CFO Sharon Naidoo asks why organisations are falling into price wars instead of trusting their brand value.
A fatal flaw of having a CFO as a mum is shopping is never just shopping… It is always a trade visit, which entails standing in front of aisles, talking about the do’s and don'ts of trade marketing, share of voice, imports vs. locally manufactured, pricing vs. brand and margin vs. volume.
And my question is when have we stopped believing in our brand, when have we stopped connecting with our consumers and why is aggressive discounting the only trick in the bag? Why are we falling into price wars with house brands and imports from other emerging markets? Or has the value and quality of imports and house brands improved so significantly that consumers are completely indifferent to any factor except price?
Market and category leaders have always been able to command premium pricing over house and generic brands in the range of about 15 percent to 25 percent, industry dependent. The mark-up is due to superior quality, innovative manufacturing techniques, innovative products, differentiated consumer experience, and eco-friendly or sustainable sourcing with the incremental margins being re-invested into research and development for a future pipeline of new product development.
My question is, how many of us have a pricing strategy that merely talks to discounting and CPI linked escalations?
Here is my list to provoke the conversations cross-functionally through healthy and robust dialogue:
Define you
A brand is a persona, with values, beliefs, a soul – a brand inspires a feeling and an emotional connection with its consumers. A brand stands for something and that something creates the bond with all who consume it.
Should this not be defined, the brand becomes a John Doe, it loses the ability to connect and thus becomes a nobody – lost in a lot of maybes and somebodys. Consumers drop off, the marketing voice is lost or noisy and the leader quickly becomes the follower in a frenzy of pricing wars, trying to recover volume at the loss of margin and brand reputation.
Believe in your brand
Aggressive discounting does not require a talented sales force. The role of the sales team is to walk the walk and talk the talk of the brand! That is what the consumer wants to invest in, that is what inspires the loyalty of the consumers and most of all opens the wallet!
If we walk in and start pleading, begging and offering crazy discounts with the kitchen sink included, this creates a feeling of mistrust and resentment. Mistrust because the question is why the discounting is so aggressive: has the standard of the product dropped? Are cheaper quality raw materials being used?
Resentment builds because customers/ consumers have paid a premium for many years, they feel robbed or that the discounting means that you have stopped believing and now you have robbed them of a competitive edge. At the end of the day Brand = High Margin, Category Followers = High Volume and both volume and margin growth can be achieved through segmentation and targeting, without the need for default discounting.
Connect with your consumer
This is crucial. Consumers connect with their chosen brands through emotions, feelings and aspirational milestones in their life journeys. If we don’t visualise those dreams, lifestyle, career or aspirations, if we don’t share those stolen moments of pleasure, joy, celebration or tears we are not on their journeys. Out of mind, out of sight, out of the money!
Speed date your go-to-market partners
Herein lies the power and we overlook this so often due to time, detailed analytics, stakeholder engagement, commercial contacting, negotiating and signing! But once done, this drives partnership, inspires loyalty and delivers margin growth, a true win-win relationship.
All partners are not equal, as all brands are not equal. We should reward partners that prioritise your brand and are not merely there to extract the cash and run. Partnership rewards could be exclusive access to innovative solutions/products, preferential tiered commercial arrangements, differentiated training and development for the partner’s sales force, BI tools and information to drive bottom line profit, exclusive incentives and rewards, etc. Create healthy and constructive competition among your partners.
Eat a balanced diet (segment & target your offering)
This is as simple as not selling everything to everyone in every way, i.e., creating access while not being accessible. A key way to measure success here is volume vs. pricing growth and further stripping out the CPI growth.
CPI growth is annuity revenue that is contractual, hence it is already banked! Understand the weighted average of the portfolio growing through volume, and that growing through margin – which should be your innovation. Build the consumer/customer offering through those insights. This is the relationship of FP&A, marketing and sales. This commercial forum must never work in silos and the constructive, healthy debate here will yield the results – knowing what to sell, to whom and at what price!
Share of voice, share of shelf, share of wallet and make a noise!
While marketing budgets may be limited and the split and probably a larger portion is dedicated to trade marketing vs brand awareness, I personally feel both can be accomplished simultaneously.
Be and go where your consumers are. Measure the conversion rates and navigate and tweak the journey to deliver the revenue. Be intentful and impactful: “intentful”, meaning why am I here in this campaign or on this media platform, or on this billboard, etc? “Impactful” means, am I driving the consumer wins intended? In this way you bank every buck spent! Measure conversion.
Every time you aggressively discount, you rebase your entry/minimum price. That becomes your new price! I am looking forward to my next trade visit and seeing the brand and category leaders starting to lead and differentiate themselves.
