plus some thoughts on branding.
by ed mendlowitz
77 ways to wow!
my father’s largest client was a luggage manufacturer with a national brand sold in specialty luggage stores, but not in department stores.
more: the role of strategy in pricing | how to react to trends | trends are all around us | six kinds of loan covenants | what’s more profitable, raising or lowering prices?
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he did this because he wanted to maintain the selling price, did not want discounting and felt his customer base would be more loyal if they did not compete against the larger stores’ discounting policy. he was very successful and very profitable, but probably not as large as he could have been had he had the volume that department stores would have provided.
when my father died, i took over as the luggage manufacturer’s accountant, and my first day there we had lunch. he explained his pricing philosophy: he never gave discounts, but he did offer his customers a break while building up his sales in the slow months after christmas season by announcing a price increase for march 1, along with six-month dating on orders placed in january and february. he even agreed to hold the inventory and ship it when the store needed it. that way he always got his full markup, the stores got theirs, the stores had a full line to sell, but didn’t have to stock it until needed, and the perception of his product was as high-quality luggage because it was never discounted.
he then handed me the last five years of financial statements my father had prepared for him and told me that i seemed smart, so i should go through them and tell him how much richer he would have been had he given 20 percent off! the 20 percent off didn’t work.
at some point later on, i became concerned about how he could increase his market share and profitability and prepared an analysis with the purpose of showing how much more he would make if he dropped his prices by various percentage points. the upshot of my work was that it was easier to make more money if he raised prices than if he lowered them.
my analysis included not only dollar sales but also units of his products sold and a “calculation” of the physical units of added or lost sales he would need to increase his profit. one example of what the analysis showed was that a 40 percent gross margin and a 10 percent price increase would yield more profits as long as the units sold did not drop by more than 20 percent.
on the other hand, if he dropped his price by 10 percent, he would need an increase in units sold greater than 33 percent before he would start making more money. the client now had to determine if his customer base was so weak that he would lose as much as 20 percent of his unit volume because of the price increase. contrarily, would he gain more than a one-third increase in sales with the modest 10 percent price cut? neither seemed probable, so he continued his pricing policy.
note that there are other reasons to reduce prices such as using the product as a loss leader for other more profitable or repetitive sales, to reach a new customer base, to introduce your product or brand to the marketplace, to make you a “player” in that product line, to hurt or thwart a competitor, to quickly fill a previously unfilled need and myriad other reasons – some smart and some stupid.
fyi, in this client’s case the dollar sales volume of the price changes was part of the issue. but it didn’t tell the entire story. an additional consideration was the need to focus on the production consequences.
the takeaway here is that accountants and bookkeepers can help clients see the big picture. measuring and evaluating what is being sold in units as well as dollars is one method.
“how to brand sand”
source: strategy+business
a four-step approach to branding commodities
- carve up the market from every angle – profits, needs, behaviors – to identify those customers who are responsive to differentiation.
- differentiate your offering in one or more of the six “generic” dimensions of differentiation.
- bundle several differentiations into a brand, and then communicate that brand consistently and strongly.
- align your business capabilities to reinforce and defend the brand and the underlying sources of differentiation.
what’s a brand worth?
illustration: sports, media and celebrities (dead and alive)
| company | brand value (not company value) |
| selected media and sports brands | |
| nike | $27,000,000,000 |
| espn | 16,500,000,000 |
| adidas | 7,000,000,000 |
| under armour | 5,500,000,000 |
| yes | 1,400,000,000 |
| new york yankees | 660,000,000 |
| super bowl | 630,000,000 |
| dallas cowboys | 577,000,000 |
| real madrid | 521,000,000 |
| manchester united | 500,000,000 |
| new york knicks | 447,000,000 |
| new england patriots | 431,000,000 |
| los angeles dodgers | 405,000,000 |
| wrestlemania | 180,000,000 |
| world series | 148,000,000 |
| daytona 500 | 133,000,000 |
| living sports celebrities | |
| roger federer | $36,000,000 |
| lebron james | 34,000,000 |
| phil mickelson | 28,000,000 |
| tiger woods | 23,000,000 |
| dead celebrity earnings | |
| michael jackson | $170,000,000 |
| elvis presley | 55,000,000 |
| marilyn monroe | 27,000,000 |
| elizabeth taylor | 12,000,000 |
| albert einstein | 10,000,000 |
source: forbes
some final notes on pricing
- “sales” event in retail are now so common that it almost represents a permanent strategy to start prices high with plans to cut prices for the “sales” event.
- branding creates or connotes value.
- certifications create or connote value.
- consider how companies promote their certifications for such things as iso 9000, quality or service awards, j.d. power in autos, microsoft certifications and, of course, the cpa.
- logos are important and should be kept fresh.
- consider the instant recognition in logos from coke, pepsi, nike, mastercard or 3m.
- providing extras – tangible and intangible
- amazon free shipping
- zappos fanatical customer service
- nordstrom prestige
- tiffany’s
- merchandising: creating excitement, a need or an up sale
- apparent in retail store windows and floor layouts, supermarket end caps, and even the membership dues statement i receive from my college alumni association that suggests a donation in addition to my dues
- bad merchandising
- a checkbook used to be 25 checks with eight books to a box and some extras. today a “box” is 120 checks with no extras.