Pricing is fundamental to the management of a firm’s future financial success. The relationship between price and volume is well understood. All other things being equal, higher prices reduce volume. This does not mean that the price premium commanded by a brand necessarily reduces sales volume. Effective branding strengthens consumers’ brand preference, which has the effect of pushing the demand curve upward and to the right, as shown in Figure 1. This means that the consumer will pay more for the brand even at the lower end of the price/demand curve than would be the case for a comparable unbranded product. This change in the demand curve is what creates the strategic pricing advantage of a brand. The firm uses the change in the demand curve (shown by the curve that is upward and to the right in Figure 1) to capture greater volume, to increase the price (and margins), or some combination of higher volume and increased price that corresponds to at a point along the branded demand curve.

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A closer look at the improved brand demand curve is helpful for illustrating the array of strategic choices available to the firm that pursues an effective branding strategy. The new brand-driven demand curve, which is illustrated in Figure 2, creates a region of pricing latitude bounded at the top end by the maximum feasible premium price and at the bottom end by the maximum feasible volume that may be achieved by a low price. For most brands, the optimal price, as defined by the price that maximizes flow for the firm, is not the top or the bottom of the curve. Rather, the optimal prices are likely somewhere in the middle. In addition, the optimal price may vary over time. These facts produce important strategic options.

The firm might pursue a pure premium pricing strategy that seeks to maximize cash flow through the capture of large margins. However, a modest reduction in price might dramatically increase sales volume. The result might be an overall increase in cash flow, even with modestly lower margins. The optimal price for any brand is really an empirical question and can be addressed with market research. And, the effect of price is not just the result of taking share from competitors.

The strategic implications of the branded demand curve become even more interesting, and potentially more profitable, when costs of production and marketing are considered. If there are economies of scale in production and/or marketing, greater sales volume may be associated with reductions in costs, and a concomitant increase in margins. When the firm has a portfolio of products that share production, marketing, or distribution costs, the cost effects can become even more important.

But wait! There’s more. The same strategic pricing decisions associated with a branded demand curve also flow to members of the distribution channel(s). The firm’s branded demand curve also applies to channel members, who will have greater pricing latitude themselves. This, in turn, gives the marketer greater influence in the distribution channel because the brand is accompanied by strategic opportunities, assuming they are understood by the marketer and the channel member. And there are implications for managing adjustments to price over time, including temporary reductions (or increases) in price related to trade and consumer promotions.

Branding is not just about making consumers feel good about a product. It’s not just about the ability to charge a price premium. Rather, it is about creating strategic opportunities for the firm. Realization of these opportunities requires an understanding of the influence of branding on pricing and demand. It is also why effective branding is not just about marketing communication; it is about influencing the demand curve through strategic pricing decisions.

Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

At The Blake Project, we help clients worldwide, in all stages of development, define and articulate what makes them competitive and valuable at critical moments of change. Please email us to learn how we can help you compete differently.

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But, what sort of customers? Deal loyal or real loyal customers? What happens when the deal dies? Do the customers who were “lured” into McDonald’s go elsewhere? Do these deal-focused customers go to another restaurant with a similar deal? If the $5 Meal Deal is a value signifier why is it a limited time offer? Why not put it on the menu? Why isn’t McDonald’s whole menu considered to be a value?

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Deal loyalty is not real loyalty. Deal loyal customers see price as the deciding factor. Real loyal customers see trustworthy brand value as the deciding factor.

Domino’s, the pizza chain, seems to understand that value is more than price. And, Domino’s current earnings report indicates the benefits of knowing that value and price are two different ideas.

At the Domino’s July earnings call, when an analyst asked about Domino’s value strategy, Domino’s CEO, Russell Weiner said, “ Our value strategy focuses on providing consistent value across all our platforms, not just low prices. This trusted value proposition drives order counts and integrates customers into our loyalty program, creating a sustainable growth model.”

Mr. Weiner also said, “I think what we’re doing in value is very special, and, it is very different than what you are seeing in the industry right now, which I think folks, it is clear that there’s been price taken. And, folks are dealing back kind of individual items, telling customer, hey, this is what you can get on value.”

