Posted by: Chris | February 5, 2008

Pricing, Positioning, and Recession

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Again people, I’m really not out there searching for this stuff. Well, unless you consider daily reading of my regular blog subscriptions “searching.”

Drew McLellan writes today about his concerns over a strategy many retailers are considering amid rumors of a recession. As he introduces the topic, Drew points out that “perception is reality,” and the existence of a true recession is only a secondary concern. Of primary concern is the consumer’s belief that it is already here, or at least impending. I completely agree with this, but I really want to point out Drew’s comments about pricing and its relationship to positioning. Drew says it best, so I’ll simply quote him:

“Are you the product or service that’s all about being cheap? Are you ready to live with that new brand position far beyond the recession?
A low price strategy is one that’s easy to slip on and incredibly difficult to shrug off, once the economy turns around. Consumers tend to really wrap their arms around a low price position and they aren’t likely to be happy about going back to paying full price.
If your brand is not about price — adopting a low price strategy is probably going to damage the work you’ve already done.
A recession is the time to be even more diligent about protecting your brand by staying consistent. If you weren’t a bargain basement brand a year ago, you should think long and hard before becoming one today.”

Take a minute to read Drew’s entire post here.

Consider what happens when a company decides to discontinue (or lower) a dividend. This is rarely well received by investors because they become addicted to it so easily (even though it is generally already figured into the price of the stock-a debate for another time), and its provision, which is obviously never a guarantee, suddenly becomes an investment expectation. People become indignant because they based their retirement on a regular (unpromised) dividend. The same principle applies with the lowering of prices. It changes the dynamic of the company and consequently, the expectations of its customers (read: a company’s position). If the company does try to ride out the low-price wave, commoditization (and razor thin margins) is just around the corner.

It’s what I’ve been saying for the past week. Check out my previous posts on the issue and chime in. I want to hear other peoples’ thoughts on Starbucks’ $1 coffee, pricing and positioning, and low-price strategies and recession. Come on Kristi, I know how you feel about Starbucks.

Does $1 coffee help or hurt the Starbucks brand? Maybe it has no effect on it whatsoever! Click here to submit your vote on the issue.

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Responses

  1. Chris,

    Thanks for the nod. You are absolutely right. This is one of the biggest issues facing business owners and marketing depts today.

    It’s so tempting to react to the short term economic tightening (and fear) that’s going on out there. Let’s face it, when you own a retail store and are sitting there, twiddling your thumbs and sweating how you are going to feed your family — price reductions sound very good.

    That’s why branding is absolutely the #1 marketing tool small businesses need to embrace. When you have a rock solid understanding of your brand — you know what your pricing strategy should be and it’s much easier to hold the line when everything around you is chaos.

    Drew

  2. […] It is an aspect of marketing whose direct tie is not to sales, but to that nebulous area of positioning (an area that falls into my “true marketing” […]


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