24 Aug 2020 20:59 IST

Why brands need to compete on value, not price

In uncertain times, all consumers want is best value for their money no matter what the price point is

Levi Strauss, the 167-year-old denim jeans company, is accelerating its brand strategy to meet changing retail habits. This revered brand has a great deal of insight to do so, as many retail businesses are coping or are facing distress. Levi Strauss & Co has numerous plans that converge on how we will be shopping from now on into the future. As with other retailers, the ongoing pandemic has hastened the implementation of these strategies.

Our notions have changed and retailers must focus on our varied perceptions of value. They must appreciate the fact that value-seekers are not just a market segment. Everyone seeks value but different people just value different things.

In a recent interview, Levi Strauss’ CFO Harmit Singh spoke about the brand’s clothing lines and the pricing variations between third-party retailers (Lifestyle, for example) and its direct-to-consumer sales. He said, “If you consider the merchandise, there’s a better product and the best product. The good product is blue jeans for about ₹2,500. The better product is anywhere between ₹4,000 and ₹6,000. And the best product is upward of that. Wholesale is considerably a good product-market. However, our direct-to-consumer business is more of a better and best product.”

Perils of a Good-Better-Best Strategy

A good-better-best price strategy can be a gloom and doom marketing approach. It can kill the most incredible brand strategies because a good-better-best price strategy is about price and not about value. Price segmentation is a manufacturer’s proposition, whereas customers decide the value. For example, the lowest price tier is meant to appeal to a ‘price-conscious’ consumer. While the ramification of the highest price tier intrigues the one who cares only about price.

Price segmentation is a risky strategy although it is easy to manage and interpret. Sometimes the price points are assigned with names such as mid-market, upmarket, and premium. The automotive industry is exceptional at this: entry-level, mid-range, mid-luxury, luxury, and premium. Labels such as these make no sense from the standpoint of customers. The best method is to create pricing strategies that are focused on the customer's perceived value. Building by price point augments the misconception that marketing is all about price. It confuses price and value.

It is an unpropitious occurrence that the word 'value' is becoming synonymous with ‘price’. However, some brands say that they focus on their low-price ‘value brands’ for the so-called ‘value-conscious’ consumers. For example, BMW buyers believe that they purchased a good value for their needs. Likewise, Hyundai buyers also feel that they purchased a good value. For some of us, in a particular situation feel that a glass of Pinot blanc is the best value while for others, in a different circumstance a glass of Dom Perignon is the best value.

All of us are value-conscious, and this holds true for those who pay super-premium prices. People value various things for distinct needs in varying situations. What price-point strategies fail to take into account is the fact that all of us want to think we have purchased the best value for our specific needs in a certain circumstance within the set of brands we can afford.

Threat of price-focused strategy

A price focus demeans the brand. However, it is the price management that sets the platform for third-party e-commerce channels that sort brands by price from low to high within a set of classifications without regard for brand differentiation. For example, portals like MakeMyTrip lead to the unintended consequence of brand commoditisation driven by price-focused segmentation.

Segmentation based on price is not a customer-centric approach. Customer-centricity begins by focusing on situation-based needs and not merely on price. The question one would ask is "which brand guarantees to deliver the best value to satisfy my needs". In this case, value is in the eyes of the customer.

Levi Strauss’ CFO prudently indicates that they understand their customers' distinct needs. Customers always necessitate positive brand experiences that they value. This is the sole reason why Levi Strauss is trying to retain as many brick and mortar establishments as possible. Their strategy is to implement a needs-based segmentation approach through efficient channel management.

Levi Strauss has this exceptional hybrid strategy that addresses the brick and mortar store sales, direct online orders from a brick and mortar store, and wholesale to other retailers such as Lifestyle, Shoppers Stop and Globus. However, every price point must be of great value because it puts a value on what you sell for the entire world to see. In these uncertain times, all we want is the best value for our money no matter what the price point is.