Tuesday, 7 October 2008

Gillette Fusion and Pricing

Premium brands and products dont have the choice of ever lowering their prices.

Gillette Sharpens Its Pitch for Expensive RazorWe picked up this article in the Wall Street Journal on Gillette and its battle to maintain the premium price of its Fusion shaving system in these troubled economic times. http://online.wsj.com/article/SB122325275682206367.html?mod=rss_media_and_marketing
For a few months now we have been struggling to write on pricing and this article is an appropriate place to start. Here’s a brand that’s keeping its pricing and not trying to blame raw materials for an increase or the poor economy for a decrease.

As marketers, we love very deeply the Pricing “P” of the four Ps. It’s the most elegant and decisive proof of a successful marketing plan. Pricing is the most potent signal of how much a marketing team values its own offer to the consumer. It’s a key differentiator in any market.

Most companies leave pricing to the finance team. No way. Marketing does not exist if the pricing is not under the control of the Marketing Manager.

Well, here’s our take on pricing:

1. In our view, you never drop price on a product unless you accept that your value proposition for consumers has dissolved. (Note: this is not always a bad thing in itself. Most outdated technology based products cut price because new technology offers a better value proposition.)

2. Reducing prices to gain volumes and market share is a no-no. Reducing prices to protect against emerging competition is a bigger no-no.

3. On the other hand, price increases is an equally contentious subjects to us. Most companies in the past few months have raised prices on account of “raw material price increases.” Crap!

Crap, because raw material prices are now decreasing, but no one is reducing prices. So it appears that raw material based price increases are only crutches for a marketing team lame on good ideas and a company lame on good products.

Increase prices if you believe you have increased value. If you are following raw material prices in your pricing strategy, make sure you REALLY follow it. In both directions.

4. Essentially, you launch a product at a price point. You maintain it. If you’re creating strong demand, you will have the opportunity to raise prices. However, if entry barriers are low, high margins will attract other competitors. Then either you look for more differentiation to justify high prices (this is good and the basis of all marketing) or you drop prices (which takes us to point 2).

Coming back to Gillette. By not reducing prices of its Fusion shaving system blades, what is Gillette signalling to Venkat?

1. You Venkat, who bought the product for over a year at price X, need not feel that you were overcharged.
2. Because the economy is bad, does not mean our product is any worse.
3. Because the economy is bad, does not mean you, our customer shouldn’t have the best shave money can buy. You might as well stop buying toothpaste and chew on the bark of a “neem” tree.
4. You may choose not to buy the fusion. And we have a number of other products you could choose from. But when you’re feeling better, and think you’re ready to go back to the best, we’ll be waiting.

As a side note: another interesting “premium” brand Louis Vuitton has never had a price promotion (or any sales promotion) in its history. Never.

A price premium position takes years of R&D, marketing, sales efforts to develop.
Once you discount a brand, the expectation of future discounts will always remain. You will never again be completely trusted. There is no way to calculate the current value of these future discounts when taking a price reduction decision.

So Gillette, we salute you. Venkat may not buy a fusion blade for a while, but he will again, one day.

However, Gillette we pick fault with your advertising approach at this time. Your communication now is “In the world of high-performance, what machine can you run for as little as a dollar a week?” Why try to play down your price?

Premium products should never walk that path. Premium products charge a premium for an outstanding product experience. Period.

We would have focused the Gillette ad on the best shave a man can get.
“Sure the world’s looking pretty bleak now… even more reason you pamper yourself in the small ways that you can.”

Ritu and Venkat

1 comment:

Anonymous said...

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