Holidays 2008: Price Cuts Eroded Value

futurelab default header

by: Jonathan Salem Baskin

Frugality is a tough lifestyle choice to monetize.

Of course, people still needed to buy stuff to give to one another in celebration of the holiday of their choice. Products and services were still required to support the ongoing habits of eating, traveling, entertaining, etc. Consumers still consumed.

Only it was different this holiday season: folks bought different, and lots of them bought less. And, while many manufacturers saw it coming, and tried to restructure their marketing to trump value, the most common response was to cut prices.

I think the latter trumped the former.

The utility of, say, toothpaste is pretty much beyond question. Every human being walking the planet right now needs to own a tube, or two, and has little excuse for not using it up with some degree of regularity. Toothpaste is not a complex concoction (or it doesn’t seem so); dentifrice, combined with a flavor and the odd ingredients that show up as filler in everything from hamburger buns to floor polish and, voila! You’ve got a product.

The differences between the dozens of brands of toothpaste from which consumers can choose? Branding, mostly. One name, and/or package design, is supposed to connote meaning that is different from the others (and, embedded in that thought, relevance, utility and, yes, value). Many millions of marketing dollars are spent telling us so, and retail pricing has some elasticity, so manufacturers can choose to charge consumers different prices, depending in large part on the ethereal presumptions of the brand strategists.

Only now, price matters…not as an absolute (well, not completely), but as a denominator of ratios of value. And against those imagined differences in toothpaste brands, it tends to reduce the numerator of brand benefit to just about zero.

So cutting prices didn’t matter. Zero divided by a smaller number is still zero. This emerged as a truism for stuff ranging from economy to luxury: when Chanel kicked-off the October with an 8% or more price cut, it didn’t offer more "value" to consumers as much as remove the "luxury tax" it normally charged for its products. Being charged less is not the same as getting more

Apply the same phenomenon to the other products and services marketed this year — especially those positioned as gift-worthy — and I think you get a model for what happened to brand names during holidays 2008. Consumers felt compelled to check for value, and no amount of price slashing could create it (but, rather, it revealed the lack of brand equity).

Worse, I wonder if the realizations will be long-lasting? Will consumers readily forget that they saw the reality behind all of the marvelous marketing, brand positioning, and other detritus of manipulation?

The general consensus during conversations I had at various holiday parties was a resounding yes. We’re entering a new era of consumption, in which people will still buy and use products (obviously), but will do so for different reasons. Decision-making will be based on new criteria that depends far more on actual, real utility, relevance, and true measures of value…and less on the imagined benefits of branding. 

People will still buy. We just have to come to terms with finding better ways to sell. And cutting prices isn’t one of them.

Original Post: