Why marketers need to grow penetration at a profit

by Nigel Hollis | March 06, 2017

Growing penetration is the main growth driver available to marketers, but unless that growth is achieved at a price point that generates profit it may prove self-defeating. Over-reliance on price promotion to bolster volume sales has led many companies to fall into the price promotion trap.

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So how do you grow penetration at a profitable price point? Obviously you need to start by knowing what that price is, but then what can be done to encourage consumers to pay that price rather than only buying the brand on deal? As I noted in this post, price is one aspect of marketing on which the Ehrenberg Bass Institute is strangely silent, so let’s fill the gap.

Over the years Kantar Millward Brown has conducted extensive research to examine what attitudes seem to best support sales at a specific price point. Importantly, while we find that our measure of Needs-Based Salience correlates very nicely with Volume Share, it has no correlation at all with price paid. All the work we have done to link brand equity with sales finds that if you want to explain price paid, you have to take into account whether people perceive the brand to be Meaningful and Different.

An important point to note is that our work has not just looked at relationships in aggregate data, but has integrated attitudes and behavior to understand how individual people’s attitudes encourage them to pay the price asked. Take, for instance, the R&D work reported here which finds if people believe that brands are important they will pay far more for a brand they perceive to be Meaningful and Different. Even people who believe a good price is more important will pay more for High Premium brands.

I think one of the fundamental reasons that price tends to be ignored as a factor by many marketers is that it is often perceived to be outside their control and, as noted in a comment by Ciju Nair they are not rewarded for supporting price; only pursuing short-term volume sales. So, unfortunately, unless more CEOs and CFOs realize that profit growth depends on growing penetration at a profit, not just chasing volume and set specific margin goals, we will continue to see undifferentiated brands end up bankrupt.

So what do you think about the importance of growing penetration at a profit? 

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