Knowledge Bank Blog, Category Strategy, Pricing & Promotions

Hitting the Value Sweet Spot

How many of you have heard of The Prisoner’s Dilemma?

This is how it goes…

Two members of a criminal gang are arrested and imprisoned. Each prisoner has no means of communicating with the other.

The prosecutors lack sufficient evidence to convict the pair on the main charge. But they do have enough evidence to commit both on a lesser charge.

So, the prosecutors offer each prisoner a bargain. They are given two options. First is the opportunity to betray the other by testifying that the other person committed the crime. Second is to co-operate with the other person by remaining silent.

Their decision can lead to one of four outcomes:

1. A&B each betray the other. Each of them serves 2 years in prison.

2. A betrays B, but B remains silent. A will be set free and B will serve 3 years in prison.

3. A remains silent, but B betrays A. A will serve 3 years in prison and B will be set free.

4. A & B both remain silent. Both of them will only serve 1 year in prison (on the lesser charge).

Betraying the other person is the only chance of being set free. But if you both betray each other it’s 2 years each – 4 years in total. If only one person betrays, then one of you serves the maximum amount – 3 years in total. However, if you co-operate and both remain silent you each serve a year – 2 years in total.

The best collective solution is to co-operate. But would you?

Why are we talking about this? In our industry value has always been important. However, the impact of Covid 19 is making it even more important.

It is important to shoppers – top of mind for them when deciding where to shop and what to buy. It is important to retailers – with strong competition on value. It is important to categories – to protect and drive category value.

This presents a dilemma. The more value you give shoppers (driving down prices, running lots of promotions) the more likely you are to drive category value down. In contrast the more you focus on driving category value up, the more you risk not giving shoppers enough value.

To get the value equation right you need to hit the sweet spot between the two. Giving shoppers value whilst managing (& growing) category value.

So how can you try to do this?

Think Category AND share growth. A lot of activities just move money around the market. From one brand to another. From one retailer to another. Brand A promotes this time – they win. Brand B promotes next time – they win. Retailer A reduces prices this time – they win. Retailer B reduces prices next time – they win. At best, the size of the pie stays the same. At worst, the pie gets smaller because to win you charge less.

The best activities are the ones where everyone wins. The shopper. The brand. The retailer. The category. What Fever Tree have done in recent years is a great example. The shopper benefits – through better, more aspirational products. The brand benefits – Fever Tree have made huge share gains. The retailer benefits – those who backed Fever Tree grew disproportionately. The category benefits – a lot of shoppers are (happily) paying more for mixers than they used to.

Protect price/quality hierarchies. Pricing ladders in categories used to be really clear. You had clear own label tiering – good, better, best. The same was true with brands – different brands at different price points. There was a clear choice for shoppers. However, this choice has blurred a lot.

Now you have retailers using discount style brands (like the Hearty Food Co. in Tesco) that try to act like a brand but are the cheapest option in the category. Or you have mainstream brands promoting so regularly that you can usually buy the £2 brand for less than the £1.50 brand because it is on deal so much. Either of these things encourages shoppers to pay less.

Instead, categories need to make choices clearer. They need to make sure the price ladder reflects the quality ladder in a category. Pay more, get more. Pay less, get less. Shoppers can then make a choice based on value (quality & price) not just lowest price. A better choice for the shopper. A better choice for the category.

Change the value conversation. There is a default in our industry to think value = price. So, to communicate value effectively you need to talk about low prices. But if you want shoppers to make choices based on value not just price you need to communicate value not just price.

There are different ways of doing this. It could be communicating product performance (e.g. Sure deodorant “it won’t let you down”). It could be communicating how long the product lasts (e.g. Fairy liquid “lasts 2 x longer”). It could be communicating cost per item (e.g. Harry’s “£2 or less per cartridge”). It could be communicating product quality (e.g. Waitrose Essentials “why compromise on the food you eat most often?”) There are lots of angles. You need to find your angle. A value angle not just a price angle.

Value can often be seen as a zero sum game. If somebody wins, somebody else loses. It shouldn’t be. There are ways to give shoppers value that also protect and grow category value.

If you both stay silent, you’ll only get a year.

Feel free to forward. Have good weekend. Speak to you in a fortnight.