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Friday, September 19, 2008

"Should we advertise low prices? How should we advertise pricing?"

Q: We read your series of Friday columns on pricing and thought that you may also be able to help us. We face a different kind of problem about pricing.

We're a small ad agency. Almost all our clients are SMEs with just one big "anchor" account. Our small clients are competing on their low pricing. They want us to develop an ad campaign focusing on their low price. We tried discouraging them in doing this. We told them the campaign will damage their brand equity if not now then eventually. But they are insisting. They said they've done this in the past and not that bad came out of it. They also told us that they've seen it done successfully by other small advertisers before. They've threatened that if we won't do it or if we won't put our hearts into the job, then they have no choice but to change agency.

Who's right about this issue? What do we do? We don't want to lose clients. At the same time, we want to let them know when they're mistaken, or when we believe they are. Please help.

A: Thank you for bringing this challenging pricing issue to our attention. Here's our diagnosis and prescription.

At the outset, we wish to say that both you and your small clients are right. You are correct under certain competitive conditions and pricing objectives. But your small clients are just as correct under other competitive conditions and pricing objectives.

This means that the two contrasting ad campaigns can co-exist even side by side and nothing that adverse can happen. This is true as long as each campaign is clear about what each price ad campaign wants to happen to its target audience after seeing, hearing and/or reading the price ad.

The Jetstar Case

Consider first low price advertising. Just a few years back, we saw Jetstar Asia, Qantas' budget airline, advertised its extremely cheap Manila-to-Singapore flights. The print ad said:

"Fly Jetstar Asia to Singapore for only US$79. Daily flights from Ninoy Aquino International Airport. Book online www.JetstarAsia.com."

So what happened to Jetstar Asia?

It actually has prospered and today boasts of "more 90% monthly on-time performance." Its current advertising copy also says this:

"If you think all low-cost airlines are the same, think again. At Jetstar Asia, we believe in bringing you the same safety and comfort standard as legacy airline, but without you having to pay legacy airline fares."

Which means what? That means at least two things. First, with its claim of more than 90% on-time performance, it must have passed the stage of penetrating its targeted low-cost flyer segment. Second, it's now preparing to draw passengers from the regular fare paying flyer segment some of whose passengers are looking for a much cheaper airline fare but with "the same safety and comfort standards" of the regular fare airline.

How come this low-cost pricing ad succeeded and did not harm the brand image of Jetstar's mother airline, Qantas?

The answer is in Jetstar's very transparent intent to go after the budget passenger segment. It's all about segmentation. And all it did was to gave this segment's flyers exactly what they were after: half the fare of the legacy airline but with same on-time performance.

Will it succeed in drawing passengers from the regular fare paying segments? If it is able to deliver on the next promise of half the fare but with the same safety and comfort standards of the regular fare airline, it will succeed. Of course it will get all of the regular fare paying passengers. But it will attract those who are price sensitive.

Because of this budget airlines' success, at least two things will happen in the competitive market. First is to make passengers more aware of options for flying cheap but just as on-time, as safely, and as comfortably as in the legacy airlines. Second is to raise the paying passengers' price sensitivity when choosing which airline to take every time they fly.

Have other low-price ads experienced the same or similar success?

RETAIL Store examples

You'll find a whole lot of examples in retail stores. We were once in Robinson's Galleria when we saw a rubber shoe boutique's display window showing its shoe merchandise beside a colorful poster that said: "For the same thing (obviously referring to just a check mark but without mentioning the brand), why pay double?" And that's not for announcing a sale.

Towards the end of the third quarter and into the fourth, leading car brands announce the coming of next year's models. Right beside this announcement is just as large a poster asking both pedestrians and motorists to come in and see the remaining inventory of this year's models available at substantially discounted "LOW, LOW PRICES!" The brand images of Toyota, Honda, Mitsubishi, Nissan, Isuzu, Kia, and others are no worse off for all these in the next year and many years after.

So, what does the foregoing say about when you should support the low-price advertising intention of your small clients? That's when the following three considerations obtain. Firstly, your small client must have already succeeded in participating in the low-price segment. Secondly, its competitive market must be getting more and more undifferentiated, and it's unlikely that the trend will be reversed soon. And thirdly, it makes strategic marketing sense to raise your consumers' price sensitivity in the market.

What about your case? The case of advertising high prices, premium pricing? What does this ad look like? How come it rarely draws the kind of criticism that low price ad gets?

Even a few examples will quickly answer these questions. An old Bayer ad on its aspirin said: "All aspirin is not alike." The Q-Tips ad for its cotton swab said something similar: "A swab by any other name is not the same." In the copy of its ad for Black Label Scotch, Johnnie Walker made the same point but using an engaging prose:

"When you are dealing with something quite extraordinary, price somehow seems irrelevant or even irreverent. Indeed, for those who appreciate fine Scotch, Johnnie Walker Black is priceless."

Even an extreme case seem to also work. If you consider the wine list of a restaurant as an in-store ad material, just look at this wine menu at a Greenbelt 2 restaurant:

2002 Crane Lake Merlot : P1,200
2000 Chateau Mouton Rothschild: P84,380 (marketed as the 'wine of the century')
1997 Harlan Estate Cabernet: P138,094
1996 Screaming Eagle Cabernet: P195,705

When we inquired if any of these items ever get any buyer, the proud head waiter quipped in a faked British accent: "Of course sir. In fact, quite often." Yes, of course. This is Greenbelt 2, the hangout of Makati's "rich and very rich" consumer segment. We forgot our basic marketing and did not think segments.

It should now be easy to understand why there's much less negatives with premium price advertising. There's something to be proud of and the intent is precisely that. It's to enhance the product image of the premium priced brand.

When premium price advertising succeeds, its effects contrast with those we saw in low-price advertising. Because of the enhanced brand image, the premium price advertiser gains so many points versus its competitors. The larger this gain becomes, the more price insensitive the consumers in the category becomes. There's reduced price sensitivity for the advertiser brand.

So there's your case for premium price advertising. It will work when the competitive market is highly differentiated, and when you wish to further reduce price sensitivity to your advertised brand.

Keep your questions coming. Send them to us at MarketingRx@pldtDSL.net.