impact of price and "value for money"

here is an interesting article on how price movements and the resulting "value for money" enhancement affects volume and market share. this is telling us that for products that start out very well and become icons, they can demand a steep price for consumers to pay and even grow market share. and when it starts to reduce it's price point, it's sales will double and even triple as it continue to leverage it's icon status and widens it's consumer base. in the end, the price cut pays handsomely in terms of a significantly wider consumer base.

that's a lesson that not only smart and lobe but also for coca cola. actually, globe and specially smart already know that, it's the cell phone makers that don't and even the other tech products being sold in the philippine market.

philippine tech companies that sell things like computers and mp3 players, in my view are too greedy to the point of already being immoral. will talk more about that in the next postings.




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AT&T price cut could juice iPhone salesBy Scott Moritz

AT&T’s (T) planned $200 subsidy on Apple’s (AAPL) iPhone could increase the sales of the new 3G model by 50%, according to one analyst.

Using a comparison to price cuts of Motorola’s (MOT) Razr — the 110-million-units-sold wonderphone from yesteryear — Bernstein analyst Toni Sacconaghi says its reasonable to expect that AT&T could more than double its iPhone sales, which currently account for half of all Apple’s iPhone numbers. He made the analysis after Fortune first reported the plan by the Apple’s exclusive iPhone partner to cut the price of the upcoming 3G version of the phone.

Sacconaghi sees a strong parallel in the scorching history of Motorola’s Razr phone. In 2005, Razr’s expensive ultrathin metal-clad design went from being the coveted phone of the moment to a pop culture sensation as the price fell.

“The Razr’s unit sales run-rate doubled when its price dropped from an initial $500 to $150, then doubled again when the price fell further to $100,” Sacconaghi wrote in an Apple research note Thursday.

“While offering the subsidy would cost AT&T $200 per iPhone user, we estimate the cost would be more than offset if the subsidy results in an increase in the iPhone subscriber base of around 100% - which appears to be a realistic assumption in light of the Razr’s experience,” he wrote.

Sacconaghi is an Apple analyst but he says he has not confirmed the price cut plan with Apple or AT&T.

Cell phone and smart phone subsidies are common throughout the U.S. and Europe. The iPhone was unusual in that it was sold at full price. Despite the hefty $400 price tag, Apple has sold 5.7 million iPhones, over half the way to its goal of 10 million for the year.

For AT&T, the phone is fantastic bait to reel in customers from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT), at a time when wireless growth is slowing. To date, AT&T says about 40% of iPhone customers are coming from other services. Not only does the iPhone lure customers, it brings in the type of customers that the industry cherishes: big spenders.

AT&T says it rakes in an average of $95 a month from each iPhone customer, nearly twice the average monthly bill of its conventional cell phone user. With faster 3G phones, it’s likely that iPhone fans will spend even more money time on the mobile Internet. AT&T has a revenue sharing agreement with Apple where it forks over as much as 25% of its iPhone customers’ monthly payments to the company.

The remaining take for AT&T is between $70 and $75 a month per iPhone user totaling more than $1,700 over the life of the two-year contract, wrote Sacconaghi.

AT&T plans to lock the subsidized iPhones so they can’t be used on other companies’ networks. That leaves it open to debate whether Apple will sell unlocked, unsubsidized phones at its stores. Sacconaghi says people might pay a premium for an unlocked iPhone, untethered as it would be from the AT&T service. “We believe the availability of factory-unlocked iPhones would further stimulate overall iPhone sales, though price may remain a barrier to truly mass market adoption.”

