Monday, October 17, 2005

Chosing a Value Position for a Brand

NOTE: This is the third part of the series on product positioning. Read the earlier part-1 on developing a brand position, and part-2 on developing a specific brand position before reading this

Value position refers to the value(for money) the brand promises to the customer. Customers think of value in terms of price and what they get for their money. So Value positioning is all about setting the selling price for the branded product.

The value position for any product can be categorized into four broad categories.
  1. Premium Product position
  2. Value for money position
  3. Discount pricing position
  4. "Got you sucker" position

Premium Product Position

Companies that make upscale products or top-of-the line products use premium position. These products are priced much higher than the competition. These products are definitely superior than their competition, they can command a premium price. Also customers associate a superior product with a higher price, they don’t mind paying a high price. For example, Starbucks coffee commands a 250% premium over other coffee. Tiffany’s jewelry, Dillards etc. Enjoy a premium position.

Even in services, firms can create a premium segment. Banks, airlines, stock brokers, accounting agencies create a "Gold" class - a premium service category for high value customers. In IT services or high tech design services, there are firms which are positioned at a premium. Sarnoff labs, IBM, Synopsys design services command a premium price.
The risk of premium positioning is that they can be copied by competitors and offer the same quality product or service at a lower price. Company which is using premium positioning must always be on guard to protect the brand’s premium; either through constant innovation (IBM) or by creating a mystic value (Tiffany’s) or by superior service (Banks & Airlines).

Value for Money Position

This is the most common positioning category. Most firms position their products to offer great value for their customers. Companies can choose either "Same (as premium product) for less price" or "More (of the product) for the same price" pricing strategy.

More for the same price is often used at high end products which have superior product attributes but is priced on par with competition. For example, Lexus positions its cars at the same price point as Mercedes but offers a lot more features. AMD positioned Opteron CPU’s in the value segment when compared to Intel’s Xeon. Similarly, Dell positioned in Xeon based servers as value for money when compared to Sun’s UltraSparc server.

"Same for less price" positioning is possible if a firm can profitably deliver its products which are on par with that of the premium products from the competitors at a price that is lower than that of the premium priced product. The key word is "profitably", i.e., the firm should be able to deliver a high end product at a lower price.

For example, Samsung positions its TVs to be same as SONY, but at a lower price. Indian Software firms, Infosys, TCS, and Wipro were able to win market share from their US competitors by using "Same for less price" positioning.

In a commodity product, where a product from one company cannot be differentiated with the other, firms try to use "Same for less price" positioning. The danger of this strategy is that it may (in many cases will) lead to price wars which will affect all the firms. To be successful, a firm has to create a strong brand differentiation and then select the pricing strategy.

Discount pricing position

Discount pricing position refers to offering a same product at a lower price. For example, Walmart sells the same TV’s at a price lower than that at Circuit City. - an online retailer of camera’s sells the same camera at a price much lower than that of Sears.
In recent times, discount stores have come up in every product category. Discount stores operate with very low overheads, use their bargain power to negotiate a lower price from the suppliers/manufacturers and pass on some of the savings to the customer.

"Got you sucker" position

This is "Less for More money" positioning. Companies which enjoy a near monopoly in their markets use this position to maximize their profits. Customers feel cheated but have little choice, so they accept what they get reluctantly, and at the first chance migrate to the competitor.

This is more prevalent in socialistic countries such as former Soviet Union, China, India and in war torn regions where there is critical shortage of a particular good. For Example, a liter of petrol in Afghanistan in 2004 was approximately $3-4, which is several times higher than the international rates. Telephone service in India in 1980’s was ~10 times costlier than that in the US.

Firms also adapt Less for More money" positioning when demand for a product/service far exceeds the supply. For example, the hotel rates in Houston went up several times when Hurricane Katrina struck New Orleans. The retail gas prices went up 50% at the same time as well.

Closing Thoughts

All brands will have to adapt a value position based on the market segment it wants to cater to. A premium positioning will attract one set of customers, a discount positioning will attract another set of customers. These sets of customers will usually be mutually exclusive. Trying to position the same product in more than one value segment will confuse the customer and the brand will fail and disappear from the market. Value positioning is driven by a lot of factors such as: internal costs, competitive pricing, market segments, firm’s profitability etc., and must be carefully chosen.

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