“There is no such thing as a commodity, only people who act and think like commodities.”
According to Ted Levitt, managers do not need to change the products they are selling; instead they need to fix their positioning in consumers’ minds. Even something as basic as water can be differentiated.
Source: “Marketing Success through Differentiation – of Anything”, Theodore Levitt, HBR.
According to Empirical Generalizations about Marketing Impact, published by the Marketing Science Institute, “Long- term sales growth for a brand is derived mainly from category growth.” Such growth is hard to come by in many mature categories. But the value of a brand isn’t determined simply by sales; it is also determined by profitability.
If you can command a premium price, you can increase the value of your brand without significant volume growth. This is a considerable advantage. McKinsey finds that, if volume remains stable, a 1 percent increase in average price improves operating profits by 8 percent. That is three times the increase generated by a 1 percent increase in volume.
Unfortunately, a 1 percent decrease in price has the opposite effect. McKinsey concludes that a strategy that cuts prices to drive volume is “generally doomed to failure in almost every market and industry.”
So what can justify a price premium? Perceived differentiation. A brand can thrive at a higher price point when it is seen as a well-differentiated, desirable choice — that is, when it has a meaningful, relevant, and valuable point of difference.
