So many businesses I talk to these days ask the same question: “How can I continue to charge a premium for my products?” How do I avoid price erosion?” or “How do I put up my prices without alienating my customers?”
And it’s a valid question. Many customers (especially b2b buyers) are becoming ever-more price sensitive, in part due to economic conditions, but also due to the rise of resellers and price comparison sites that not only make it easy to shop around, but also shift customers’ focus more heavily towards price.
But the fact remains that there are premium brands still out there – and many of them are not only surviving, but thriving. Not only are they charging a premium price, but they’re attracting (and retaining) customers at higher rates than ever before.
So how do they do it? Why are their customers happy to pay more? What makes a premium brand? And how do you become one?
Let’s start with a uniquely noughties salutary tale: the rise and fall of the discount demon, Groupon:
Groupon: the false friend of price erosion
In 2011 Groupon was the fastest growing internet company ever.
Just one year later, it held another distinction: as the fastest-falling tech stock since the dot-com bubble.
What was the reason for Groupon’s meteoric rise and fall? Simply this: they operated on a purely discount-based model.
Customers who purchased through Groupon bypassed the opportunity to connect with the brands they were buying, and went straight to the offer: a quick and dirty model that encouraged a focus on price, not value. For the brands they partnered with, Groupon delivered traffic and short-term transactions, but not loyalty.
What did this mean in the long run? While Groupon was undoubtedly a short-term fix for many struggling businesses, the negative effects on brand perception, customer experience and employee satisfaction (a huge driver of customer satisfaction) were so massive that many businesses swore never to do it again, meaning the Groupon bubble popped almost as soon as it arrived.
So what’s the alternative?
Why customers pay more
There are three key reasons why customers are prepared to pay a premium for certain brands and products: quality, status, and engagement. They’re all important, but engagement is the one I’m most interested in.
Warmth and Competence: the two drivers of customer engagement
Engagement simply means how connected someone feels to your brand. I’ve been reading some great research recently by Chris Malone and Susan T Fiske, that cleverly identifies two simple elements that determine how much people connect with a brand: warmth and competence.
Here’s one of my favourite examples of how warmth and competence drive perception, illustrated by another clever person: Dr. Heidi Grant Halvorson:
It goes without saying that the Lisa Simpson brands are the ones that generate the highest levels of customer loyalty and can command the highest prices.
So, how can you ensure your brand is warm and competent enough to do this?
Becoming a competent brand
There are two sides to competence: how good you are at what you do, and how good you are perceived to be at what you do. Here’s how branding can help you with both:
- Build a clear, inspiring mission and vision statement, and communicate it well within the business. Your team will perform so much better once they know what they’re working towards, and what your brand has promised to its customers: both in terms of outcome and experience.
- Use your mission and vision in recruitment ads, and when vetting candidates. This way you attract staff who are aligned to your brand’s purpose from the get-go.
- Honesty, transparency and accountability. Walk the walk. Need I say more?
- Align staff KPIs to your mission and vision. This means the people who come into contact with your organisation get to experience your brand ‘in the round’, rather than just reading about it.
- When you stuff up, take it like an adult. Fess up from the outset, say sorry, and make amends where you can.
Becoming a warm brand
How to become a warm brand? Behave like a human.
- Do everything you can to get to know your customer better. Understand how they like to engage with your brand, remember what they like, and serve it up next time. Data is your friend here. Oh, and, when you get a chance, simply ask them what they like from time to time, too. Humans like that 😉
- Humour is your friend, too. We have a bakery in McLaren Vale that posts a comedy message on their roadside blackboard every morning. Yesterday it was “I like big buns and I cannot lie”. (They day before it was “Vanilla slice, slice baby”) I love them for that alone. Facebook, Twitter, Instagram, a chalk board, your front of house team: you have so many opportunities to reach your customers with humour: why not let your hair down a little (and let your staff do the same).
- Make sure you’re sharing your brand stories: not just the ones about who you are and what you do, but all those little personal anecdotes that really make up a brand. Give your customers the opportunity to tell your brand’s stories, too. Social, of course, provides the perfect channel for this.
- Be kind. It doesn’t have to be a huge philanthropic commitment: small, spontaneous human gestures can work just as well.
- Your people are the greatest brand vehicles you’ll ever have. Let them be themselves. Hire well, build a brand that your team connect with, make sure they get it, take a deep breath and let them shine.
So you see….
It’s funny isn’t it? We started talking about price – how to avoid price erosion, how to charge a premium, or how to put up prices – and we ended up talking about being kind, quirky, and trustworthy.
Because at the end of the day, that’s exactly what it’s about. When a brand is loved and trusted, the focus is more on value and less on price. Great brands get people out of their aggressive, bargain-hunting, ‘Groupon’ mindset, and back into the realm of a fair transaction, based on value, worth and loyalty.
And that, folks, is what premium brands are really all about.