The Homa Files

Excerpted from The Boston Consulting Group, “Premium Margins from Value Brands”, by  Rolf Bixner, Holger Gottstein, Sharon Marcil, and Just Schurmann, September 2007

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Most companies have found that succeeding with brands in both the value and premium segments without inviting cannibalization can be a tricky balancing act.

To increase sales of their value brands, some companies add features without increasing price–tempting consumers of the premium brand to trade down to the value brand.  The lower-priced, lower-margin brand cannibalizes the higher-priced, higher-margin product, and profits go out the window.

Other companies eliminate features from their value brands in order to attract customers with a lower price–putting these products in competition with generic or private-label products, which often have advantageous cost structures.  The result is a loss of profitability for the value brand.

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Consumers seek a particular combination of price and features.  Value-brand customers are interested in and willing to pay for only a very limited set of product features (“primary features”).  Benefits that fall outside this category (“secondary features”) are not, to a value-seeking consumer, worth the price, no matter how desirable they may be to others. Yet those secondary features are very important to primary-brand consumers who are willing to pay for them.

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To redesign value brands:

1. Identify the features that value-consumers care about the most and shed the others that add to both the costs and price without providing substantial benefit.

2. Add an “extra portion” of the qualities provided by the primary features

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Example:

With personal vehicles, value-conscious consumers prefer extra safety features and good mileage to many of the bells and whistles that drive up cost.

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More is not necessarily better, and sometimes it can be worse. It is the quality of the primary features that attracts the value seeker, not the total number of features.

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Edit by DAF

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Full Article:
http://www.bcg.com/impact_expertise/publications/files/Premium_Margins_Sept_2007.pdf

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This entry was posted on September 25, 2008 at 7:00 am and is filed under Mktg - Pricing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.