The mass market however, is a double-edged blade as Razr observers will note. Razr’s ride to popular glory was followed by a plunge into ignominy as the price of the phone went to zero, a precursor to the downfall of the Motorola’s mobile phone business. But that is one Razr parallel Apple fans aren’t likely to make.

http://techland.blogs.fortune.cnn.com/2008/05/01/atts-price-cut-could-juice-iphone-sales/

marketing dilemma : scrambelicious vs trio

with the impending launch of the lower priced "scrambelicious", what ad will nestle go with for this brand? with its much lower pricing versus trio, scrambelicious will obviously be targeted against a broader socio-eco market, wider to include broad C and perhaps middle and upper D. this will need an ad that will appeal to the broader/lower socio-eco class.

but, they already have sharon cuneta for trio?! now, that can be a pain! sharon could have been perfect for scrambelicious. and certainly a kurot-sa-puso approach using the mega-star and mega-baby could have been a perfect fit for scrambelicious!

ok, ok, the brand name scrambelicious is certainly not appropriate for any kind of emotional or kurot-sa-puso ad, but there's gotta be a way to do it without turning the audience into neurotics. if not emotional, what about humor or the two megas singing to dial up cuteness and kilig factor? oh well, if it's the two of them, i still say it ought to be kurot-sa-puso.

the nestle ice cream marketing department is actually facing a brand portfolio issue with these two brands that have the same product characteristic of 3 flavors in one tub. the biggest issue will be the risk of canibalization. consumers will naturally compare scrambelicious and trio with each other because they have the same product concept. trio users will be most susceptible to that comparison.

unfortunately, with the significant pricing disparity between the two, scrambelicious being lower priced has the clear advantage. and when scrambelicious, a much lower priced and therefore generating lower margins and profits for nestle cannibalizes the market share of trio, a higher priced and with higher margins and profits, nestle will surely feel sorry they ever launched scrambelicious.

i am sure nestle has thought about cannibalization and what impact scrambelicious will have on the ice cream category profits. or did they?

i think the price difference between the two is too big to ignore for consumers. scrambelicious' retail price is 46% lower than trio's (based on the price printed on the lids of the tubs). if i am right in saying that the appeal of a 3-flavored ice cream is mainly value-for-money, then scrambelicious with its much lower pricing will be seen as giving the best value for money between the two. it's not only superior value for money that will be scrambelicious' strength, it will also be superior cash outlay. if i am right on those, scrambelicious will definitely kill trio in less than 2 years.

in the philippine market, value-for-money and in this case also superior cash outlay trumps celebrity endorsers, even if its the mega-star and the mega-baby.

not only will nestle face problems with consumers, they in fact might face problems even sooner - with their distributors and retailers. their distributors and retailers like supermarkets and groceries will be very reluctant to carry a lot of trio once scrambelicious is launched into the market. supermarket and grocery owners know that low price and good value for money sell better with consumers. they will feel that trio will decline in market share and will be taken over by scrambelicious. if they think that, they will certainly reduce their inventory and sales orders of trio in favor of scrambelicious.

sure, the product managers will argue that the flavors in each product are all different from the other and therefore can justify the difference in pricing. but that's like asking consumers to read the fine print, they will gloss that over. and the same way that low pricing and value for money trumps celebrity endorsers, the same two things will trump flavor differences.

does it sound like this wasn't properly thought through by nestle? oh, yah, i did say that already.

given this interesting portfolio issue, brand positioning will be most key. getting that very clear for each will be the driver for differentiating the brands and therefore giving consumers a reason to buy both, not just one over the other. good strategic thinking and applied across all marketing components will be most key. they need to do this for each of the brand and the whole category.

there are solutions to these issues, of course, but that's for another long discussion.

nestle's "trio" ice cream tv spot : how a lazy creative team wasted P5M+ in talent fees

this is nestle's "trio" ice cream, a three-flavored ice cream that nestle is selling now. it's gone big time with sharon cuneta appearing in its tv commercial.

nestle must have had good experience on this product that they will be launching a second 3-flavored ice cream, that will be named "scrambelicious". that's the product nestle had a contest on to get a name for with the famous give-me-a-name internet effort that has been very much discussed here.

