In another sign that companies and storied brands are being brought down to earth by the current recession, Proctor & Gamble has rolled out a less potent and cheaper version of its flagship Tide product called Tide Basic. The new product costs about 20% less than the premium brand.
The discount-brand is seemingly a reaction to the major hit P&G has taken on its premium brands. The Wall Street Journal reports that P&G reported an 18% drop in its fiscal Q4 profits, due mainly to the sharp decline in sales of its premium-priced brands. The current move signals somewhat of a capitulation to competitor’s discount products. P&G used to rely on “new and improved” versions of its products in order to avoid dropping its prices, but like many other powerful consumer brands they have recently had to bend and drop prices as structurally consumers simply didn’t have the budget to continue purchasing P&G’s products.
The money quote that sums up the challenge for premium brands in a recession:
After years of spending $17 on bottles of Matrix shampoo and conditioner, 28-year-old Ms. Ball recently bought $5 Pantene instead. “Buying the more expensive stuff just isn’t as exciting to me — it’s not as important,” she says. “I don’t know that you can even tell the difference.”
And herein lies the challenge to brands: there is seemingly a point at which consumers will focus their attention on quality and the relative difference between a premium brand and a low cost, generic brand. If the difference is negligible (or perceived to be negligible) consumers will not pay a premium for the brand. Below, I’ve posted a rough, hypothetical curve that represents what this relationships might look like. Early on, the brand’s power is enough to hold on to most consumers–possibly by signaling and being a short-cut for quality. However, as consumers disposable income (and savings) become more and more pinched by the recession the brand’s ability to extract higher prices than low-cost competitors declines. One simply reason may be that consumers begin to question the brand–the short-cut–and whether it really has a perceptible difference in terms of quality versus a lower cost alternative. Eventually, there reaches a sort of tipping point where the power of the brand dramatically declines across the consumer base (as even more financially secure consumers begin to preemptively cut back “just in case” the economy won’t be turning around any time soon).
The graph and the relationship between brand and depth of recession is hypothetical on my part–not based on actual data, etc. Would be interested hearing from actual brand professionals if this relationship is close to what has been observed, both historically and at present.