As technology and globalised business models continue to deliver efficiencies and new opportunities, every sector will face disruptive pricing that in effect re-costs what the market would otherwise pay. Many of those movements will naturally be downward; others will lift the entry point. Amazon has effectively reframed the cost of books; Samsung and others are resetting the cost of owning a tablet; Tesla has redefined what an electric car is and also the cost of owning one.
Prices fluctuate in every market of course – nothing to talk about there. But when a brand’s pricing changes significantly but the perception of the brand does not, there’s a real risk of non-alignment. The brand either ‘loses value’ or ‘becomes/stays more expensive’ for no good reason that the consumer can see. By shifting what Tim Smith has referred to as the “value exchange” without repositioning the premise by which they compete, brands end up deteriorating both: there is less sense of value; and there is less sense of fair exchange. Consumers are either getting more or less value than they were getting – for no reason that has been clearly articulated to them.
Battling the legacy of $1 meals
MacDonald’s it seems is facing this very issue at the moment. They continue to offer, and to brand themselves, as the purveyor of $1 meals, but increasingly their menu reflects higher ticket items. And that’s affecting their bottom line as the gap between what people expect to pay and what they are being asked to pay widens. As John Gordon comments in the article, “If you encourage and kind of seed the notion that you can come in for a couple bucks and get some food – and then you can’t do that anymore – there’s bound to be a reaction.”
Hilton Barbour sourced this graph which clearly shows the Golden Arches not keeping pace with low cost meal competitors like Chipotle.
As Businessweek points out, “Chipotle has disrupted everything up and down the food chain, forcing everyone from Taco Bell to Chili’s to scramble to stay relevant.” At some stage, it strikes me, that MacDonald’s will need to make the decision as to whether they are still (and can afford to remain) a frugal diners’ brand. They will either need to disrupt their costs in order to get back to being a true $1 meal provider or change what people expect to find and pay for in their restaurants.
And such a decision has implications for the story they tell and the experience they provide. After all, if you’re no longer a $1 meal brand, changes are needed to do justice to the new asking price. As Seth Godin so rightly observes, “Every great brand (even those with low prices) is known for something other than how cheap they are.”
The price signal Tesla sends
While MacDonald’s may be struggling to keep their brand and their pricing aligned at the economy end of the market, Tesla has, counter-intuitively, used price to successfully shift perceptions the other way. In a market that has traditionally focused on affordability and mass market interest in the hope of building feasible levels of interest, Tesla has priced itself high and built a brand to meet it, and in so doing has successfully positioned the electric sports car as a luxury vehicle. They have then single-mindedly set about creating a vehicle that does justice to that bracket.
Price is a powerful signal that this is a brand that cannot, and should not, be compared to other electric offerings. As Max Warburton points out in this article, “Tesla is selling cars to emotional buyers who are comparing the Tesla S to other emotional, irrational and expensive products – such as the Mercedes S class and Maserati. That’s the genius of the product – consumers are not doing any cost/benefit calculations …”
The worlds of fast food and fast cars may be subject to very different price points, pressures and competitive dynamics – but both cases illustrate the power, and vulnerability, of clearly identifying, through the brand, the value that consumers are paying for.
Accessible brands have accessible price points. Aspirational brands are priced stratospherically.
Done well, the elements of brand and price reinforce each other. Allowed to drift, the relationship gets out of kilter and confused consumers look around for competitors who feel closer to what they were expecting. Tesla’s great challenges going forward will in part I suppose be technological. But they will also be perceptual – if they wish to retain such a market-disrupting price point, they will need to look for ways to remain irresistibly elite.
Further reading
Beth Kowitt fills out the background on what’s going wrong with McDonald’s in this article in Fortune. Well worth the read.
Acknowledgements
Photo of “self portrait with a price tag” taken by Hanan Cohen, sourced from Flickr
Hilton Barbour – for the chart that featured on his Linked In feed.