It seems apparent that Mr. Weiner knows price and value are two different things. Mr. Weiner’s statements indicate, correctly, that value is what you receive relative to costs multiplied by trust.  The customer’s trustworthy brand value equation is created by looking at the total brand experience relative to total brand costs which include price, time and effort, all multiplied by trust. As Mr. Weiner pointed out, trust is imperative.

In other words, unlike the many fast food operations, Domino’s grasps the facts of the customer trustworthy value equation. And, this means, that Domino’s grasps and operationalizes the fact that price and value are not the same. And, that price alone drives a short-term, in-the-year-for-the-year profitability. We have two words – price and value – for a reason.

Here is more of what Mr. Weiner told analysts during the earnings call:

“… value is two things. Value is price but it’s the price for what you want. If the price for what you want is high and the price for something you don’t want is not high, that doesn’t really do much. And, so, when you think about all of our platforms, you think about pizza, you think about pasta, sandwiches, desserts, salads, breads, chickens, all of those things consistently have been part of our promotional value play since the end of 2009.

“And, having that consistency when people wake up in the morning and decide where they want to order, they know that they can trust Domino’s. That trusted value is leading to the order count you’re seeing. And, then, they become part of the loyalty flywheel.

“And so, I just … I think it’s important to make sure we explain our approach to value is not just price. It’s about price for what people actually want to order. And that’s, as you’ve seen over this time period, a very sustainable way to grow.”

Mr. Weiner focuses on the overall trustworthy brand value of Domino’s. Mr. Weiner tells us that superior value perception applies to Domino’s entire portfolio of offerings.

Compared to the deal-making fast food establishments, Domino’s recognizes that value is not just a menu invoice. Making a brand affordable does not mean marketers should cheapen the brand’s perceptions. Brand loyalty cannot be bought by bribes. Domino’s tells us that its entire menu is a value menu.

Domino’s has four pillars that drive its business. The acronym is MORE; the internal rallying cry is Hungry for MORE. M stands for Most delicious food. O stands for Operational excellence. R stands for Renowned value. E stands for Enhanced by our best-in-class franchisees.

According to Domino’s Mr. Weiner, Renowned value

“… is not just about having the lowest price in the market. It’s (Renowned value) about providing value that is innovative and memorable. Renowned value breaks through the sea of sameness discounts you see in the marketplace. So, as Americans continue to look for value, Domino’s is providing renowned value and doing it profitably for our franchisees. Our results who that our strategy is resonating with customers and our system. All of this gives me great confidence that we can continue to drive significant long-term value creation for our shareholders.”

As far as shareholders are concerned, to actually increase shareholder value, the brand must be the most efficient and productive provider of a branded offer that customers value. There is no shareholder value without brand value. Brand value requires managing the relationship of what-customers-receive-for-what-customers-pay in the customer-perceived trustworthy brand value equation.

When customers think about a brand purchase, customers calculate the brand’s value based on the total brand experience (functional, emotional social benefits, brand character) relative to total brand costs (money, time, effort) multiplied by trust. The total brand experience is the numerator of this equation and the brand’s total costs are the denominator of the equation. Then, customers consider trust. Do I trust this brand to deliver these benefits relative to the costs consistently time after time? In other words, customers create the mental construct which is a trustworthy brand value equation.

Occasionally reminding customers that a brand is affordable is important. But excessive emphasis on price alone destroys brand loyalty, which in turn affects revenues and profits. Instead of the dominant message being about price, communications should emphasize brand relevance. Instead of communicating “great price,” brands, like Domino’s does, should be communicating “great brand at a great price.” When marketers over-promote on price, marketers demote the brand. Demoting the brand short-term degrades the brand’s customer-perceived value long-term. And, there goes shareholder value.

What brand value lessons can we take from this?

1. A brand is more than a deal price.

Domino’s believes that its portfolio of offerings includes a range of prices, all of which must be perceived as fair value. It is okay to remind customers that your brand offers a range of prices.

