Expensive Wine for $5.83 a bottle? Price can Define the True Value of a Brand.

The Wall Street Journal ran an offer for a sampler of 12 wines for $69.99 with the accompanying copy… “Delivered with $120 savings and FREE gifts.” So they revealed that the cost per bottle is $5.83, which I immediately equated to value. No, I didn’t bite, so I don’t know the labels they would have sent. But think about the mixed message. If the wine was so terrific, how could it be so cheap? Or is the wine not really worth that much in the first place. Was the original price inflated? In other words, price is another way to communicate and support the true value of a brand. And lowering price sends a brand-damaging message.

For many companies, off-price deals and discount offers have become part of the selling logic. Often called “priced-based selling”, the idea is that by reducing price, a company can attract more consumers, or at least retain existing customers. In recent surveys, about half of all consumers express that price is the most important factor in their buying decision. On a rationale basis, this is an expected result.

We get the inducement part, and frankly in tough economic times, we often respond to price because we have to. But what marketers haven’t calculated, over the longer term, is the impact of lower price offers on how consumers perceive the true value of a brand. Think of it as lowering brand equity.

I’ll give you a personal example. There is a shirt manufacturer brand that sells high quality (I thought), relatively high-priced dress shirts. They recently created an e-campaign to offer their $70 basic white shirts for $19.99. Terrific deal. I immediately bought a couple of dress shirts. After one wearing and a clean and fold by my local cleaners, I put them in the drawer right next to some of my other lesser priced shirts. As I opened the drawer the other day, I realized, visually and metaphorically, that both shirts were essentially the same. In other words, the brand name of the expensive shirts didn’t hold the same value once the price was reduced to the same as the others and I was able to make a direct comparison.┬áThe message here is that price is an important component in brand positioning and perception. There are plenty of ways to induce trial without bringing price down to such a low level that it diminishes how consumers perceive quality. And the risks of offering products at an unbelievably low price is that we become unbelievers. All of that brand equity simply erodes. And building it back is very hard to do.

There are many examples of companies that understand this and simply won’t relent on price. Apple has always sold products at a premium, and built, over time, and enormously loyal franchise at much higher margins than competitors. Think of other brands that have not significantly compromised price, like Mercedes or UGGs or Coach.

So what smart marketers should be trying to understand is the relationship of price to brand equity. Short-term knee jerk reactions to lowering price can have long-term value consequences.

What brands can you think of that have sustained their price level and not succumbed to brand-eroding price cuts?