Recent research found that 60% of retailers view higher margins as a top priority. This may not be surprising for retailers, or perhaps any business, given how tight margins are in 2018, and the direct relationship between margins and profitability. The question remains, however, how do businesses increase their margins? One option is to cut costs and another is to increase prices. This is the third of five thoughts addressing the latter.
Increasing prices is easier when value is added. Indeed, adding value to product A makes it a slightly different product and, therefore, more difficult to compare with products B, C, and D. It has often been said, and with some evidential support, that price really only matters when all else is equal.
Building a brand and adding value has often been found to facilitate higher prices and result in higher margins. That is why 38% of all smart phones in the world are iPhones, despite the fact that: a) the iPhone costs approximately $200 more than the equivalent Samsung; and b) very few iPhone purchasers can articulate what they believe to be superior about the Apple product.
Research completed in 2017 found that 40% of people are more inclined to purchase a product and potentially pay more for it if they believe that the brand shares their values. This finding is entirely consistent with the proposition in Roy Spence’s book – ‘It’s not what you sell but what you stand for’.
Branding adds value to a product. It potentially turns a commodity into a valued purchase. Branding adds value to a product by embracing both the tangible and intangible. Branding enhances the capacity to maximise margins.
This is perhaps best reflected in brands that seemingly ‘become’ the product category, for example, iPad, Hoover, Biro, and Google. This effect is even more accentuated when the name of the brand evolves into a verb, such as – ‘do the Hoovering’ or ‘let’s Google it’. These brands come to define the product category, which enhances their capacity to attract a premium price.
Branding can also add value by delivering greater certainty (that the product will deliver), variety (range of options), community (and community causes), connection (relationships with customers), significance (making the buyer feel important), and growth (assisting with personal development). Wherever value is added, a higher price might be justified.
This added value also helps to differentiate a product from the competition. It makes it difficult to compare, at least in terms of value.
Most consumers, on most occasions, buy value. Certainly, consumers seek value.
In 2018 – build a brand and add value
Every year – put the facts ahead of intuition and guesswork.
Sources of core statistics – Attitude Advisory, Wiser, MYOB, Entrepreneur, Huffpost, Help Scout, INC, Marketing Week, Insight Squared, CXL, WM, Psychology Today, Linked IN, MBA