2. Focus on the whole trustworthy brand value equation.

Focusing on the denominator (the costs: price, time effort) of the trustworthy brand value equation is death-wish marketing. A focus on the denominator cheapens the brand. A focus on just one part of the trustworthy brand value equation will not help increase customer value perceptions. Domino’s wants customers to know that the brand offers value which is not just price. Domino’s goal: to have every customer perceive that every item on Domino’s menu is a great value.

3. The customer determines trustworthy brand value, not the marketer.

Base your brand’s price decisions on the customer’s perceived value rather than on cost. Fully understand and correctly judge the effects of price manipulations. Domino’s focuses on trustworthy brand value that CEO Weiner says is “a very sustainable way to grow.”

4. Create communications that promote rather than demote the brand.

Every communication must enhance the brand, raising the brand to a higher level of affinity with and appeal to the customer. Domino’s communicates that it will not rely on “good enough,” instead, Domino’s adds value to offerings.

5. Focus on building customer-perceived brand value.

Shareholders who sat by applauding yearly price hikes are now seeing that those price hikes eroded value, eroding shareholder returns. There is no shareholder value without customer-perceived brand value. The entire brand business must be driven by growing more customers who buy more frequently who become more loyal, generating more revenue and profits. Domino’s states that “there is truly a Domino effect of connectivity among all the programs we have going on right now.” Growing loyal customers is not a one-off. “Loyalty is multi-year.”

Contributed to Branding Strategy Insider by: Joan Kiddon, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I

At The Blake Project, we help clients worldwide, in all stages of development, define or redefine and articulate what makes their businesses and brands competitive and valuable. Please email us to learn how we can help you compete differently.

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I’ve pulled together this list from my own experience, from asking around and from a couple of sources online. Spoiler alert — for one reason or another I find all of these somewhat perplexing. Certainly, I get it. But it’s worth thinking about.

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First, the list:

• Shopping bags. Long true in Europe and the U.K., this came onto my U.S. radar at self-checkout registers in airport newsstands. I fly with my own bag now—the food’s not worth paying extra.
• Air to pump up your tires. This isn’t entirely new, but it’s gone from patchy to ubiquitous. Growing up, I used to ride my ten-speed everywhere. But maybe not if I’d had to fork out quarters for air.
• Tap water at restaurants. We pay taxes to get clean water from our taps. Now, we must pay to have it brought to our table as well.
• Extra condiments. It’s hard to begrudge restaurants charging for things diners waste and pilfer. But dispensing a first portion so small that I have to buy a second one makes me tetchy.
• Credit card fees. It used to be that retailers wouldn’t accept cards with high fees because they paid these charges themselves. Lately, customers pay them in addition to the interest rates.
• Sports on TV. Indeed, almost everything on TV. Technically speaking, TV was never free. We paid in the currency of attention to ads. Now we pay twice—eyeballs for ads plus subscription fees.
• Same as TV. The exchange used to be ads for tunes. You can still stream for free with ads, but all the extras come at a premium.
• Trying on clothes. Retailers must protect themselves from showrooming by shoppers who browse then buy online. But strict look-don’t-touch policies turn merchandise into museum pieces.
• Teller fees. This is like many of the fees banks charge. Out-of-network has always been a fee. In-network is capped, after which comes a fee. Banking has gone from a friendly face to a login.
• Hotel amenity fees. The room rate is not the rate. Hotels charge extra for all available amenities, whether you use them or not, and for every extra privilege. Don’t dare check in a minute early.
• Airline fees. There is nothing redeeming about the experience of air travel that doesn’t cost an extra buck. Flying cheap is as close as you can get to mailing yourself there in a cardboard box.

No doubt there’s more that could be added to this list.

What prompted me to ask this question was a recent story in The New York Times about couples charging guests to attend their wedding ceremony. The reasons given by couples interviewed in the article sound similar to the things that brands say when defending fee-based pricing — costs are rising; it’s the only fair way to ration scarce goods or spaces; costs are passed along only to those who really want something; it’s just the way things work these days.

I find it puzzling, though. Because when a value proposition is deconstructed, it is diminished. A product or service can still be reassembled into a premium experience, but only by first turning it into a bare bones commodity. The mystery is stripped away and replaced with a paint-by-numbers surrogate.

