The End of the
‘excessive’ Brand Premium?
P&G takeover of Gillette will restore realistic brand values)
By Brian Moore, Global retail consultant and CEO
The P&G takeover
of Gillette effectively brings to an end the extent to which a brand can attempt
to charge more than an ‘appropriate’ premium over its generic equivalent.
‘Appropriate’ means delivering extra values to an extent that
a consumer appreciates the addition, and is prepared to pay a given level of
premium for the perceived improvement in performance.
(Global retailers, as buying agents for the consumer, have
simply brought this issue to a head by aggregating the consumer’s ability to
force prices down to an ‘acceptable’ level. This coupled with the fact that the
combined sales turnover of $60Bn approximately equals that of Tesco, means that
the issue is not about a shift in supplier/retailer power. It is more about
unifying suppliers’ approach to the consumer, via the retailer, everywhere.)
Brands now exist and survive in a relatively free, open
market where a savvy consumer seeks and receives value for money. In other
words, the price of the product’s functional performance has been established in
the market place, and a premium can only be charged for a branded version via a
price that is directly related to its perceived added value.
This means that whilst a generic shampoo of a given quality
will effectively wash the hair, a branded version of the same/similar function
has to add reassurance of continuity in performance, consistency of effect, and
‘glamour’, in order to justify its price premium.
If the P&G-Gillette takeover is to be effective, this new No1
supplier and its competitors will have to accept this market reality, and
appreciate that the effect of any enhanced ‘power’ will be to pull the entire
market over to this approach to brand valuation.
A move back
In fact, the real contribution of the takeover to branding
will be in providing an opportunity for brands everywhere to go back to basics
in terms of what a consumer really wants from a product, is prepared to pay for
a branded version, and stripping out all else…
Incidentally, whilst the combined companies sales of $60Bn
does not represent a significant increase in power over global retailers,
hopefully together they will be powerful enough to walk away when retailers
attempt to force prices (and brand values) permanently below a known value to
the consumer. All manufacturers and retailers need to take this lead, and
support this position.
While P&G-Gillette will in the short term be pre-occupied
with re-adjusting to the internal shock-waves, before assessing impact upon the
trade of even slightly different promotions/terms relationships, and factoring
in an appropriate response, other suppliers can take advantage of the
opportunity now made available for fundamental change.
An opportunity for brands to test brand equity
This small window allows suppliers to conduct accelerated
assessments of real brand values for the consumer, by brand and category, in
every retail environment. For public companies, a starting point can be
the company’s market capitalisation minus the value of shareholders funds, i.e.
the price the market is prepared to place on the company’s brand equity.
Effectively, this is the difference between what it costs the supplier to
provide the brand vs. what this is worth to the market, financially.
(Think about it: A company’s market capitalisation in a free
market, represents an investor’s assessment of the brands’ pulling power in
terms of producing a given level of future cashflows/profit, discounted back to
today, with appropriate levels of risk factored in, and taking into account all
All the brands in the portfolio fall within this total
valuation. Only the supplier is in a position to attempt to divide the total
portfolio valuation by brand. While a combination of ego and bias may skew the
relative valuation, the one certainty is the price the market is prepared to pay
for the ‘whole bundle’, hence the need to use market capitalisation as the
ultimate reference point.
Incidentally, the fact that P&G was prepared to offer an 18%
premium is simply a recognition that potential synergies are still available,
even on a very healthy current valuation for Gillette, along with the need to
place a deal on the table that effectively removes any opposition, internally or
In other words, this deal is going ahead, and represents a
final opportunity to get everyone’s brand-act in gear…..everywhere.
Evaluating your brand…and your worth to the retailer
Given an open market and relatively free choice, the consumer
will pay a price for a brand that represents a combination of functional
performance and additional desired advantages over the generic equivalent. When
presented with alternative brands, the consumer will unconsciously compare
Product, Price, Presentation and Place, and attempt to make a value judgement in
order to make the ‘best’ choice in satisfying felt need.
It is obviously important to realistically analyse the
consumer’s value system and perception of the extent to which available
alternative products/brands compare, in order to assess the extent of any
advantage over the competitor, in the eyes of that consumer type or segment.
(see free EMR Buying Mix Analysis for detailed method)
Where perceived disadvantages vs. the competition exist, the
brand has to be re-engineered, or the consumer’s value system modified, in order
to improve brand and consumer fit, and thus justify the price. Alternatively,
drop the price until competitor advantages are neutralised. So much for how the
consumer sees the brand as a consumer….
However, moving to shopper-mode introduces another level of
complexity… A retailer markets itself via the retail equivalent of the
4Ps, an 8P combination of what a consumer-shopper expects from a store. These
buying influences include Products and assortment, Prices (High, Medium, or Low;
Hi-Lo or EDLP), Promotional activities (to express the offer), Place (store
location), Personnel (perceived service level within store), Physical
distribution and Handling (making the product available in store, in appropriate
condition) Presentation of store and products (how the store is packaged) and
Productivity (effective use of resource, time money and people)
The above 8Ps provide the basis for choice of shop and
requirements of a total shopping experience. The brand with its 4Ps has to
survive within the retailer’s 8P marketing mix in order to satisfy needs of the
Effectively, this means evaluating the brands pulling power
for the retailer by systematically exploring the 4Ps again, but this time from
the perspective of a professional retail buyer vs. the available competition,
including Private Label
the shopper in the aisle
This exercise merely reveals the extent to which the brand
appeals to the retailer and secures a place within the store. However in
order to effectively influence the shopper in the aisle, it is necessary to
apply shopper-marketing techniques.
It is first necessary to accept that the retailer merely see
the brand as a means of attracting the consumer to the store and into the aisle,
there to be confronted with the brand and its private label equivalent, usually
at a 20% discount, ideally resulting in a switch sale, from brand to private
label. This presents the supplier with a dilemma, either produce private
label, or market the brand so effectively in the aisle that the retailer will
not bother with providing a private label equivalent.
Essentially this means turning shoppers into buyers using a
combination of shopper insight, expressed as a blueprint for in-store work in
terms of creative expression of the offer, execution in the aisle in a way that
meets shopper need, with effective measurement providing a ‘guarantee’ of
adequate return on further investment, thus capitalising upon consumer insight
and shopper insight, optimally. In other words, recognising that
individual behaviour alters radically in-store and acting accordingly. All else
Thus, assessing the brands value vs. available competition,
in the eyes of the consumer, and through the eyes of the consumer’s buying
agent, the retailer, and converting the result into expected cash/product flows,
discounted to the present day, enables a company to place a market value on an
individual brand. Adding all brands in the portfolio should equate with market
capitalisation of the company (total value of its shares in the stock market. If
the brand values overshoot the market capitalisation, then back to the drawing
board to identify and remove the ego-excess…. before a third party does it on