Question

Topic: Branding

Mgt Wants A Second Product Of Lower Price: Cannibalizing Core Product?

Posted by adspiker on 3/13/2011 at 1:39 AM ET 250 Points
We are an international company with one product ($200mil) which sells through independents. Mgt wants to private label a lower priced similar product to increase lost opportunities from what is the higher priced product.

The only practical difference between the two is one year's worth of extra warranty on the current and then higher priced product.

Am I crazy but if I was the independent and in this economy had two products to recommend, wouldn't I likely recommend the lower priced version?

Won't this cannibalize our golden egg?

I need reference cases/examples where other brands tried this and failed (or succeeded).

Oh, and the brand name of the lower priced product is absolutely meaningless to the consumer. Another obstacle and meeting I wasn't a part of.

Thanks in advance for any assistance.
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RESPONSES

  • Posted on 3/13/2011 at 5:15 AM Accepted
    hey adspiker ..

    The concept of fighter brand is always an interesting one. However any decision has to be based on some of the basic information (if available)

    - What is the proposed difference in the price (presuming the only difference in quality is the extended warranty)

    - What is your estimated market share and the market share of your competitor who competes in the lower priced category.

    - How much extra revenue (and lost revenue due to customer conversion to the lower priced product) do you anticipate.

    There should help to give you a top line view of the situation. In my opinion if the market size of the lower priced product is significant (say $1bn) and you aim to capture a 15% market share (150m) in revenue. Even if 10% of your customer switched to the lower priced product, it will still be a positive cash flow.

    British Airways fighter brand (Go!) to compete with low cost carrier was a failed case of fighter brand however Intel Celeron processor as a fighter brand to Intel Pentium processor was a huge success.

    However please note all of this has to carefully thought out in strategic objectives and not merely a short term cash flow case, as any fighter brand, if not properly administered, runs a huge risk of brand dilution and loss of brand image developed over number of years.

    It will be interesting to see what the real Gurus think on the issue.

    Regards,
    Danish
  • Posted on 3/13/2011 at 8:55 AM Accepted
    Each situation is different. There is no example or set of examples that will serve as case studies for you to follow.

    What you need to do is find a consultant who has been through this drill before and knows the questions to ask, the calculations and assumptions to make, and the research/analytics that will lead to a sound business decision.

    And don't underestimate the value of the brand franchise for your current brand. While the physical product may not have any clear differentiating characteristics, the BRAND may have real value -- not to be minimized.

    Finally, there may be some other ways to manage product features that will help you separate the current brand from the [new] price-fighter brand. (We've done that several times, and it proved to be effective.)

    Don't immediately conclude that this is a bad idea. It MAY be, but from what you've told us so far, it's probably premature to draw that conclusion.
  • Posted by adspiker on 3/13/2011 at 1:31 PM Author
    Thank you all!
  • Posted by cookmarketing@gmail. on 3/13/2011 at 8:20 PM Member
    With $200M with a single product? WOW!!! Forget the basics and wonder why you have not been 'knocked-off" yet (unless proprietary)? Perhaps your company may be doing the correct thing but inadvertently
  • Posted by lstevens on 3/25/2011 at 3:35 PM Member
    I vaguely recall that there are studies that show adding a lower-priced item to a line can spur sales of the higher-price item. The lower priced item needs to be positioned so that the higher-priced item appears to be a greater value. Think of it this way: Was Apple's brand equity degraded by the introduction of the iPod Nano or Shuffle? The additional features in the step-ups justify the price difference between the products.
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