None of which is to make light of the pressures faced by brands these days. It is harder than ever to sell value. The implicit message in fee-based pricing is about comfort and convenience. These things used to be part of the package, but if cheap is all that matters, then comfort and convenience will have to come at a premium price. It doesn’t mean a premium experience, though—what used to be the entry-level, ordinary experience costs extra these days.

The biggest thing lost is the relationship. Brand fans get divvied up into price tiers. Customer service gets commoditized. Friends and family at the wedding become arms-length buyers.

Ultimately, it’s about defining the core value proposition. In years past, this was a bundled set of things that constituted the promise delivered by a brand. Nowadays, that promise is contingent upon the individual pieces paid for by a consumer. There is no single proposition. It’s a conditional proposition, defined by whatever configuration of things a consumer pays for.

In effect, fee-based pricing means there is no brand, because every configuration is a different experience. There is a thing bought and sold, but no longer just one thing. This is the puzzle to me—what is the brand.

I don’t have the answer. I just know that today’s regime of fee-based pricing gives people more of a feeling of being nickeled-and-dimed than of being treated like a million bucks. Which sure seems like a market opportunity to me.

Contributed to Branding Strategy Insider By Walker Smith, Chief Knowledge Officer, Brand & Marketing at Kantar

At The Blake Project, we help clients worldwide, in all stages of development, define and articulate what makes them competitive and valuable. Please email us to learn how we can help you compete differently.

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“… soaring sales of Popov Vodka and Majorska Vodka … at $9.49  and $7.99 a bottle … these are vodkas that languished for years next to the Grey Goose and Chopin … at $36 plus,” The New York Times.

“The consumer’s new mantra is value,” Financial Times.

The Wall Street Journal also reported that a consumer proudly showed off a bottom round roast she had found in the meat case of her Costco that was marked down to $7.21 from $18.26. Costco is not about buying cheap; it is about buying smart. After all, as Taco Bell would say, “Why pay more?”

Sound familiar?

All four of these statements are from 2009. Today, consumers are falling back on shopping behaviors developed fifteen years ago. Many of these consumers are copying behaviors observed when they were kids.

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But, let’s be real.

“Smart shopping” has been around for a very long time. Wal-Mart and Costco were not born last year. Tesco in the UK did not just appear on the scene yesterday. Private label growth has been increasing for a long time. At Aldi, 95% of the goods in the stores are Aldi’s own brand.

This is what is happening: the current economy is once again putting a magnifying glass on the long-term importance of price-value. As Walmart just reported to Bloomberg BusinessWeek, “We are seeing that the consumer continues to be discerning, choiceful, value-seeking.” As CNN reported, “… shoppers are looking for deals after years of higher prices and interest rates and now a slowing job market. Although inflation has fallen to its lowest level in three years, Americans are still paying more than they were for groceries, housing and many goods.”

Consumers continue to be more informed, more demanding, more quality conscious, more convenience conscious, more environmentally conscious, more value conscious, more price conscious and, now, more price-sensitive than ever.

Online, CNN stated that, “… consumer spending, the backbone of America’s economy, is still resilient. Consumers are just being more selective about what they buy and where they shop.”

Frugal Is Fashionable

In the flight to frugality, consumers are moving from conspicuous consumption to careful consumption; from status conscious shopping to conscientious shopping.  This careful, conscientious consumption is not confined to those strapped for cash. Walmart states that “In particular, wealthier shoppers have been a meaningful driver as they search for deals, too.”

Reporting indicates that higher-income shoppers represented most of Walmart’s market share gains. With an emphasis on online, spruced-up stores and its new own-brand, bettergoods, Yahoo Finance indicated that Walmart intends to keep these “… higher-income households by making shoppers think, ‘Hey! This is not the Walmart from 10-15 years ago.’”

Walmart continues to be a haven for shoppers seeking “a broad assortment of items and services.” As one analyst said, “The only place anyone is shopping right now is Amazon, Walmart and Costco. Walmart does a great job focusing on value. Value has become more important. Structurally, they’re well positioned.”