i'm guessing that these types of products are selling because consumers view it as good value for money - people probably think they are getting 3 flavors for the price of 1. this variety in a single tub could be seen as very much "sulit". the philippine market is a highly value-conscious market.

will their 2nd 3-flavored ice cream with a funny brand name, "scrambelicious" do well in this market? also noticed that "scrambelicious" will be priced much lower than this one - P80.00/tub vs the P149.00/tub pricing of trio. scrambelicious seem to be targeting a wider socio eco class, appealing to a real broad based market, from the AB to true broad C and maybe even parts of D. i don't know what the incidence of refrigerators is across the socio-eco class but its safe to assume it's very high among the ABC and some among the D would have a refrigerator in their homes.

this ad is one of the millions of tv ads sharon cuneta appear in. over the years, we have seen sharon thin, endearing and pretty to fat, ugly and ewww! and now, we see sharon as just a bit on the chubby side but this time with this cute little daughter of hers. from a weight perspective, sharon does not look too bad here.

the baby is cute though! the director of the ad knows how to direct little girls in commercials. the secret in directing toddlers in commercials is to get the toddlers to pop their eyes as wide as they can. that's how they make toddlers appear their cutest on tv. in this ad, you see the daughter's eyes at its widest ever and voila - we have an extremely adorable little sharon. kudos to the director for knowing his job.

now, on the serious side of ad analysis.

this ad is simple and very single-minded. so, this ad is not a WAWAM!? what? a non-WAWAM! ad appearing here?? now, wait a minute, while our advertising gurus will say those are good things, that's not how i mean it. plrease read on.

it's simple, yes, in fact too simple that it's already bare.

it's a predictable and non-ownable story line of people stealing a snack at night, creeping down to the kitchen and stealing food, only to be "caught" by another family member and both ending up as enjoying the late night snack together. that's a story line we have seen in hundreds of thousands of ads (to borrow a descriptor nestle used for their internet effort) and not just in ads but also in movies. it's already a very trite story line.

not only is the story line more common than common sense, the copy, the exchange between mother and daughter is even more common. the dialogue is very straight forward, definitely forgettable, nothing memorable. it's almost like dialogue two ordinary people, like you and me who earn minimum wage to slightly higher than minimum wage exchange on an ordinary, non-event day.

should that be the case? look, we are talking here of none other than the mega-star of philippine show business and the mega-baby! they are not humans like us! and not being human like us, means they speak in non-ordinary words. their words are supposed to be magical, the type where you see stardust when they speak. or at least memorable! hello?

you saw the ad, right? quick, tell me, what did they say to each other?

i bet you were not able to quote it verbatim. and that is where the problem lie. this is sharon cuneta who gave us fantastically memorable lines, if she did not deliver them, she was in the scene when they were delivered. we associate sharon with almost showbiz biblical movie lines like "You're nothing but a second-rate, trying hard copycat." or "Kung saan, kailan, at paanong labanan, magpasabi ka lang. Hindi kita uurungan!". she is the mega-star and the mega-baby, they can speak in tongues and we will understand and love them for it or in poetry!

well, not in this commercial.

it is single-minded not in the sense of message delivery, but in the sense of being single minded in making a sale for the brand on the sole basis of sharon cuneta alone! the creative team seem to think they did not have to do any work on this ad, they did not have to do any thinking. heck, they sure did not think they needed to think of any memorable copy line for the ad! they were thinking that all they needed to do was to put sharon in the commercial, and it will sell on its own! face value lang ni sharon, ok na!

look at the ad concept - it's one of the most boring, most predictable slice of life ad one can think of. and the copy lines are lines you know college students with zero advertising experience can write even when they are sleep. in fact, i bet a lot of college students can think of better copy lines than whats on that ad. the creative team who developed these ads, simply put, were LAZY!

