Wednesday, May 27, 2009

Q3 09 is the real test of price over value


Most US businesses wrote off the first quarter of '09. For some it was weak, for others it was horrible. By comparison Q2 for many was better. Not much better but better nevertheless. The real test will come in Q3. By Q3 they will have sold all the discounted inventory and will be trying to sell full priced products. For this to succeed we are going to have to see a shift in buyer behavior. Right now buyers have got used to discounts both at the consumer and B2B level, to the point where they struggle to make purchases of products they actually need unless there is some steep discount applied. This won't be helped by the fact that there will still be businesses in Q3 who are making sales just to keep themselves alive and not necessarily to make a profit. These businesses will continue to offer discounts even though it is only a matter of time before they go bankrupt. In the process they will create the impression that prices remain low. It is only once buyers start looking beyond price that things will really change. Price is after all a horrible metric for a product or service. We all know there is an implied link between price and quality. If high quality products continue to be sold at low prices it does lasting damage to markets. I read earlier in the week how high price hotel operators such as Four Seasons are keeping prices high so they don't do lasting damage to their brand, even though bookings are way down. This requires a great deal of nerve. They are also hoping that people don't try another chain that is offering discounts and end up staying with them. If high price products are heavily discounted it is hard to get people to pay a full price again. This is one reason the likes of Tiffanys don't want to see their products on places like eBay even in the good times. Right now consumers and business decision makers are being surrounded by price driven messaging rather than value driven messaging. Of course most companies don't want to play on price but once one significant player does, they all have to and then it's a fight to the bottom. This is where PR can play a big role in helping the economy. Getting buyers to appreciate the full value of a product or service and its brand are central to any turnaround. I know some will argue that there are other major factors such as consumer confidence. They'd be right but I'd argue that consumer confidence isn't something that even large companies can do a great deal to affect. The government has a huge role to play here and is why Obama has made such a big bet with his stimulus package. So when you are advising clients, do remember that campaigns that address the entire value proposition of a product, or service, is what this economy needs. That's true whether you are trying to help a client sell a system that costs millions, or a $500 net book.

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