Shoppers are focusing on affordable groceries and other essentials. Walmart kept its grocery prices flat. Shoppers noticed. This is where Walmart shines: mass affordability. Mass affordability makes frugal fashionable.

“Mass Affordability” represents opportunity for the savvy brand marketer and always has been a winning opportunity. It is a fundamental marketing truth that mass affordability wins.

• Henry Ford made automotive transportation affordable.
• Sam Walton made retail purchases affordable for the people in the small towns.
• Ray Kroc made eating out affordable. He even put the 15-cent price point on his sign.
• Bill Levitt, the founder of Levittown, made single-family homes affordable for everyone
• H&M made fashionable clothes affordable
• IKEA made stylish furniture affordable.
• Aldi competes with high quality, low priced items
• VW — the “people’s car” – an affordable reliable car for everyone
• Swatch made low priced, affordable, watches stylish.

These brands and others have focused on the relationship between price and value. It is called price-value for a reason. Price comes first in defining mass affordability. Brands that ignore affordability such as Disney or Starbucks find themselves in dire straits. Brands that spent the last four years raising prices are not feeling the pinch from consumers who are opting for lower priced options and high quality store brands.

Instead of asking “What do I want, can I afford it?” Consumers ask, “What can I afford? What am I willing to pay? What is the best value I can get at that price?” Price is the mass affordability decision gate.

Price is critical. The brand defines price. Price and value are not the same. The brand does not define value. Price, along with time and effort are costs that consumers factor into their value assessment of a branded product or service. Consumers define value. Value is the brand costs relative to the brand’s experience multiplied by trust. Price is just one of a brand’s costs.

Walmart knows this. Walmart understands that all consumers are value consumers, regardless of income. This is why Walmart offers branded value that amazes at prices that excite. Walmart understands that a price-value strategy is not just a tactical calendar of a series of price promotions. Walmart understands that value must be available all the time. Walmart understands fair value. But, instead, goes beyond fair value to amazing value. Amazing value is a great brand with its great branded experience at a great price. Amazing value is when a shopper says, “Wow! I didn’t think I could get this great value at this great price!”

At its most recent earnings call, Walmart reported that US comparable sales rose 42% in the last quarter compared with same quarter a year ago.

Walmart also indicated that consumers focus on groceries. But, its shoppers are also purchasing discretionary items. Walmart stated that its prices are generally lower than other retailers. “We know that they’re looking for value and their dollars are stretched, they’re focusing in on those things that are providing value for them,” CFO John David Rainey told Yahoo Finance. Walmart is perceived to be amazing value.

How can brands and brand businesses manage in a world where frugal is fashionable?

1. Create branded value that amazes at a price that excites. 

Offer value that amazes at a price that excites. In other words, “Great brand, great quality product, great branded experience and great price.” Do not cheapen the quality of the offer to meet the price. Value that amazes is a great brand providing unique, high quality at a price that excites. Branded value that amazes at a price that excites is irresistible.

2. Start with the price-point. Then, design distinctive value that amazes. The price must entice.

Engineer and innovate the offer. Design distinctive offers. Brand the price-point.

Make it a branded signature price-value offer. Own a price-point perception.

3. Create an Every Day Low Price strategy

Offer predictable prices. Have predictable offers.

Walmart is an EDLP retailer. According to The Wall Street Journal, Walmart is thriving. Rather than constantly dealing, Walmart is ensuring its perception as an affordable place to shop for all sort so items. Relative to its competitors, Walmart is an EDLPAV retailer: Every Day Low Price Amazing Value.

If a brand is offering deals, marketers should reduce deal-focused messaging to less than 20% of its expenditures.

4. The brand must be perceived to be value.

The entire brand’s offerings must be perceived as “value.” This means providing superior value at all price-points. Just having a few “value items” is not true value, it is voodoo value. Remember: every customer is a value customer. No one wants to purchase a “poor” value.

5. Change thinking from “profitability of the item” to “profitability of the customer visit”  

Margins are important, but an obsessive focus on item margins will marginalize the brand. Focus on the profitability of the visit and the business.

