Low Prices – Rule Or Ruin

Corporate Positioning

In her latest Thursday Night Insight article, Business Development & Research Manager Julia Cupman discusses the troubling impact the economic downturn has had on corporate positioning as so many companies take reactive measures to lower prices.

Society has suddenly become budget driven.  We are currently trapped in a maelstrom of decreasing prices and ultimately lower value goods and services.  A new economic order has become the new world order.  The media, which have played a dominant yet destructive role in reporting on the financial ruins of late, are full of manipulative messages to the public: Watch the bucks!  You can’t afford it!  Buy cheap!  Make your money last longer!

These meager attempts to freeze spending and educate on the subject of financial management are grinding society, leaving open and sore wounds that will take some time to heal.  The masses are becoming so accustomed to low price and low value that one cannot help but wonder when people will ever start to recognize and pay for quality and high value again.

Take the food industry as an example.  According to the Wall Street Journal:

  1. Campbell Soup Co. is about to launch a multi-media campaign to trumpet its condensed soups as a bargain buy.  One of the company’s many print ads reads, “To save you money, we left one ingredient out (we figured you have plenty of water at home)”
  2. The website of Kraft Foods Inc. is soon to list recipes for cheap sandwiches, and shows visitors how one bag of groceries filled with Kraft products can be stretched to make five dinners
  3. On November 2nd, newspapers nationwide will carry coupon inserts pitching Campbell soups and sandwiches made with Kraft Singles cheese as the “wallet-friendly meal your family will love”

And Kellogg is going a step further by investing in search-engine optimization that will bring the company to the center of attention online when consumers type “cereal” plus “deals” or “value” into an Internet search engine.

Luring buyers into a low value mindset is dangerous.  Only last year, Campbell’s ads were highlighting their soups’ quality, but this month Campbell is launching multi-platform ads to tout its condensed soups as cheap eats.  A company that at one time was positioning itself in its marketing communications as a provider of quality has now denigrated its brand by changing its focus.

Chaos resides as businesses debate their strategies and along with consumers fall prey to economic forces.  The credit crunch, falling demand, globalization, oil price volatility, etc. all squeeze the economy, but cutting prices is no panacea.  In doing so, you are making the assumption that your market segments are price buyers, which is a dangerous trap to fall into.  Indeed, customers do not buy exclusively on price, but on perceived value, i.e. the trade-off between the benefits a product or service offers and the price tag attached.

Furthermore, not every company can sell on low price as it is a risky strategy that is only likely to succeed if it is implemented through proactive rather than reactive measures.  Sam Walton of Wal-Mart was successful in his price strategy as he sought innovative ways of achieving price leadership through effective supply chain management and an efficient distribution network.  Having recognized an unmet demand for low prices, Walton began to lead the market by example, rather than follow his rivals. 

Thus in times when the economic climate is driving so many to sell on price, businesses should think and act proactively, rather than simply react to environmental pressures.  In the words of Bill Gates, "When there is confusion in the marketplace, there is opportunity."  Hence rather than compete on price, you could seek opportunities in other areas of the marketing mix, such as place (location or distribution), product (quality or differentiation), or promotion (advertising, marketing, sales or PR).

It has never been more important to listen to your customers’ needs, for meeting the market’s needs is the key to success.  For sure, buyers will be interested in more than just low prices.  And although money talks, satisfied customers and the rewards they bring talk louder.

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