The true value of a brand is defined not just by how much is sold, but also by how much it is sold for.
Sustainable growth requires marketers to focus on growing brand value not just sales, otherwise margins suffer, choking off future investment in innovation and marketing.
Last year, Millward Brown conducted a study in New Zealand to integrate attitudinal survey data with behavioral data from Colmar Brunton’s FlyBuys shopper panel for 13 consumer packaged goods brands and 810 respondents. This combined data set allows us to study the relationship between our Brand Premium metric, a perception based measure of a brand’s ability to justify a price premium relative to the category average, and volume bought and price paid for the same individual. (It is worth noting here that New Zealand is well known its high levels of competitive price promotion.)
So what did we find? The first finding is that attitudes are reflected in consumer behavior. Although most consumer goods shoppers are not loyal to one brand and buy from a repertoire, our evidence finds that people who choose based on brand first and price second typically pay more for the brands they buy than those that choose primarily on price. Moreover, if brand-driven shoppers were predicted to have a high Premium score for a brand, they paid 40% more on average for that brand than if they had a low Premium score. High Premium scores are driven by whether the consumer perceives a brand to be more meaningful and different than the alternatives.
Other shoppers, either because their budget is constrained or they genuinely believe that there is little difference between brands, choose primarily based on price. Even so, our analysis finds that price-driven shoppers will pay 16% more for brands that they perceived to be meaningfully different. The difference in price paid for a value brand might only a matter of a couple of percentage points for the cheapest brands, but that can still make a significant difference to the profit realized from the sale.
Unfortunately, if you have been involved in conversations with a buyer from Walmart, Tesco, or Lidl recently the conversation will remind you that while consumers might be willing to pay a premium for your brand, the retailer also needs to be convinced. Negotiations with the store buyer will undoubtedly involve how well your brand justifies its price premium versus close alternatives, like their own store brand. And never mind the retail selling price, what margin is the store going to get? And are you going to take that promotional slot? Because if not they know someone who will.
So marketers need to create a win, win, win. One where the consumer really believes that it is worth paying the price asked, the retailer is happy with their cut and you can grow sales without squeezing your own margin. The solution is to create meaningful innovation, be it in purpose, product, packaging or communication in order to bolster perceptions of meaningful differentiation.
Written by Nigel Hollis,Executive Vice President and Chief Global Analyst at Millward Brown