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Taking the ‘Cheap’ Out of Value

by Paren Patel , 21.03.2013

At GfK Consumer Trends, we find that price isn’t the sole motivation for many consumers, and that perception of value is a key factor that drives purchase decisions.  Simply put, it can’t just be cheap – consumers want affordable products yet don’t want to compromise too much on quality or utility.

According to GfK Roper Reports Worldwide, 31% of global consumers have switched from name brands to less expensive brands in order to save money in the last year, yet when asked what factors contribute to getting value from a product or service, ‘inexpensive’ only ranks sixth out of nine options. Another element to consider is that consumers are very particular when it comes to how they are perceived and the image that is portrayed to others by what they purchase. Some interesting examples from the marketplace shed more light on this topic.

A good example is the Tata Nano, a car billed as the cheapest in the world. It was released in India in 2009 with ambitions that resembled those of Henry Ford’s Model T.  Unfortunately initial sales missed targets, achieving only 40% of the projected sales target in the first six months. Although there were other problems the company faced, being known as the cheapest car in the world was perhaps not ideal in a country that according to GfK Roper Reports Worldwide ranks the Personal Value of ‘Status’ higher in importance than any other country globally. In other words, Indians are unlikely to want to be seen in a vehicle known as ‘the cheapest car in the world’.

Being the cheapest around does not always doom a company or a product to struggle, but personal image is very important to customers and anything that is outwardly cheap can be a turn off.  However products that can bridge the gap between price and perceived value are destined to do well, sometimes even if they are the cheapest around.

One good example is Sports Direct, which has done exceptionally well at this. Over the years it has acquired troubled but relatively well-known brands such as Kangol, Slazenger, Dunlop and Lonsdale, amongst others and also entered into a long-term contract with Umbro (now owned by Nike.) In doing so the company is able to offer hugely discounted prices on these branded goods.  The outlet seems to have frequent sales, and as well as offering heavy discounts on brands it owns, it also offers good discounts on some of the more upper-tier brands and as a result has experienced exceptional growth in the last few years.

Another good example is the Aldi ad campaign which does well to tap into this market trend.  With the slogan, ‘Aldi.  Like brands.  Only cheaper’ the campaign communicates that Aldi branded goods are just as good in quality as the market leading brands, but at a much lower price point.  The campaign goes so far as to name brands comparable to Aldi’s, highlighting the considerable difference in price.

One of the consequences of the global financial crisis is that in many cases outward displays of excess and extravagance are being shunned.   In those markets where it has become unfashionable to be a big spender, it can be cool to be seen as a money-savvy consumer.  Predominantly a developed market trend, this shift towards anti-status is the result of the economic troubles which many blame on the past greed and excess of the rich.   This isn’t the case in all markets however, for example in China the luxury market is booming as many of the upper income consumers wish to display their new-found wealth.  Markets such as these have been a much needed lifeline for premium brands who are struggling in their traditional developed markets.

The value story is, however, a worldwide phenomenon and consumers are increasingly seeking a good deal, with a whopping 75% of consumers globally agreeing that they feel satisfied or even excited when they get a really good deal.   It is a common sight on social networks to see people share deals they have found or even speak of them proudly in conversations with friends.  This is a trend that is evident from the huge growth of companies such as Groupon and Living Social which are testament to the value story.  Offering mid- to high-ticket items at a large discount is something that can tempt consumers to make a spontaneous purchase that they may not have ordinarily even considered.  One of the things that the Groupon model does well is exploit the fact that consumers hate to miss out on a good deal, thus driving them to make that spontaneous purchase.  For the price, the underlying product generally represents great value for money; a quality product at the price point of perhaps a lesser quality one.

What lessons can we learn here? In these difficult economic times, being inexpensive is sometimes an effective marketing strategy, however if you choose to take this positioning for your brand, the trick is to be cheap in terms of price and not cheap in perception or quality…