We may be post-recession, but there are some societal attitudes that seem to have stuck. Especially in the way we consider goods and services in the value-tier of consumer categories.
It’s a trend that’s turning up more and more in the briefs we’re getting in from clients. There’s a change in the dynamics of price, and consumer’s perception of value, and it’s squeezing business models that traditionally profited in the cushy mid-tier.
We are seeing a new breed of brands implementing experience-led brand strategies for a price on par with more traditional value players. Strategies that were previously only seen in more premium price ranges. The mid-tier is feeling the squeeze and the value-tier is profiting.
Price is fixed, perception is not
Our message to clients navigating the changes in ‘new value’ has been simple: ‘assume price is fixed but perception is variable’. Implementing this strategy creates interesting opportunities in the value-tier. With a clear position on price (parity with competitors) it reframes the brand & product development exercise to one where we aim to maximise perception. No longer ‘less for less’ but ‘more for the same’. This change in perspective allows innovation exercises to be directed into making the brand experience unique and differentiated. No longer are we cutting things out to create value, we’re adding in as much as possible.
When Target targeted Walmart
The origins of this approach existed before the credit crunch. U.S retailer Target provides an early case study, when in the late 90s it implemented an ‘Upscale Discounting’ strategy providing style, quality and prices on par with the likes of WalMart and Kmart. A good short write-up of this approach can be read here.
More recently, the re-release of the Fiat 500 and its retro-Italian, fashion inspired brand image, saw the classic Italian style icon become one of the fastest selling cars in the U.S and Europe in 2011-12. Yes, car buyers were looking for more economical transport options during the recession, but Fiat’s positioning of the 500 went against the tide of the small car segment. It provided a stark contrast to the offers of other European competitors such as the VW Polo.
Picture a VW Polo, it looks very similar to a VW Golf right? But, not as good-looking, powerful or feature rich as a Golf. When I purchase a Polo my perception is that it’s ‘not-quite-as-good’ as a Golf. Alternatively, for a price on par with the entry level Polo, I can make a bold and individual statement with the Fiat 500; a brand that celebrates my choice to own a small (cheap) car.
The same differences can be seen in value-tier of airlines. Go back a few years and contrast the service experience of Ryanair with ‘Generation EasyJet’. As one airline continued to strip out cost, the other introduced mid-tier quality customer service and expanded into the business travel segment. While one made more profit (Ryanair), the other’s share price increased significantly (Easyjet). In 2013 Ryanair was forced to acknowledge the effect of EasyJet’s success, by introducing a number of customer friendly service initiatives.
For brands or businesses seeking to differentiate in the value-tier, or reposition into it from a squeezed middle, the way forward is becoming quite clear. The rules of engagement with the value consumer have changed. The lower price segment in any category is no longer just where tired, old brands go to die…It can also be where established brands rethink the relationship between price and perception, carve out market share and sales volume, whilst connecting with a generation of value consumers who are very much here to stay.
