Comment - The erosion of brands
How long can a brand hang on to its image while acting in a way that contradicts it? How long before the drink-buying public cotton on that there is a dislocation between the fine words and the grubbier deeds? Chris Losh considers the damage done to a brand when price becomes a selling point.
A couple of weeks ago, I met with some executives representing a pretty premium Champagne brand. With volumes having fallen significantly all around the world (but particularly in the US), the brand was engaged in a process of trying to shift significantly higher volumes in the UK, and part of its strategy has been to run some pretty major price promotions at a high street retailer.
This strategy could, admittedly, have been at least partially avoided had they not - along with most Champenois - misguidedly put their prices up 20% a year ago just as the world tipped into recession, but it still raised an interesting point.
The French representative who was over from Reims reckoned that the company could keep preaching the ultra-premium gospel, while intermittently selling the wines at a 30% discount, for "about two years" without harming the brand. The UK brand manager was less sanguine, believing that 18 months was about the most that such a strategy could be followed before the image was adversely affected.
It's an interesting point, though: how long would it take for a poorly thought-out strategy - or a temporary one driven by supply and demand necessity - to undo years of good work?
Recently, InBev tried (and failed) to introduce two premium line extensions for its Stella Artois beer brand. Artois Bock and Peeterman Artois were launched to add top-end credibility to a brand for which the 'reassuringly expensive' tag became increasingly at odds with the 'wife beater' tag favoured by the general public.
I guess the first point to make is that it depends on how strong a brand's fundamentals are in the first place. Coca-Cola, for instance, has managed to get over the whole New Coke debacle, while car manufacturers are routinely able to shrug off poor reviews about specific new models. Austrian wine, by contrast, is still struggling to live down the anti-freeze scandal of over 20 years ago.
The problem in the drinks world is that, bar a handful of spirits, few brands are strong enough to have that reservoir of trust behind them. Not least because the biggest brands are increasingly building their entire strategy on one where the majority of volume is shifted during promotion, so price, rather than brand equity is the key.
This isn't, of course, quite such an issue everywhere. In the Scandinavian monopolies, price promotions are banned: a product is listed at a pre-arranged price, and remains at that level until the deal is renegotiated.
The German market, too, is one of EDLP, rather than one of RRP plus deep-cut discount. Since consumers know broadly where a brand sits, it brings transparency to the market.
Tied into this issue is the nature of the actual retail channels themselves. Consumers will, for instance, happily buy what is clearance designer stock from dedicated discount outlets such as TK Maxx, without it affecting their perception of the overall label.
But that 'bin-end clearance' concept is very different from, say, seeing a Gucci jacket regularly being cut by 40% in a specialist boutique, which is the model that the drinks world is currently following.
For beer brands, of course, this 'talk premium, sell cheap' paradox is old hat. "They all do it, and they all get dragged more into it the bigger they get," said one industry expert. "It would be no surprise to see Peroni Nastro Azzuro and Cobra as supermarket loss-leaders, if they continue recent rates of growth."
This issue of the ephemerality of brand equity is particularly apposite at a time when slowing consumption patterns means that more and more brands, for whom promotion has always been unnecessary, are going to find themselves dragged into doing exactly that.
"Consistency is a key factor in brand strength," says brand consultant Hew Dalrymple. "You cannot see price premium one second and then promote the hell out of a brand the next."
In fact, it's not just specific brands that could suffer; entire countries are seeing their image eroded by the dislocation between supply and demand. Australia's volumes might have increased significantly over the last decade, but there hasn't been a corresponding move up the quality ladder. Indeed, the country's image, after ten years of glut-driven discounting, is probably worse now than at any time since the early 1980s.
Interestingly, New Zealand (of all countries) could be heading the same way, with mammoth harvest after mammoth harvest leaving the Kiwis drowning in a sea of Sauvignon Blanc.
"They are in danger of actually wrecking their entire category," said one industry observer. "The idea that it is a blip and won't be repeated is nonsense - the 2009 vintage is exactly the same size [as 2008]! Buyers are not going to run sub GBP5 promotions on Sauvignon Blanc for two years and then raise the price; they will simply ask for the same deal."
In other words, at a time when buyers hold pretty well all the cards, once a promotional route has been embarked on, it is incredibly difficult to leave.
And with few wines - and precious few spirits - having any real 'stickability' with the public, the next few years could be a brand-builder's nightmare.
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