Skip to main content

Beating the curse of commoditization

An earlier post titled 'Brand Contradictions' had talked about the dilemma niche brands face in maintaining their premium appeal while being forced to discount, to up sales. The curse of discounting entraps brands when they reach a scenario of commoditization. This is very true for premium apparel brands in India that have failed to differentiate and occupy unique positioning spaces.

Prof. John Quelch on the HBR discussion forum proposes how to survive if brands find themselves in a commoditized industry characterized by me-too products, overcapacity and frequent price cuts and how they can make money. He advocates the following,

1. Decide which customers the brand does NOT want to serve, try renegotiating prices with them and, failing that, fire them. The brand will lose market share but improve profitability.

2. Compensate the salesforce on profit margin, not sales revenues. A volume-based salesforce will sign up any customer, regardless of profitability. That’s OK early in the product life cycle but not in maturity.

3. Trim costs and acquire competitors (with profitable customers) to extract maximum scale economies in procurement, manufacturing and distribution.

4. If the brand isn't the low cost producer, complicate pricing structures so customers can’t easily make side-by-side comparisons, and provide discounts as needed off of artificially inflated published prices.

Comments

Popular posts from this blog

Situational Involvement of Consumers

There are two types of involvement that consumers have with products and services, Situational and Enduring. Situational involvement as the term suggests, occurs only in specificsituations whereas Enduring involvement is continuous and is more permanent in nature.

Decisions to buy umbrellas in India are driven by the onset of Indian monsoon. Monsoon rains arrived in India over the South Andaman Sea on May 10 and over the Kerala coast on May 28, three days ahead of schedule. But then, after a few days of rain, South India is witnessing a spate of dry weather. Temperatures are soaring in the north of India. The Umbrella companies in the state of Kerala are wishing for the skies to open up. So is the farming community and manufacturers of rural consumer products whose product sales depend totally on the farming community. The Met. department has deemed this dry spell as 'not unusual'.

India's monsoon rains have been static over the southern coast since last Tuesday because of a…

Prior Hypothesis Bias

Prior Hypothesis bias refers to the fact that decision makers who have strong prior beliefs about the relationship between two variables tend to make decisions on the basis of those beliefs, even when presented with the evidence that their beliefs are wrong. Moreover, they tend to use and seek information that is consistent with their prior beliefs, while ignoring information that contradicts these beliefs.

From a strategic perspective, a CEO who has a strong prior belief that a certain strategy makes sense might continue to pursue that strategy, despite evidence that it is inappropriate or failing.


Ref : Strategic Management : An Integrated Approach, 6e, Charles W L Hill, Gareth R Jones

Consumer Spending

Carpe Diem Blog: From Visual Economics, a graphical representation appears above (click to enlarge) of Consumer Expenditures in 2007, using data from the Bureau of Labor Statistics. Note that total spending on food ($6,133), clothing ($1,881) and housing ($16,920) represented 50% of consumer expenditures and 30% of income before taxes in 2007. In 1997 by comparison, 51.1% of consumer expenditures were spent on food, clothing and housing, and 44.6% of income before taxes was spent on food, clothing and housing (data here).