Price-value is the eye of the marketing storm. Having a strong brand, providing high quality, and getting the price right is the best way to be ready to weather anything and, not just for today, but for the times ahead.

Frugal is fashionable. Now is a great time for branded value that amazes at a price that excites. If this sounds like a cliché, it is because it is true: Great brand, great quality, at a great price will win. As Walmart told Bloomberg BusinessWeek, “They (people) want value.”

Contributed to Branding Strategy Insider by: Joan Kiddon, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I

At The Blake Project, we help clients worldwide, in all stages of development, define or redefine and articulate what makes them competitive at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education

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Consumers are saying “no” to over-priced brands and for good reason. There is increased pushback from customers who have just had it with continual price hikes. Brands such as McDonald’s, Target, Walgreen’s, McCormack, Applebee’s, Campbell’s and Kellogg’s are impacted by consumers’ reluctance to pay the exorbitant prices that these brands are charging. According to Adobe Analytics, and reported in Axios, low priced items are accounting for a significantly higher share of online unit sales in numerous product categories compared to five years ago.

Brands were successful during the ravages of Covid-19 because brands had good reasons for raising prices to cover the high costs of manufacturing, distributing and selling during a pandemic. Now, post-pandemic, consumers notice that prices continue to be higher. And, data from NewsNation reveal prices are 26% higher than pre-pandemic.

The pandemic allowed brands to become greedy and reliant on the increasingly higher prices. Fueled by their success during lock-downs, post-pandemic, brands continued to behave as if coronavirus still existed. Brands continued to raise prices, publicly stating that their consumers are so loyal, these consumers will continue to pay whatever brands cost. Brands boasted that their consumers would continue to bear the brunt of high prices helping to preserve brands’ margins.

Newspapers such as The Wall Street Journal and The New York Times report the current news of high prices as “because of coronavirus.” These prestigious reporters seem to forget their own reporting. Yes, there were price hikes due to the pandemic. But, those days are gone. Reporters cited CEOs and CFOs discussing margin preservation and multiple price hikes quarter-to-quarter. Reporters described the kudos from Wall Street when brands raised prices.

Reporters should be reporting on the singular worst behavior that brands adopted: falling into the arms of arrogance.

Arrogance. 

Arrogance is possibly one of the most destructive brand-business behaviors. And, so many of our favorite brands chose arrogance over deference, respect and esteem. These brands took their most avid customers for granted.

Nothing succeeds like success. Success is everybody’s aim; no one aims to lose. However, for some, nothing fuels arrogance more than success. Arrogance fosters an environment of “I can do no wrong.” Arrogance is at the core of the mind-set defined as “we will sell what we know how to make” rather than focusing on the customer-focused mind-set, “we will promise and deliver what customers want.” Or the mindset, “We will sell at the price we define” rather than “we will sell at the price customers perceive as value.”

In 2009, Jim Collins, the management and leadership guru, after studying success and failure, wrote, “When an enterprise becomes successful, it can cover up a lot of sins. It is not success that makes you vulnerable, it is when you respond to that success with arrogance.” He related arrogance to hubris, the great downfall within the Greek tragedies.

In an interview with The South Africa Star, Mr. Collins quoted a Classics professor’s definition of hubris, the ruin of many in Greek tragedies: that is, “an outrageous arrogance that inflicts suffering upon the innocent.” In contrast, Collins found that all the leaders he discussed in Good to Great displayed a common trait: a genuine humility about their success that Collins saw as “the real antithesis of arrogance.”

CEOs used to understand the perils of arrogance. CEOs understood that arrogance is a corporate killer.

In 1991, Pepsi CEO Wayne D. Calloway stated that arrogance was the single biggest reason people did not succeed at Pepsi. “He said that there is nothing wrong with having confidence, but arrogance is something else. Arrogance is the illegitimate child of confidence and pride. Arrogance is the idea that not only can you never miss [shooting] a duck, but no one else can ever hit one.” He said, “Arrogance is an insurmountable roadblock to success in a business where the ‘team’ is what counts. The flipside of arrogance is team-work, the ability to shine, to star, while working within the group.”

