Source: Nigel Hollis, Millward Brown
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.
Source: Nigel Hollis, Millward Brown
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