when i picked that ad up in you tube, one of the comments made there, obviously from a sharon fan, was that the mega-baby is the cutest of all babies in the world! (that make sense given the widest eyes shots done by the director of the ad) one was even gushing that in this ad, finally the mega-baby had speaking lines.

and that is what the creative team missed in this ad! the creative team was so lazy to think of creative concepts that involved the mega-mother and the mega-baby in a deeper, more creative story line! this could have been a slam bang winner, had the creative team made an ad that played on the emotion that the audience would have invested in the mega-star having the mega-baby in the ad. dapat kurot sa puso involving mom and baby! imagine the mega-baby delivering blockbuster memorable lines and inter-acting, exchanging kurot-sa-puso lines with the mega-star! certainly, the mega-star can act. and the mega-baby could have been directed to act! that could have made advertising history!

as that poster in you tube said - this is the first time they saw the mega-baby had speaking lines! people hearing the mega-baby speak for the first time in an ad, mouthing memorable lines would have brought mega-tears to its audience and, mega-sales!

the creative team had 2 great talents in their hands and all they could think of is a trite story line! how could they miss such a golden opportunity here? the creative team totally missed on that one. why? only because they were lazy! yes, this ad is a WAWAM! in my files.

part 5. how not to name a brand : strategic issue - what is an ice cream product?

“smart” was used as a name for a cell phone service provider positioned as giving “best value for money”. at the time of launch of smart, there were three players - globe (GSM), piltel (analogue) and extelcom (GSM). smart intended to use analogue as its less expensive operational cost allowed them to under cut competition’s prices and quickly gain market share.

the choice of “smart” as the brand name was strategic, to uphold its “best value for money” brand positioning and to communicate that users who chose the brand were being smart about it. smart has in fact upheld their positioning even when they moved to GSM but not necessarily through undercutting competition through lower pricing but through industry leading value added services that resulted to the same best value brand image.

that is to show how a brand’s positioning is carried through to naming a brand. strategic thinking was applied through all components of the marketing mix, including the naming of the product.

a look at names of international ice cream brands tell you that they tend to be flavor oriented. that makes a lot of sense as in truth an ice cream is an ice cream is an ice cream. all of them are cold, most are sweet and creamy but the main differentiator is the flavor. there can be variances in texture through additional things like nuts and raisins but even in products like these, they still anchor the differentiator in the flavor.

nestle’s new ice cream product’s core reason for being is the three fruit flavors of melon, watermelon and orange. this is shown in what appears to be a tv comercial when you go to the website, but it is not mentioned in the product description, we can assume the flavors will not be mixed together (sure a bad tasting product id done!) but separated in the tub. we can also assume the product will have three colors (not mentioned in the porduct description but shown in the tv commercial) to signal the three fruit flavors. the three flavors then is the core strategic consideration for the product (not a “promo”!). this differentiates the product from others. the name should deliver.

it is this reason that the name submission “triple delight” (and others that use the idea of “three”) works very well. it highlights the core essence of the product and talks about appetite appeal (”delight”) without being too laborious and boring about it. its a complex product design, with the three flavors, and putting these in the name is just too cumbersome and impractical, if we were to follow what the international ice cream brands did. the tv commercial shown in the website mentions "tres marias" as a copy line, a suggestion for the name. "scramble" and "karambola ni lolo" were the other "suggested names, talking about the three unique flavors. the suggested names mentioned in the commercial clearly implies "three" or "triple" flavors is the core reason for being for the product.

when “triple delight” got a lot of votes, other copycat names were submitted using the concept of “three” or “triple”. but the authors submitted those only because they were riding on the popularity of the idea behind “three”, not necessarily because of an appreciation of strategic thinking.

now, we have basically two sets of names in the list of finalists - one along the concept of “summer” and the other on “triple”. that is the nature of a popularity contest like this thats posted in the internet where there are no cut-off dates for submission.
will this product have a name that will uphold the brand’s positioning the same way as “smart” did?

to be continued….

nestle : http://www.givemeaname.ph/