In 2015, Warren Buffet referred to business arrogance in his Berkshire Hathaway Annual Report letter to shareholders . He said, “It was arrogance, more than any other factor, that caused the banking crisis. In any area of life, arrogance is a damaging character defect, undermining interpersonal relationships, but in business it’s potentially lethal. A CEO who is arrogant will ignore the advice of col- leagues who may have a far better insight into risks threatening the company. That leads to bad decision-making, low corporate morale and loss of contact between senior management and employees. It destroys the culture of collegiality, of shared opinions and objectives that is crucial to the effective functioning of any organization. Once a CEO becomes isolated in a boardroom he has lost his ability to lead the company effectively.”

Arrogance is bad for business and bad for brands. Why? Because how you manage your brands is how you manage your business. When the CEOs of the Detroit automotive industry flew down to Washington, D.C., on private jets and then asked Congress for money (except Ford) to sustain their businesses, that was arrogance. Their stance affected their car brands’ perceptions as well as the perceptions of the brand Detroit and the brand “cars made in America.” When the CEOs of the U.S. cigarette brands stood in front of Congress and swore their brands were safe to use, even in the face of decades of data beginning with a landmark Surgeon General’s Report in 1964, that was arrogance.

Thinking that consumers will continue to buy your brands because you know best is arrogance. Thinking that consumers will buy your brands at any price you choose is arrogance. Thinking that consumers, no matter how loyal, will stick with your brand even if your brand is over 10% higher than a second choice brand or a store brand is arrogance.

Cereal brands continue to believe that consumers will wake up every morning and fill a bowl with sugared grains, no matter how high the price; that is arrogance.

And, thinking that consumers will continue to buy your brand because it is high quality and iconic rather than a high quality affordable store brand that tastes the same is arrogance. Food Industry Association data show 65% of shoppers choose store brands or private labels over big national food brands because of lower prices, according to a Wall Street Journal report. Research from Circana indicates that dollar sales of store brands increased 6% in 2023.

The Wall Street Journal reported on 20 categories of grocery items where store brands have out-powered national brands. Retail establishments have spent resources on ensuring that their store brands are credible, delicious, high quality alternatives to national brands. And, this strategy is paying off. So, thinking that just because your mustard brand is French’s will appeal to consumers at a high price while the store brand is perceived to be affordable quality that tastes the same as French’s is arrogance.

Brands see the same patterns in casual dining and fast food. Starbucks is perceived to be too higher priced. Analysts at Deutsche Bank report that, “Among the 45% of consumers buying less or no longer buying from Starbucks, the top reason was related to price, with 47% saying ‘it’s become too expensive.’” Apparently, the cost at Starbucks is “well above every other reason indicated.”

Dine Brands’ brands, Applebee’s and IHOP, are generating deals to attract customers who have been unwilling to pay the higher prices at these establishments. At an analyst meeting, Dine Brands said publicly that lower income diners were shunning Applebee’s and to a lesser extent, IHOP. To combat the decreased frequency and loss of diners, Applebee’s and IHOP are doing deals. Applebee’s is hoping that its deals will attract customers who will then order something else at the high price.

McDonald’s is also dealing. McDonald’s CEO echoed Dine Brands by saying that McDonald’s was losing its lower income customers. Even with the furor over the $5 meal deal only lasting for one month, Burger King copied the idea and started selling prior to McDonald’s rollout.  And, it did not help that the president of McDonald’s US publicly addressed the viral price issues plaguing McDonald’s by saying McDonald’s prices were not 50% higher but just 20%-21% higher.

Campbell Soup has put emphasis and resources behind its snack portfolio. Now, according to CEO Clouse, consumers are moving from Campbell’s expensive snacks to similar, less-expensive alternatives. The snacks division fell 2%for the last quarter according to The Wall Street Journal.

You do start to wonder on which planet these CEOs are living. It is as if these CEOs do not see the perils of their pricing policies.

