take in to consideration to successfully walk the pricing tight rope.
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