First, price and value are not the same thing. The brand sets price but the customer perceives value. Consumers are saying that the value of the brand is not as high as the brand thinks. Price is a cost, as are time and effort. Cost is the denominator of a consumers’ value equation. The numerator is total brand experience. The higher the costs with the same brand experience, the less customer-perceived value. And, of course, there is trust.

Second, trust is a must. Once trust is busted, it takes time to rebuild. Consumers are not dumb. Consumers see that their favorite brands are the same, only price has changed and changed. In fact, consumers have been quite aware of the continual price hikes so brands can make more money (to protect profit margins and keep shareholders happy). Since trust is part of a brand’s value equation, losing trust greatly impacts brand value. Without brand value there is no shareholder value.

Third, deal loyalty is not the same as brand loyalty. Deals are nice and make money. But, deals attract deal loyal consumers who are loyal to a deal. Once the deal is gone, these customers are gone. They are leaving for the next deal. And, deal loyal customers are very price sensitive. Loyal customers are not. Brands need to be smarter by finding the best price for the brand and communicating, “Great brand at a great price” rather than “Great deal.”

Fourth, taking advantage of your loyal customers by continually raising prices is mismarketing at the highest level. Losing loyal customers affects profitability.  Data are clear on this. Over the past 2 years, brands have been shooting themselves in the pocketbook by raising prices.

Fifth, while brands were happily reporting huge profits to Wall Street, the competitive sets changed. Now, brands are facing serious high quality contenders challenging them for market share. Brands such as 365 (Whole Foods), Market Pantry by Target, Aldi, Great Value by Walmart, Kroeger Simple Truth and private Selection are high quality, affordable alternatives. It is not just price. Store brands have greatly improved quality. 

Sixth, focusing on satisfying analysts at the expense of customer satisfaction is death-wish marketing.

Not every brand is receiving the message that continually raising prices is bad brand business. According to The Wall Street Journal, Spotify “… is testing the loyalty of its customer base by raising prices for the second time this year as it aims to become more consistently profitable, sending shares higher in early trading.” Wall Street is probably the only entity other than the executive suite at Spotify who think this is a good idea. It appears that Spotify continues to promise Wall Street that it will be more predictable in profitability.

And, even as the leader in its category, adding millions of subscribers, Spotify still needs to increase profits. Spotify sees the only way to satisfy Wall Street is to dissatisfy customers. Focusing on shareholders at the expense of customers is another tendency for trouble and that tendency for trouble is wrapped tightly around Spotify. The risk of losing customers, especially loyal ones is high when a brand sees its analysts as tis customers.

Seventh, offering discounts at the expense of the brand promise and provenance can be deadly.

Do not stray from the brand’s promise and provenance. Revitalize but do not ditch what your brand means to customers. Some brands like Starbucks never had value in its promise .

“There is a difference between putting a deal out there and how it relates to the totality of the brand,” said Todd Sussman, chief strategy officer at FCB New York told Ad Age. “Creative done right can make value part of a brand’s story and not just a reaction to the economic times. You should be reacting, but in a way that does not discount the brand … You need to have a higher empathy for the moment and not just give a deal, but a value exchange. Consumers don’t want to feel like you’re giving them a handout.”

Peter Drucker, the respected management guru, once said, “The purpose of business is to create a customer.” Losing customer focus is a certain path to trouble. The future will belong to customer-focused businesses that are best at attracting and retaining customers resulting in sustainable, profitable share growth.

As for brands that are finally seeing the results of their bad behavior, it will take more than deals to drive enduring profitable growth.

Avoiding arrogance takes character and effort on the part of leaders. It is a test of true great leadership to fight the inclination of focusing on oneself rather than the brand and its customers. The leader who creates a ego-trip culture of arrogance, letting success go to the head, is a leader who is more committed to self than to brand. There are perils to arrogance. Some brands are feeling the pressure now. Brand responses of deals and a race to the price-bottom will probably not be the answer.

Contributed to Branding Strategy Insider by: Larry Light, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I

At The Blake Project, we help clients from around the world, in all stages of development, define and articulate what makes them competitive and valuable at critical moments of change. Please email us to learn how we can help you compete differently.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

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